I noticed from an Economic Principals blog post that the FT's Gillian Tett now has the title and cover design for her book on the financial catastrophe – it will be called Fool's Gold, out later this year. In my distant days as an economics journalist on The Independent, Gillian was on the same beat for the FT, and brought to her reporting the perspective of her PhD in anthropology. It makes me certain her book will be an illuminating read.

“The Snowball —  Warren Buffett and the Business of Life” by Alice Schroeder. (Bloomsbury 2008)

By Nick Clack 

We live in times where the business hero is in decidedly short supply. The individual businessmen best known to the public are, at best, likely to be seen as greedy incompetents who have led the world to financial disaster. At worst they are fraudsters facing a prison term. Public resentment, even hatred of financiers, is now commonplace.
 
But then there is Warren Buffett.

Buffett holds a unique position in the business and investment world. He is synonymous with the accumulation of astonishing quantities of wealth and with the most material of gains. And yet, he is equally synonymous with honesty, integrity and fair-dealing. For many this is the big underlying paradox about Buffett. How can a man have made himself so rich and been so successful and yet not be a crook?

Alice Schroeder’s book gives answers; but fitting the style of Buffett himself, they aren’t facile or glib. They require time and patience.

The book is meticulously researched.  She has done the legwork and has also had the benefit of extraordinary access to Buffett and members of his circle. Schroeder used to be an analyst who followed Berkshire Hathaway and she says that it was Buffett himself who encouraged her to write the book. She claims she had around 300 hours of formal interview with Mr Buffett.

But, such access and approval from the subject of a biography raises the question as to whether she is too close to her subject; whether this is a sycophantic account. Well, my judgement is it is not.

Alice Schroeder says that Buffett himself said she should use “the less flattering version” when she came across conflicting accounts of his life. It is hard to be certain as to how much she did do this. But she has certainly avoided a hagiography.

The book is very readable and I was pleasantly surprised by how I wanted to pick it up and keep reading. It is written in a conventional chronological format and that helps. It is rarely technical and could appeal to anyone who has a regular interest in the business pages. It also benefits from humour. There are plenty of moments where I found myself smiling or even laughing out loud.  

The book highlights many contradictions in the Buffett story. He is a complex man and the brief sketches of him in the papers rarely do him justice.

One image of him is as this rather grandfatherly figure, a model of mid-western convention and stability. Someone who likes to keep it all “down home” and folksy and dislikes excess and vulgar display.

Well there clearly is some truth in that. But let’s also remember that the man who hates corporate excess is also the man who owns NetJets; a private executive jet business. The man who doesn’t like corporate show-offs, also clearly enjoys the most glamorous of company. And his private life certainly doesn’t fit a conventional image (Ms Schroeder has, perhaps understandably, been a little coy here). None of these things are necessarily bad, but they just highlight he is a complicated man.
 
The book is very strong on his early life. And I’m sure I won’t be the only reader to have been surprised to discover that his father was a Congressman. So again the reality is a little different to the common image. But one lesson that comes through is the sheer hard work that Warren Buffett put in during his early years. From an early age he worked hard. He also seems to have been obsessive in finding out information and understanding it. He was if you like the anorak’s anorak… reading prodigious amounts of technical financial reports. And the effort and, yes, intellectual analysis he put into his newspaper delivery rounds as a youngster are extraordinary. So this is a man that did the work and covered the miles; no short cuts.

For those hoping to find some magical insight into how to make billions, don’t get excited. I’ll save you the trouble. On page 825 (you have to work to get to this bit), Ms Schroeder quotes some handy advice for mere mortals… “…stocks are the things to own over time… There are only a few things you can do wrong. One is to buy and sell at the wrong time. Paying high fees is the other way to get killed. The best way to avoid both of these is to buy a low-cost index fund, and buy it over time.”   This quote highlights one of the great lessons I took from this book. An amateur investor cannot even remotely compete in financial markets with guys like Buffett and his many imitators. So personally, I will never again even try!

Certain key lessons are hammered home again and again. The long-term view, the “margin of safety”, the importance of good management, the importance of good faith and the avoidance of fads or crazes. It all sounds so simple, easy and unexciting. But it clearly isn’t easy or Buffett wouldn’t be so special.

Buffett himself is a fascinating character and I enjoyed being in his company for so long. Schroeder uses many lengthy quotes from her interviews with Buffett and they are well chosen, interesting and often entertaining. This gives the reader the illusion that they have spent some time in his company.  

The cast of characters who surround Buffett are often fascinating. For me one stands out, and that is his partner Charlie Munger. He comes over as a sort of financial Walter Matthau; I would love to meet him. The truly extraordinary furniture entrepreneur Rose Blumkin is another character deserving of the attention she receives. Hers is a story of the American dream, but the account of the non-compete clause Buffett felt he had to have with this elderly lady is a delicious detail.

In terms of problems with the book, the biggest is its sheer size. It is over 800 pages long and my hardback edition was certainly not the sort of thing you could read on the tube. Frankly, some of the details about his family, for instance concerning his first wife’s singing career, I could have done without. But, the book does zip along at a good pace and I didn’t skip at all.

So, what is the judgement on the book and the man?

The book is easy: an entertaining and fascinating read, exhaustively researched and authoritative. But it is a little too long. I am sure more detail about Buffett and his life will emerge in the coming years, but it is hard to believe this account will be bettered for a very long time.

The man is harder. In Alice Schroeder’s account he comes across as something of an oddball, an obsessive character. In terms of his wealth it is almost as though he has a collector’s impulse – he just happens to collect investments and money. But that doesn’t do justice to his intellect, judgement and method. His reputation for uncompromising integrity has been hard won over many years. Now that clearly doesn’t stop him from being a very tough businessman indeed. But it does mean he represents a kind of plain-speaking, fair-dealing approach to capitalism that displays a care for the long-term that is surely more relevant now than ever.

Nick Clack is a Media Consultant who advises companies and their most Senior Executives on their relations with the broadcast media. See www.clackmedia.com
     

Plenty of new books of interest in the OUP's spring catalogue, which reached me today (including notice of a sale of up to 20% off for buyers in the US,  use promo code 27610).

On markets and the current crisis, I picked out Managed by the Markets by Gerald E Davis, about how finance reshaped the US economy; a paperback edition of Trust and Honesty by Tamar Frankel, about social norms in American business culture; and Material Markets by Donald Mackenzie. Mackenzie is one of the few sociologists I've come across who focuses on financial markets and is a believer in the 'performativity' of financial economics ie that its content changes behavior to conform with the theory.

In development economics,  Fixing Failed States by Ashraf Ghani and Clare Lockhart stands out, and also the paperback edition of Paul Collier's marvellous The Bottom Billion. Jagdish Bhagwati and Gordon Hanson are the editors of a new volume on migration, Skilled Immigration Today. There's a collection of essays in honor of Amartya Sen, Arguments for a Better World. And finally under this grouping, a new Oxford Handbook of Economic Inequality.

Geoff Mulgan, who was head of policy for Tony Blair in No 10, has written The Art of Public Strategy. Not unrelated, in the theory field, there is a new Handbook of Rational and Social Choice, a subject area which I'm trying to get my head round at the moment, requiring damp towels and plentiful cups of coffee. Also in theory, the first volume of the collected papers of Joseph Stiglitz, on information economics.

A must for me will be Cities, Agglomeration and Spatial Equilibrium by the marvellous Ed Glaeser, who is a fantastically creative economist with a gift for revealing the power of the economist's approach to urban and social issues. The blurb does warn that this is a book for the mathematically inclined. I also like the look of Allen Scott's Social Economy of the Metropolis.

The Mirrlees Review, under the auspices of the Institute for Fiscal Studies,  is out as Tax By Design. Tax design is bound to become a much more important question empirically, as we all start to pick up the tab for the current surge in government spending.

There is a new happiness title, Capabilities and Happiness, edited by Luigino Bruni, which joins some strong backlist ones such as Happiness Quantified by Bernard Van Praag and Ada Ferrer-i-Carbonell and Exotic Preferences (great title for an economics book) by George Loewenstein.

Finally, not in the catalogue but one I picked up today at the bookshop in the Royal Institute of British Architecture (excellent cafe and bookshop there, for London-based readers) is Patrick Wright's On Living in an Old Country. It was published in 1985 by Verso but is just out this year as an Oxford paperback. A brilliant analysis of the salience of 'heritage' in modern Britain. His A Journey Through the Ruins on the social destruction caused by Thatcherism is also terrific, even for those who think that was a necessary side-effect of her modernisation of the economy.

In 1919 in  The Economic Consequences of the Peace, Keynes pointed out the danger of inflation: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.” In a talk called 'Saving and Spending' on the BBC in 1931 he warned of the danger of deflation: “Cheapness which is due to increased efficiency and skill in the arts of production is indeed a benefit. But cheapness which means the  ruin of the producer is one of the greatest economic disasters which can possibly occur.” (Both passages contained in Essays in Persuasion.) Given yesterday's conflicting inflation signals in the UK, supporting both the current camps (on the one hand that the recession is so deep it spells deflation, and on the other that government fiscal boosts are so big inflation is inevitable). If only Keynes had experienced stagflation and could tell us how to tackle it.

Looking up something on Roger Farmer's website (at the prompting of Timothy Taylor of the JEP) , I found a trailer for his forthcoming book (OUP this year), which sounds very timely. I liked his 'Macroeconomics of Self-Fulfilling Prophecies' which should have caught on more than it seemed to. Actually Prof Farmer has two books coming out, one more and one less technical. Here's what he says about the less technical one:

Confidence, Crashes and
Self-Fulfilling Prophecies: How to Prevent the Next Great Depression  Oxford University Press, 2009,
forthcoming.

Confidence, Crashes and Self-Fulfilling Prophecies:
translates the arguments of Expectations Employment and Prices into
English and should appeal to both academics and laypersons.  The book
begins by explaining how existing schools of economic thought developed in
response to previous crises and why established ideas cannot help us today.
I explain why confidence matters and  how a loss of confidence can lead
to a depression. I argue that the stock market crash in 2008 led households
and firms to cut back on spending. This in turn caused a dramatic rise in
unemployment that will persist unless we take collective action to correct
the problem. I argue that the Fed should directly support the stock market
by buying and selling mutual funds in addition to its historical role
of pegging the interest rate.