Summer reading: Economics
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Fragile by Design: The Political Origins of Banking Crises and Scarce Credit, by Charles W Calomiris and Stephen H Haber, Princeton University Press, RRP£24.95/$35
We get the banking systems we deserve or, more precisely, that our political systems choose. The US has had 12 systemic banking crises since 1840, while Canada has had none. In some cases, therefore, the outcome of political bargaining is stability and in other apparently not dissimilar cases it is instability. Better awareness of how the political forces work might lead to superior bargains. But this informative book does not leave the reader optimistic. It is hard to shift bad political equilibria.
Shredded: Inside RBS, the Bank that Broke Britain, by Ian Fraser, Birlinn, RRP£25
RBS, briefly the biggest bank in the world, was a rogue bank. In this gripping account, Fraser explains how this was allowed to happen. Evidently, the management – above all chief executive Fred Goodwin – bears immediate responsibility for the grotesque hubris and incompetence displayed but so, too, do the regulators and politicians. RBS was a rogue business, operating in what had become a rogue industry, with the connivance of government. Read it and weep.
Stress Test: Reflections on Financial Crises, by Timothy Geithner, Random House Business, RRP£25/ Crown, RRP$35
Geithner was president of the Federal Reserve Bank of New York and then Treasury secretary to Barack Obama through the worst years of the global financial crisis. His book offers a lively account of what this experience felt like. Geithner also argues that the way the US handled the crisis and particularly its use of stress tests is a model for crisis management in future. Sadly, he also believes that crises are sure to recur.
European Spring: Why our Economies and Politics are in a Mess and How to Put Them Right, by Philippe Legrain, CB Books, RRP£12.99/$14.99
A splendid book on the European malaise. Legrain argues compellingly that policy makers’ response to that crisis was and remains a disaster. He warns that the eurozone is still far from healthy and that the German example, which members are supposed to follow, is a delusion. He notes, too, that the UK’s recovery is built on sand. He goes well beyond this to show that radical reforms are needed to produce an “adaptable, dynamic and decent” Europe.
House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent it from Happening Again, by Atif Mian and Amir Sufi, University of Chicago Press, RRP£18/$26
In this important book, Professors Mian and Sufi argue that “economic disasters are almost always preceded by a large increase in household debt”. It is debatable whether this is a universal truth. But it is certainly true of the financial crisis of 2007-08. The authors argue, persuasively, for a shift from traditional debt towards contracts that share losses between the suppliers and users of finance.
War: What is it Good for? The Role of Conflict in Civilisation, from Primates to Robots, by Ian Morris, Profile, RRP£25/ Farrar, Straus and Giroux, RRP$30
In this remarkable book, historian Morris argues not only that war is a source of technological advance but that it brings peace. Through war, more powerful and effective states emerge and these in turn do not merely offer the blessings of peace, but impose it. The thesis is disturbingly persuasive. But, in a nuclear age, the great powers will have to try something else.
Capital in the Twenty-First Century, by Thomas Piketty translated by Arthur Goldhammer, Harvard University Press, RRP£29.95/ Belknap Press, RRP$39.95
The blockbuster success of the year. Despite the controversies surrounding it, the book throws much light upon one of the most important questions in economics: what determines the distribution of income and wealth. With a wealth of data and some simple and powerful theories, Piketty has transformed the debate. This is an immensely important contribution to public understanding and political debate.
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