The MIT Press catalog for Fall 2009 is available now. The title that leapt out for me is Erik Brynjolfsson and Adam Sanders Wired for Innovation on the way information technologies have been turned by businesses into productivity improvements. Brynjolfsson has been a pioneer in understanding the transmission mechanism, as it were, for the effects of ICTs so I'm very excited to see it's coming out at book length. Another highlight is Jagdish Bhagwati and Alan Blinder on The Offshoring of American Jobs (with an introduction by my wonderful thesis adviser, Ben Friedman). I was also intrigued by Streetlights and Shadows by Gary Klein, on how we take decisions – looks like similar terrain to the Gladwell book but more serious. There's also Eli Berman on the economics of terrorism, Radical, Religious and Violent.

As always from the good folks at MIT Press, there are many titles on technology which appeal to the geek rather than the economist in me. These include the Castells et al volume on mobile communications which I haven't yet read but should, out now in paperback.

I've almost finished Nicholas Stern's Blueprint for a Safer Planet, his (relatively) popular version of the Stern Review of 2007 on climate change, and by chance got the latest email about a couple of rather climate-change-skeptical articles in World Economics. Some economists are amongst the most consistent and articulate critics of the fundamental Stern argument that we must sacrifice 1-2% of GDP a year immediately in order to avert the irreversible catastrophic effects (including economic effects) of climate change in future.

The economists' arguments against him fall broadly into three categories:

1) The science is less certain than received wisdom believes, and the economic modelling by the IPCC is flawed, so the Stern case is greatly over-stated. David Henderson is a leading advocate of this view and is author of one of the World Economics papers. I think Stern would simply reject it, although he doesn't address it directly in the book.

2) The amount that should be spent now to avert climate change isn't as high as Stern suggests because he overlooks the fact that future generations will be richer than we are due to economic growth, and better able to afford the actions needed.  Stern's main counter-argument is that irreversible and catastrophic increases in emissions will make future generations poorer in fact than we are. He also says these critics (who include William Nordhaus) use an inappropriate discount rate to make their calculations and should turn back to Meade-style applied policies that were in much wider use in the 1970s to determine an appropriate discount rate.

3) Finally, the other World Economics Paper, based on a Marshall Institute pamphlet by Bryan Buckley and Sergey Mityakov, argues that the avoidance and abatement costs proposed in current US climate change plans imply such a high loss of welfare that we need to be certain that the costs of climate change make it worth while. They, like Stern, estimate the ball park cost of action now to be 1% of GDP. They think this is large, whereas he thinks it is small.

The fundamental question it seems to me is whether or not the climate change under way is a game-changer. Will it fundamentally change the economic geography of the planet or not? If yes, the kind of cost-benefit trade-offs in these responses are irrelevant. If no, the urgency of taking action is somewhat alleviated. My experience talking to people I know in either business or personal contexts is that the economics arguments are academic in the sense that it has become the widely accepted view that we must all try to reduce CO2 emissions. Perhaps it's still different in the Exxon boardroom but business in general is committed to assessing and reducing environmental impacts – apart from anything else, it's a good discipline for saving money and increasing productivity. But it would be a mistake to dismiss the skeptical economists too. They are serious people whose arguments deserve serious engagement. In his book, Stern is too impatient and dismissove of them, I think. They do have political traction, apart from anything else.

The book is a mixed bag. It's an excellent overview of the issues, more concise and far less technical of course than the review. However, it assumes a fair amount of climate change knowledge – too many acronyms and calculations about CO2 concentrations which are far too dense. I also found it too evangelistic. This is a serious matter & I come done on Stern's side of the argument, but a calmer tone would have been more persuasive.

Niall Ferguson's The Ascent of Money was essentially written pre-crash but even so the grand historical sweep provides great background reading to our financial turmoil. Now PBS is about to show the series which was on Channel 4 in the UK a few months ago (the Channel 4 episodes are no longer on 4OD, UK readers). Transmission dates are July 8, 15, 22 and 29 (at 9pm ET). There's a preview on the PBS website along with an initial episode and a resources site also.

I failed to blog about the book when I read it, which was an oversight. It's well written, as one would expect from this distinguished historian – there is after all a reason he's an academic and media star. (I know some people are allergic to this kind of intellectual celebrity, but I admire successful popularisers in any discipline, and also interviewed Ferguson once for Radio 4 and found him delightful, not at all pompous.)

Much of the history of money presented here is familiar but it's no bad thing to see it set in the context of the very long run perspective, and also in the context of the unfamiliar aspectsas well. What's particularly interesting from today's vantage point is the emphasis Ferguson places on intellectual and technological innovation, which I agree is fundamental. Credit derivatives could not have existed without the ICT revolution of modern times. Recent innovations have placed money firmly in the weightless world. I also like the focus here on the distinction between risk and uncertainty, and the way crashes are due to mistakenly treating the latter as the former.

And as always, Ferguson emphasises the links between financial and economic events and the political and social turns taken by history. As he writes in the conclusion: “I remain more than ever convinced that, until we fully understand the origin of financial species, we shall never understand the fundamental truth about money: that far from being a 'monster that must be put back in its place', as the German president recently complained, financial markets are like the mirror of mankind, revealing every hour of every working day the way we value ourselves and the resources of the world around us. It is not the fault of the mirror if it reflects our blemishes as clearly as our beauty.”

Anyway, I enjoyed the book, but as it did seem to be written with a 4-part TV series in mind, thought the television version was just as good. Of course it omits some detail but does capture the hypotheses. So, worth watching, US readers. Otherwise, a good non-fiction read for the summer,  for non-economists too.

After posting on Gillian Tett's Fool's Gold, I chanced upon this article on
the Wharton website pinpointing the same kinds of cognitive lapse (made
by most economists as well as by financiers, the profs quoted here
argue). The article also cites the Dahlem report which also focuses on the intellectual blinkers of conventional economic analysis.

The
onset of the crisis prompted many commentators to blame economists, of
course. I think it's simplistic to say a dominant economic model
'caused' the crisis in any sense. If one has to pick out any single
cause, it would be the classic driver of crises, the self-feeding greed
of those actively engaged in the financial markets. Not that there
could be a single cause – history as ever is messily over-determined.

Nevertheless,
there's an interesting accumulation of evidence and argumentation about
the role played by the social structures of the economics profession in
shaping the intellectual landscape which shaped this financial crisis.
I still believe the Efficient Markets Hypothesis has its place –  in
particular in teaching us that active investors can't beat the market
except by chance (as Nassim Taleb has argued in his inimitable way in Black Swan and Eugene Fama has recently shown again in an empirical paper).
Although we should understand its limitations, conventional economists
must take seriously the lessons of recent events for our worldview.

One of my holiday reads (at the serious end of the spectrum) was Fool's Gold by Gillian Tett. It's an excellent overview of how the financial crisis came about, told through the lens of events at JP Morgan. Her hypothesis is that the drive to innovate, arising from both internal culture and competitive performance pressure against other investment banks, lay at the root of the credit derivatives and subprime bubble and bust.

There are two aspects of the book I particularly liked. One is that Gillian explains clearly what all the innovative derivatives were so that – albeit briefly – I understood the whats and whys of CDOs and SIVs. This in a highly readable book with plenty of anecdotal liveliness.

The other stems from her training as a social anthropolgist, which gives Fool's Gold an interesting external perspective on the behaviour of the investment bankers. For example, she explains that people operate within certain mental maps which make it impossible for them to appreciate that others might have a completely different perspective from them. To give one instance, people at JP Morgan who had introduced certain innovative financial instruments in a context of strict risk management could not imagine that others elsewhere would use the same instruments in a completely irresponsible way. Gillian has clearly spoken to many of the individuals involved, just as for a piece of serious fieldwork.

Even more striking is her observation that areas of silence in society reflect the disposition of power – and that there was almost total silence in the policy and political world about the explosion of credit derivatives and sub-prim mortgages. This chimes well with the thought-provoking recent article by Simon Johnson in The Atlantic, about the oligarchic power of investment banks in the US (and, although he doesn't specify, the UK too). The crisis was and still remains a crisis of power in western economies, just like earlier episodes of economic and financial upheaval such as the mid-70s.

Fool's Gold doesn't aim to give the full history of the events which led up to the collapse of Lehman Brothers and all the rest – in a way, JP Morgan is a slightly odd candidate to choose as a window on events, not being at the complete epicenter of scandalous risk-taking, greed and misselling. However, I highly recommend it as a terrific read with fascinating insights, and an absolute model of clarity. Gillian was a reporter on the economics beat when I was covering the same territory for the Independent – even then her quizzical anthropological eye was apparent. She's a great journalist and well-deserving of her acclaim in covering the financial markets.

Here is the New York Times review of the book – there are plenty of others.