Riding Out The Crisis With A Few Good Books.(International Edition; SOCIETY & THE ARTS)

Byline: Andrew Bast

Nobody asks a doctor for a diagnosis in the middle of surgery. Likewise, it seems unreasonable to expect that the current global economic crisis can be understood or explained now, as we struggle to grasp its full magnitude. Back in March, U.S. Treasury Secretary Henry Paulson proposed his own early overhaul with a qualification: "This blueprint addresses complex, long-term issues that should not be decided in the midst of stressful situations." Now comes a spate of timely new books offering their own creative blueprints for understanding--and fixing--the mess.

The mechanics of book publishing involves a long lag time--authors often deliver manuscripts nearly a year before books hit store shelves--so one thing these titles share is the good fortune of good timing. They include an analyst's argument for a new economic theory, a columnist's call for revitalized local currencies and a novelist's investigation into the human dynamics of debt. Together, they offer remedies for a global economy has evolved into an inherently volatile system, where stability is an aberration and instability has become the norm.

Any discussion must begin with the fundamentals. George Cooper, a fixed-market analyst in London, finished his eerily entertaining "The Origin of Financial Crises: Central Banks, Credit Bubbles and the Efficient Market Fallacy" in April. He makes regular reference to the failure of Bear Stearns and Northern Rock, but also cites sky-high commodity prices, showing how radically things changed in six months. Cooper digs into the most basic of economic principles--efficient markets--and argues that the theory of natural equilibrium is wrong; markets are, at their core, unstable. He cites as evidence the justifications regularly invoked for NASDAQ's inflated prices before the tech bubble burst. "The intellectual contortions required to rationalize all of these prices beggars belief," he writes. Such rationalizations continue today.

Cooper's solution advocates a return to the theories of John Maynard Keynes: namely, that economic markets possess internal forces that are essentially destabilizing, resulting in waves of credit expansion and asset inflation. Policy inconsistently swings with, not against, bubbles. "As a rule we favor capitalism in an expansion and socialism in a contraction," he argues.

Thus, Cooper targets central banks. Creating credit with low interest rates makes people rich, he writes, but it also spawns constant uncertainty. Central banks have to do what has become unthinkable: slow down the economy. "We should move beyond considering all economic contractions as symptomatic of ...