Mervyn King's new book on the financial crisis and its aftermath is not what you might have expected from the former head of the Bank of England -- from an official, that is, who played a crucial role before, during and after the crash. "The End of Alchemy: Money, Banking, and the Future of the Global Economy" isn't a memoir. There's no blow-by-blow narrative and no attempt by the author to justify what he did or failed to do. It's more ambitious and more daring than that.
The book asks deep, difficult questions about the theory and practice of finance and economics, and comes up with interesting answers every time. They're sobering answers too, in many cases, because they show how hard it will be for policy makers to avoid the next crisis. The title of the last chapter -- "The audacity of pessimism" -- is all too apt.
The central idea is "radical uncertainty," meaning the kind of uncertainty that statistical analysis can't deal with. For risks you can precisely define and measure against historical data, you can calculate probabilities. That's why the risk your house will burn down, for instance, is easily insurable.