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Sylvia Nasar, Grand Pursuit: The Story of Economic Genius. Simon & Schuster, 2011.
I’ve been carrying around my copy of Grand Pursuit for a couple of months — it’s been my “airplane book” as I’ve traveled to give book talks. It has been perfect for this because each chapter tells a clear story and it is easy to pick up, set down, and return to once again. And now I’ve finally found time to finish it.
A Puzzle with One Piece Missing
Or almost finish it, because mine is an “advanced reader’s edition” — basically the uncorrected page proofs — sent out to reviewers ahead of the official release. It isn’t necessarily the final edition — the author can still change a thing or two before the final book goes to press
Or, as in this case, the author can actually finish the book after the review copies have been put in the mail. The last six pages of my edition, marked “epilogue,” are left intentionally blank to accommodate a last minute addition that I imagine ties the book’s themes tightly to current events, setting the hook as a fisherman might say
I guess I could go to the library and read these last few pages — it wouldn’t take much time — but since I’ve read the rest of the book I ought to be able to guess what Nasar says in the end.
A Book About the 90 Percent
Nasar starts and ends Grand Pursuit with a reference to the economic plight of the 90 percent — stated initially in a quote from Edmund Burke regarding the misery of the “nine Parts in ten of the whole Race of Mankind.” The final page of my edition returns to the “nine parts” theme with a comment made in reference to Amartya Sen’s work on poverty. I take this as a sign that the book is meant to address the “grand pursuit” to eliminate want and achieve prosperity for the majority of the world’s population.
This theme is either advanced or interrupted, depending upon your point of view, by Nasar’s decision to tell it through the lives of “economic genius” in the persons of Marx and Engels, Alfred Marshall, Beatrice Web, Keynes, Schumpeter and Hayek, Irving Fisher, Milton Friedman, Paul Samuelson, Joan Robinson and the already mentioned Sen. None of these “lives of the saints” (and the sinners) is comprehensive, but how could they be? Skidelsky’s three volume biography of Keynes runs well over two thousand pages. It is impossible to do complete justice to all the people and events found here in only about 500 pages. So compromises must be made.
Striking a Balance
Nasar’s extended biographical sketches actually pass my test for decent popular work. In the cases where I already knew a lot (Keynes, for example) I found the text somewhat superficial and I wanted more. But I think I learned a lot about the people with whom I was less familiar.
That suggests that Nasar has struck a good compromise between depth and breadth (although it doesn’t guarantee that she is always even handed or picks the events and ideas that I would have highlighted).
But this really isn’t the story of the economic geniuses or even their genius (which would be a history of economic theory, which this book clearly is not). Rather, and against the odds, it really is a history of the “grand pursuit” of broadly shared economic prosperity — the welfare of the 90 percent.
And, of course, it is an unfinished pursuit. The Occupy Wall Streeters may not have everything right, but they do have this. Much has been accomplished, I truly believe this, but it has come against the background of false starts, false gods, false optimism and false pride. (After all, the geniuses are only human.)
As Nasar proclaims on the first page, the idea that “humanity could turn tables on economic necessity — mastering rather than being enslaved by material circumstances” is audacious when set in historical context. The pursuit of this goal is grand, indeed.
Harold James, The Creation and Destruction of Value: The Globalization Cycle. Harvard University Press, 2009.
Princeton Professor Harold James is the author of one of my favorite globalization books, The End of Globalization: Lessons from the Great Depression (2001), so I was excited to learn about his new book on the economic crisis. James is unique in his deep understanding of how financial crisis pushed globalization over the edge in the 1930s and how the current crisis compares with that devastating experience.
I know of only one person who might be James’s equal in this regard: his name is Ben and he works for the Federal Reserve. Since Bernanke isn’t free to write books about the crisis just yet, James is my go-to-guy for deep insights.
And I am not disappointed. Each chapter provides key ideas and raises questions that will draw me back to re-read this book. James’s comparison between the Crash of 2008 and the crises of 1929 and 1931, for example, helped me understand both the recent past and the Great Depression much more clearly. His chapter on the chronology of the crisis is well crafted and broadly useful. I guess I am especially drawn to the last two chapters, however, which look at power and values.
Major financial crises really shake things up. In the penultimate chapter James considers how power will shift in the international system. Will the US retain its strong position or will China or the EU rise to fill the void. James’s wise analysis reminds me of Paul Kennedy’s writings of 20 years ago — informed and useful, raising many questions.
The final chapter on values is very thought-provoking. The collapse of values leaves people confused about whom and what to trust. This is true about market values, which is what the chapters mainly discusses, but also about values more generally, which is how James concludes the book.
Regaining trust is a long and arduous process. That is why when globalization is broken, it is not easy to put it back together again. We will look for communities of virtue, but inevitably we will not find them at once. And the globalization cycle will resume, but not immediately (page 277).
James is right about this, as I argue in Globaloney 2.0. Globalization will come back, but not in the same form. Market values will come back first (see the stock market’s recent surge) but faith in broader values will not be so easily restored.
Robert Skidelsky, Keynes: The Return of the Master (Why, Sixty Years After his Death, John Maynard Keynes is the Most Important Economic Thinker for America). Public Affairs, 2009.
Skidelsky’s new book argues that Keynes is incredibly relevant in today’s world of financial and economic crisis. Hard to disagree with that, although some obviously do. My new Globaloney 2.0 explicitly draws upon a few of Keynes’s writings that I think are essential to understanding today’s situation and the future of globalization. So I couldn’t wait to see what Skidelsky has to say.
Robert Skidelsky is John Maynard Keynes’s foremost biographer — I have read and given glowing reviews to all three volumes of his Keynes biography trilogy and to the weighty all-in-one final book, too. Great research, beautiful writing — Skidelsky on Keynes is just fascinating.
What would Keynes do?
What would Keynes say about today’s crisis if he were alive today? That’s a tricky question, because Keynes was very pragmatic within the framework of a few strong principles. He wouldn’t say the same thing today as he did back in the 1930s — the situation is different, and so his pragmatic side would prevent a strictly doctrinaire response. You’ve got to go back to first principles, and that’s what Skidelsky tries to do.
The most important idea here is Keynes’s understanding of uncertainty. Dick Cheney famous said that there are four kinds of knowledge: known knowns, unknown knowns, known unknowns and unknown unknowns. Keynes was interested in the last two categories. Known unknowns represent risks that it is possible to assess relatively accurately and hedge against. You can calculate the odds and place your bets. But there are other circumstances where there will never be enough information to know the odds — unknown unkowns in the Cheney lexicon, or simply a more profound concept of uncertainty to people like you and me who lack Cheney’s poetic bent.
The problem, in this view, is that the financial markets confused risk (known unknowns) with the deeper uncertainty (where the odds can never truly be known). The Crash of 2008 is the obvious result.
Now that I have your attention …
I agree with this assessment — in Globaloney 2.0 I call this concept “Financial Globaloney” — the idea that global financial markets are somehow “safe as houses” (irony intended since it was the housing market that was the focus of much unwise speculation); all the risk cannot be calculated and filed away. Thinking you know the unknown unknowns will kill you.
Once Skidelsky has your attention with his analysis of Keynesian uncertainty he takes you on a guided tour of Keynes’s principles and legacy more generally. I found this less interesting, I’m afraid, probably because I have read it before in the biographies and maybe because Skidelsky’s prose is a bit less elegant as he strains to make his points (although he still writes maybe ten times better than I do). Definitely worth reading as a contribution to the current debate and an appropriate tribute to Keynes.
[Note: In Britain the long sub-subtitle of this book says that Keynes is "... the Most Important Economic Thinker for the World." Apparently the U.S. publisher doesn't think Americans are interested in the world, so the title was changed to "... for America." Perhaps they are right, but I'd like to think otherwise. The first Harry Potter book was called Harry Potter and the Philosopher's Stone in the UK but changed to Sorcerer's Stone for the US market. I guess Americans are not interested in or willing to buy books about either philosophy or the world. Pity, that.]
I am reading through a stack of new books about the Crash of 2008 and the lessons to be learned from it and I’m having a bad case of déjà vu.
Lessons of History
Back in the early 1990s everyone was writing books about America’s fall from power (Japan was kicking out butt — remember?). Paul Kennedy’s The Rise and Fall of the Great Powers was a best seller, proving that people would pay good money to read hundreds of pages of European history if they thought there was a chance it would help them understand why their paychecks weren’t keeping up with inflation.
Many others contributed to the discussion. I even wrote a book, Mountains of Debt, that attracted some attention.
Looking back I now recognize that we all approached the problem in pretty much the same way. We retold a section of history (recent history in some cases, ancient history in others), including and omitting facts and events in order to advance our particular viewpoint.
Why History Works
It got pretty tiresome after a while visiting and revisiting the same potholed patch of road, but it worked. History is really the study of change and the historical approach is the most useful one in transitional times. Now for example.
I’ve copied a couple of posts from my book review website to start a series on the Crash of 2008. I’ll add more in the coming weeks. Each book tells the same story in a different way, making a different point. Hopefully this will help you decide which books you want to read.
You’ll find my account of the Crash of 2008 in two chapters of Globaloney 2.0. Chapter 2 “Financial Globaloney: Safe as Houses” identifies several principles of “Financial Globaloney” that I argue helped blow up the bubble and contributed to bust.
Then, in Chapter 3 “The Crash of 2008 and the Global Market Myth” I tell the story of the crash in terms of the seven stages of financial crises, stressing the importance of Financial Globaloney.
I think my argument makes sense, but then I’m the author. I’ll be interested to see what people have to say when Globaloney 2.0 is published later this year.
Paul Krugman, The Return of Depression Economics and the Crash of 2008. Norton, 1999, 2009.
This book is a very substantial revision of a 1999 volume called The Return of Depressions Economics. The title was meant to shock in 1999. Financial crises like Thailand’s or deep persistent slumps like Japan’s — they couldn’t happen here, could they? Krugman wanted to wake up policy makers to the fragility of the financial system and the idea that financial crisis could lead to depression-style economic crisis. No one will be shocked by the title today, ten years later.
I have used this book in my classes continuously since it was first published, although my spin on it has evolved as economic conditions have changed. Krugman’s revision is pretty much in line with the way I taught this material last semester. I take this to mean that I have not entirely misread the world has we have moved towards this point, although I obviously do not claim Krugman’s expertise. Or maybe we both misread it the same way. Time will tell.
Not everyone will be happy with the way the book is organized. Krugman saves his analysis of the current crisis until the final chapters and I think many readers will want to see this material earlier. But I am on Krugman’s side. It seems to me that you really do need to understand the financial crises of the last twenty years in order to appreciate our current situation. Those who don’t understand history are doomed to repeat it, they say. The crises in Japan, Mexico, Thailand, Hong Kong, Russia and Argentina give Krugman an opportunity to introduce key theories and concepts in a real world context that is highly relevant to the final analysis.
Not everyone will like the end of the book, either, where Krugman provides policy recommendation. Many readers will be looking for very detailed proposals from the most recent Nobel winner instead of broad outlines, but is that fair to ask? Events move too quickly now; the situation is so fluid. Krugman’s three-part plan (large-scale capital infusions to stop the financial crisis, large-scale fiscal stimulus to end the economic slump, reformed financial regulation to extend bank-type controls to bank-like institutions) makes sense now and will probably be seen to make sense when we look back upon them in ten years.
One thing that I missed was a fuller discussion of capital controls. Krugman talked in more detail about controls on destabilizing hot money movements in the earlier volume and comes very close to endorsing them here, at least in emergency situations. But he doesn’t really make the case. You can’t please everyone, I guess.
There are many good moments in the book, including the analysis of the Greenspan years and the housing bubble and the discussion of hedge funds and the rise of unregulated non-bank banks. And there was one scary moment for me. Reading the first paragraph of the last chapter I immediately recognized the words. Where had I read them before? “The world economy is not in depression; it probably won’t fall into depression …” (my emphasis added).
Oh, yes. They are exactly the same words he in this same place in the book used ten years ago.
George A. Akerlof and Robert J Shiller, Animal Spirits: How Human Psychology Drives the Economy and Why it Matters to Global Capitalism. Princeton University Press, 2009.
Freakonomics redefined the popular economics book genre. This runaway best-seller created a niche for an economics book that could speak seriously to the masses (the serious mass, if that isn’t some sort of oxymoron) and get them to rethink both economics (particularly microeconomics) and their view of the world. It was a great if uneven read, I said in my review, but kinda pointless. I thought the authors missed a good opportunity to criticize policymakers and pundits for their uncritical acceptance of conventional wisdom and the harm this has caused. Instead they just let the many and varied examples and case studies speak for themselves. Too bad.
Animal Spirits is a sort of macroeconomic Freakonomics but with one difference. It has a point. Many points, in fact. More about this later.
Ackerlof and Schiller are as distinguised as you can get in economics. Ackerloff won the 2001 Nobel Prize in Economics for his work on how economies actually work in the messy, inconvenient real world (think “The Market for Lemons”). Schiller is famous for Irrational Exuberance and his studies of unstable financial markets. Smart guys.
Animal Spirits is a book about how individual feelings and attitudes, which are not always strictly rational, matter in macroeconomics and how ignoring them has helped put us in the current financial and economic hole. Most people associate the term “animal spirits” with Keynes (animal spirits, he said, are what drive the stock markets) and sure enough Keynes and his ideas make frequent appearance here.
The organization of the book is clear enough. The authors begin with short chapters about five flavors of animal spirits — confidence, fairness, dishonesty, money illusion and the particular power of stories to shape human attitudes and behavior) and then apply these concepts to eight questions, including why do economies fall into depression, how can the current financial crisis be solved and why are there booms and busts in real estate markets? As you can see, this is a book that asks a lot of big questions and promises a lot of big answers.
There are several problems, not least of which is that it is difficult to answer all these questions in a slim volume like this one and especially hard to make all of the answers depend critically and specifically on animal spirits (although this main point is well argued, especially concerning the importance of fairness in economic decisions). Animal Spirits makes lots of points along the way — maybe too many of them? — and in doing so seems to sometimes lose track of its audience.
Who is this book for? Is it for professional economists who will be interested in rethinking longstanding intellectual debates within the profession? Is it for investors who need to understand how markets really work? Is it for ordinary citizens who just want a better idea of how we got into this mess and where we can go from here? The answer is that the authors seem to address many different potential audiences and therefore risk losing some or all of them. A pity.
If you can judge a book by its cover (I know, I know) then this book is for New Yorker readers — serious readers who will recognize the distinctive Edward Koren cartoons that decorate the wrapper. I suppose that’s as good a target audience as any.
Is this the macroeconomic Freakonomics? No, but it’s a good book for befuddled economics-literate people like me. And maybe you, too.