The number of pages now published on the global financial crisis is immense, and will be larger still when we have the Greek default and its dire consequences for the Euro to chew over as well.

Meanwhile, here is a slender volume which focuses on the most fundamental issues. The Squam Lake Report is the work of 15 of the US's most distinguished and simultaneously non-partisan, open-minded financial economists. They include for example behavioural finance expert Robert Shiller and Raghuram Rajan (who issued early warnings of impending crisis). All have experience of the world of practical policy.

The report starts by analysing the fundamental conditions which led to the crash. It pinpoints four: conflicts of interest within banking (under the spotlight in the case against Goldman Sachs brought by the SEC); an absence of bankruptcy procedures in the financial sector; inadequate regulation in that it focused only on individual firms, not systemic risk; and the scope for bank runs, not prevented by retail deposit protection.

There are quite a number of specific recommendations, derived from two basic principles. The first is the need for systemic as well as firm-by-firm regulation, such as capital requirements linked to the degree of risk a large financial institution poses for the rest of the system.

The second principle is the need to internalize the costs of failure so that they won't in future be landed on taxpayers in bailouts. The creation of bankruptcy and resolution procedures is a central concern.

For such a short book, there's a lot of detail as well. For example, one chapter suggests limitations on pay – not the level of bankers' bonuses, but the structure (deferring bonuses for some years). Another looks at the need to protect retirement savings invested in financial markets, as well as protecting retail depositors. I think it underplays the lack of competition in the financial sector and also overlooks the arguments about lobbying power made by Simon Johnson (see his new book 13 Bankers) – perhaps overstated, but worth consideration.

Still, it's packed with useful stuff. For me it highlights an important point, which is that there's no single silver bullet solution to the problems in the financial system exposed by the crisis. These are very appealing: just force banks to choose whether they're narrow banks or casino banks; just ban or tax bonuses. Unfortunately, picking our way through the debris of the global financial system will be more complicated. But The Squam Lake Report has a lot of good ideas about how to go about it.

Paul Collier's new book The Plundered Planet has been widely reviewed, albeit with less universal enthusiasm than his last one, the terrific The Bottom Billion.

Richard Girling in The Sunday Times is positive about the new book and concludes:

For finance ministers the
world over, it is a must-read. It is a must-read, too, for the peasant-in-aspic romantics and
ideologues who
block the road to a well-fed, more equitable and sustainable future.
Green
means nuclear power and genetically modified crops. It’s not a message
that
will be universally welcomed, but it is one that deserves to be
universally
understood.

But John Vidal in the Guardian thinks Collier is too much of an economist to be let loose on environmental policies. He says Collier sets out:

a set of neo-liberal economic proposals that seems to boil down to
the poorest countries having to open themselves up for exploitation
further and faster, and take responsibility for the climate change which
they did not cause…… What we get is a
regurgitation of the politically convenient opinions of rich governments
and institutions who fete him [ie Collier].

My guess is that many environmentalists will agree with the latter. Economists and environmentalists think in fundamentally different ways. Environmentalists extrapolate trends and urge us to change our behaviour. Economists consider that unsustainable trends will lead ot changes in behaviour because they won't be sustained, as their effects will create the incentives for change. Irreconcilable.

James Buchan has reviewed War Games, the new book about the aid industry by war correspondent Linda Polman. According to the review,

What concerns her in this short book is the unintended consequences of
their efforts. By pouring money and goods into devastated regions,
foreign aid workers sometimes compound the disruption and debauch the
survivors.

She writes that the vast amount of money spent on aid turns the aid industry, “[S]upposedly neutral and unbiased, into a potentially
lethal force the belligerents need to enlist.”

Polman's book, which I haven't yet read, joins a growing literature challenging the conventional wisdom that aid is always good even if sometimes ineffective. The earliest arguments were made by Peter Bauer – an overview can be found in the essay collection From Subsistence to Exchange. But for years he was a lone voice. It's only in the past few years that the chorus of concern about the impact of the aid business has grown. In Dead Aid, Dambisa Moyo argued that the flow of money corrupts governments and destroys recipient economies. Bill Easterly, author of White Man's Burden and the earlier The Elusive Quest for Growth has made a career now out of challenging the aid agencies to become more effective, transparent and open to debate about the consequences of their interventions. It's time this multi-billion dollar sector recognised that in future aid will have to become properly accountable.

This seems an appropriate day to review Philip Blond's Red Tory. Blond runs the think tank ResPublica which has arrived recently with a splash on the policy scene. He's said to have influenced the Conservatives' 'Big Society' idea, but his book seems to me to have had an influence across the spectrum. The division his ideas speak to isn't the opposition between left and right so much as that between communitarian and libertarian.

However, he's greatly disliked by some on the left: in the London Review of Books recently, Jonathan Raban accused him of basing his ideas on thinkers who influenced Mussolini, in a bitter and even mean-spirited review (for example, writing “Blond writes a kind of polytechnic prose in which the various jargons of philosophy, sociology, economics and tehology are churned together as in a concrete mixer.” It's certainly not that bad!)

So this is definitely a book you need to read yourself if you want more than the reviewer's politics reheated. I think it amply repays the time for anyone interested in the policy challenges ahead. Whoever is prime minister of the UK after today's election will need to find ways of maintaining social welfare and tackling social divisions all agree on (see for example Danny Dorling's Injustice, reviewed here recently) while cutting government budget deficits by an unprecedented amount. The government won't be able to do all it has been accustomed to – what will fill the gap?

Blond's argument is in part a traditional conservative one, that expanding government provision of social support of many kinds has created a spirit of dependency and undermined traditional sources of support such as families, churches and local communities. He combines this with advocacy of greater economic egalitarianism including a more progressive tax burden and the creation of assets for low-income households. For example, one suggestion is that the payment of housing benefit for those without jobs could be structured so it pays for a growing equity stake in their home.

Public services will need to rediscover professional responsibility as past reforms have been woeful in their lack of impact on productivity and outcomes. The economy needs a more vigorous competition policy in order to make it work better for consumers – especially in banking. Like many on the left, he dislikes the emphasis on economic individualism that has characterised policy since the Thatcher/Reagan era:

“An anarchic market, that has abandoned trust and eschewed any ethos of the public good, requires a huge state bureaucracy to monitor it and enforce contracts and compliance. The costs of this audit state are enormous.”

Many people of various political persuasions would agree. Red Tory has a proliferation of policy ideas, some more sensible or appealing than others, some seeming to fit naturally into Conservative politics, others more naturally Labour or LibDem.

The underlying philosophy, with its emphasis on restoring the role of civil society in place of government, seems to me firmly in the tradition of communitarian thinkers. Blond doesn't cite Michael Sandel, but his Justice is one book I've read recently with echoes of this kind of argument. Personally, I'm more of a libertarian and fine Amartya Sen's The Idea of Justice a more appealing guide to political philosophy. However, the question of what will replace government in the way we organize the economy and social support is an important one. In a way it's surprising there haven't been more books on this theme. So Red Tory is a good place to start.

Taking Economics Seriously by Dean Baker, started life as an essay in the excellent Boston Review and has been turned into a model of the kind of small book which has recently emerged as a new publishing phenomenon, an updated version of the provocative pamphlet. It's tightly-argued, thought-provoking and the perfect length for a plane or train journey.

Baker challenges us to take the principles of economics seriously and apply them to important markets. There's no intrinsic problem with economic theory, he argues – a rather contrarian line these post-crash days, but I heartily agree. The problem is that when economic principles clash with entrenched and powerful corporate interests, monopoly power has always won. He argues that in some markets and industries which are now heavily regulated in favour of corporate power (specifically finance, software and recording companies protected by patent and copyright law, and pharmaceuticals) the market needs boosting rather than taming.

His central point is that all markets are regulated, and what distinguishes political attitudes to regulation is whose interests the rules favour: “Calls for deregulation have been cover for rules tilted starkly towards corporate interests.” (p2)

This argument is illustrated with the specific examples. The arguments about increasingly aggressive and intrusive copyright and patent protection have become increasingly familiar – James Boyle The Public Domain is an excellent guide to the debate. Baker covers this territory concisely and effectively. When it comes to banking, he convincingly makes the case that financial regulation has subsidized a handful of big institutions to an extraordinary degree, and allowed them to stifle competition. He is scornful about bankers' assertions that increased regulation now will harm enterprise: “The industry wants government regulation, just not in a way that curtails its profits.” (p52) He advocates breaking up big banks so they are no longer 'too big to fail', and suggests $50bn in assets as the point beyond which there are no economies of scale – only the advantages of market power – to be gained. I couldn't agree more, having looked at the role of competition in EU banking with some distinguished co-authors in Bailing Out the Banks? The chairman of the UK's Competition Commission agrees too. And Simon Johnson of MIT penned a biting attack on bang bank power, The Quiet Coup, in last May's Atlantic.

I enjoyed the chapters on these big beasts, but the real eye opener is Baker's chapter on the pharmaceuticals industry. I've always been aware of the regulatory barriers to entry in pharmaceuticals, given the stringency with which new drugs and interventions are tested. But one thinks of this as inevitable. However, Baker points out the extensive regulatory protection the industry gets (and some of this is US-specific – the rest of us are well aware of the inadequacy and inefficiency of the American healthcare system).

Above all, he makes the point that the industrial structure rules out marginal cost pricing. Drug development costs are high but marginal production costs are low. Prices charged for on-patent drugs are much higher than marginal cost to recover the upfront investment. This makes some policy and personal decisions agonizing. Is it worth paying hundreds or thousands or even hundreds of thousands of dollars or pounds for a new anti-cancer drug which might extend the patient's life somewhat, when it will either ruin the family finances or blow the hospital's budget for the treatment of other patients? But these dilemmas would be greatly mitigated with a different regulatory and financial structure. After all, in all countries,  including the US through Medicare and Medicaid, the government is paying the bill. So why don't we have systems that allow price to be set equal to marginal cost? Already governments fund a great deal of the basic medical research on which pharma companies piggy-back. Rather than granting patents for specific drugs as the way to incentivize new medicines, why not fund drugs before they are developed? The same logic applies to expensive new equipment and tests. Either way, society pays the costs, mediated through the government health system or a highly regulated insurance system. Better to pay in a way that allows price to equal marginal cost. Only the huge pharma giants would suffer.

Does this strike you as a crazy idea? Prove your intellectual curiosity by reading this book? Does it strike you, as it did me, as an illuminating idea pointing to the possibility of an important regulatory and policy reform at a time when there will be enormous pressure on health budgets? Then read it too. For me economics has always been defined as the subject which embodies in the context of social organization David Hume's application of reasoned scepticism to evidence. Dean Baker's book is wholly in that Enlightenment spirit.