Behind the alarming headlines about job losses, governmental incompetence, bailouts, and corporate greed is a little-known story of flawed ideas. For many decades, economists have been busy developing elegant theories of how markets work—how they facilitate innovation, wealth creation, and an efficient allocation of society's resources. But what about when they inevitably break down—when they lead to stock market bubbles, glaring inequality, polluted landscapes, and credit crunches?

In How Markets Fail, the longtime New Yorker staff writer John Cassidy describes the long shadow of "utopian economics"—a school of thought that is blind to how real people act and that denies the many ways an unregulated free market can produce disastrous unintended consequences. In a direct challenge to the neoliberal consensus, he posits the need for what he terms "reality-based economics"—a new understanding of the economy that casts aside the old assumptions that people and firms make decisions purely on the basis of rational self-interest. Taking the 2008 financial crisis as his starting point—and extending his argument to the present day in a new preface—Cassidy explores a world in which everybody is connected and social contagion is the norm. In such an environment, he shows, individual biases and quirks—overconfidence, envy, copycat behavior, and myopia—often give rise to troubling macroeconomic phenomena such as boom-and-bust oil prices, inflated executive pay, and real estate bubbles in cities and suburbs alike.

Combining on-the-ground reporting, clear and insightful analysis of economic theories, and even a bit of crystal-ball gazing, How Markets Fail is an indispensable guide to the irrational forces in the global economy and a warning that in a moment of crisis, adhering to antiquated orthodoxies isn't just misguided—it's downright dangerous.