In these difficult economic times, book launches have been thinner on the ground than was the case during the boom, at least for economics and politics books. So it was a treat to enjoy a glass of champagne and canape or two at the launch yesterday of Philip Blond's Red Tory, in the splendours of the Carlton Club. Like any arrival on the think tank scene, Blond's ResPublica makes claims to fresh and innovative ideas and generates controversy in equal proportion to its impact. There have been some rather bitter attacks on the book already. I'm intrigued by ResPublica – a mix of the old-fashioned and radical, hence the 'red Tory' tag – and will make my own mind up about the book. The blurb says:

“Red Toryism combines economic egalitarianism with social conservatism,
calling for an end to the monopolisation of society and the private
sphere by the state and the market. Decrying the legacy of both the
Labour and Conservative parties, Blond proposes a genuinely progressive
Conservatism that will restore social equality and revive British
culture. He calls for the strengthening of local communities and
economies, ending dispossession, redistribution of the tax burden and
restoration the nuclear family.”

Incidentally, I chatted to the publisher who really whetted my appetite for a forthcoming title, by the wonderful Francis Spufford, about central planning. His The Backroom Boys is one of the most enjoyable books I've read about technological innovation. Faber also has a new list of out-of-print works, Faber Finds, which makes them available using print-on-demand technology. The economics means a title needs sales of just 40 or 50 to be viable.

I'm not sure what to make of Vlatko Vedral's Decoding Reality: the universe as quantum information. This problem is mine, not the author's. Quantum theory is hard and my understanding of even this well-written pop science version of it is hazy.

Why, you might be wondering, am I reviewing a physics book here anyway? The reason is that Prof Vedral pitches information as the key to a Grand Unified Theory of absolutely everything, the economy and society as well as the universe. In this, he joins Hans Christian von Baeyer, another physicist whose book Information, The New Language of Science, was published in 2003. So there's something going on in the world of quantum physics if two leading scientists have tried to popularise this idea. And I have a hunch it might be related to another book I never understood properly either, Nicholas Georgescu-Roegen's The Entropy Law and the Economic Process, which considers the implications of thermodynamics for economics. An impenetrable book on an important subject.

Back to Decoding Reality. The first line of argument in the book is that information processing is a physical process. Whether it takes place in a brain or a computer, the laws of classical physics and – in later chapters – quantum physics must apply. This is why computers get hot and why thinking uses calories. The first and second laws of thermodynamics apply – the first says energy can't be created out of nothing, and the second (the entropy law) says the conversion occurs with less than perfect efficiency so that the degree of disorder increases. Over time energy will be dissipated to the environment, but in the short term we can control the rate at which this occurs. This creation of order out of disorder is information processing. “The higher the entropy of a system, the more information it carries.”

After a whiz through classical physics, Vedral applies the idea that everything can be understood as information processing to specific disciplines including evolutionary science and economics. The economics chapter is a bit disappointing. There's a bit of network theory, 'small worlds' models, Zipf's law and Schelling's segregation model, all of which are covered in more detail by other authors eg Philip Ball or Paul Ormerod. I also lost the plot here on what this had to do with thermodynamics, although Vedral concludes that entropy quantifies the degree of social connectedness or complexity of an economy.

Then part 2 turns to quantum physics and it only gets harder. The argument in this part is that the universe itself should be thought of as engaged in quantum information processing. Information, not energy, is the fundamental concept. Bits are the building blocks of the universe.

Because of quantum uncertainty – which means that a particle can be in more than one state simultaneously, before it is measured either directly by an observer or indirectly by contact with its environment – we are taken to the conclusion that information processing is not a solitary or internal activity. Instead, “The informational content of anything does not reside in the object itself, but is a relational property of the object in connection with the rest of the universe.”

Vedral's ultimate conclusions are that the universe and our entire reality is made up of information. We process and compress the information to generate our view of reality; that in turn affects the reality. The ends with a quotation from the Tao Te Ching, whose final lines rather effectively sum up my state of mind at the end of this: “Darkness within darkness/The gate to all mystery.” I'm sure there are profoundly important messages in this book, but the laws of thermodynamics no doubt mean my brain would probably spontaneously combust were I to get close to understanding them.

The author himself has a go at explaining the book – much better than I can – here and there was a very positive review in The New Scientist  by Seth Lloyd. He says: “By turns irreverent, erudite and funny, Decoding Reality is – by the standard of books that require their readers to know what a logarithm is – a ripping good read.
” So there you have it – baffling but fun.

The Understanding Society blog has an interesting post on the influence of Marx on Rawls. It isn't a connection I'd ever made for myself, although I did read both in a 'set text' way when I was an undergraduate, with both youth and context militating against understanding. Recently I re-read Rawls's Theory of Justice alongside Amartya Sen's The Idea of Justice and Michael Sandel's Justice. Daniel Little's main point in his blog is:

The conception of individuals forging themselves through labor is
central; it reflects a line of thought extending from Aristotle to
Hegel to Marx, and it seems to be foundational for Rawls himself when
he describes his theory of the good.

Hard to argue with that thought.

The blog has a few other recent posts on Rawls for those interested in theories of social justice. Some might argue that this subject is only of minor interest to economists, but I would strongly disagree.

Castles Battles and Bombs: How Economics Explains Military History by Jurgen Brauer and Huburt van Tuyll
A guest review by Dave Birch

If fancy a trip to the cinema this summer, you might enjoy the action movie Ironclad. Starring Paul Giamatti, it is all about King John’s siege of Rochester castle in 1215. (As a complete aside, the defender of Rochester castle, who John let live, was one William d’Aubigny, not only one of the 25 guarantors of the Magna Carta but a direct ancestor of George Washington.) If you’re an economist and you fancy a trip to the cinema this summer, I’m sure you’ll still enjoy Ironclad but you might want to read this book first. In 1140, William of Malmesbury had written that England had many castles, each defending a neighbourhood but 'more properly speaking laying it waste' because of the high taxes needed to pay for it. Castles were the medieval equivalent of a nuclear weapons programme. Edward I’s castle-building programme in Wales was a bit like Trident, consuming approximately one year's Crown revenues over a quarter of century. And these weren’t even the expensive kind: the Chateau Galliard in Normany was built by Richard I and cost more than all of his other castles put together!

Was it worth it? Well, Caernarfon castle in Wales was once successfully defended by a garrison of 28 that killed 300 attackers and when Stephen besieged Exeter castle in 1136 it cost him £10,000, five time his annual revenue. Now I understand a little more about the economics, I will never be able to watch movies about the Middle Ages in the same way, which I suspect is just what the authors of this lovely book wanted. The book takes some basic economic issues —including the principal-agent problem, opportunity costs, subsitution, diminishing marginal returns, incentive alignments and a few more — and tries show how they have influenced military thinking. Now, on the one hand you would, I’m sure, regard it as obvious that economics have an influence on military thinking. But this book, which goes much deeper than a Freakonomics-style take on pop history, helps you to understand just how the sometimes subtle application of these economic principles has affected military strategy through the ages.

It is filled with the kind of facts that I adore, such as that in 1342 Florence employed 20 times as many mercenaries as citizen soldiers, and while the narrative around them might have been a little sharper for the general reader, they are assembled in such a way as to make you think hard about the topics. An example: studies have shown that the massive bombing campaign against Germany in World War II reduced overall Nazi war production by about 2% and exhibited sharply diminishing marginal returns in terms of the morale of the target population. You cannot think about this without wondering about the strategy. Another example: a UN Security Council supranational peacekeeping force of 17,500 in Sierra Lone was unable to stop the war, whereas the Executive Options (the authors call them a “private military company”, or PMC) did so with 150-200 people. So why not do what Florence did and simply outsource? You’ll need to read to the end to find out.

I found the book most fascinating where it filled in a big gap in my knowledge, and that was the section of concerning the French independent nuclear deterrent.  The Fourth Republic had started a nuclear weapons programme because of defence but de Gaulle developed it for “grandeur” (and I wonder if a similar dynamic applied to the UK, even under the US nuclear umbrella). I had always assumed this to be the entire dynamic, but in fact the bigger picture of capital substituting for labour following a series of defeats for French forces is both more interesting and illuminating, especially as it better explains subsequent military action. French spending on its nuclear programme left conventional forces weak (as revealed in 1991 Gulf war) because de Gaulle’s strategy was to defend French independence, not French territory. The force de frappe was never intended to be a new Maginot line.

The role of technology is addressed, but not in as much detail as I would have liked. When the authors note that asymmetric information played a vital role in the determining the outcome of the American Civil War despite the telegraph, railroad, newspapers and even balloons being used to in the war effort because they proved too novel, experimental, unreliable or easily disrupted. Yet as new technologies come along, they must sometimes lead to disruptive innovation that change the economic landscape, and I would have been very interested to understand the authors' take on this.

Was England’s ascendancy through the “Age of Battles” all down to brilliant generals and the playing fields of Eton? Of course not: the English defeated the ostensibly more powerful French because they had better credit and could raise supplies. Some may see this as a reductionist destruction of noble military tradition, but personally it makes me even more proud of our lead role in the industrial and financial revolution that changed our lives immeasurably for the better. As Voltaire wrote, in 1723, “Commerce has made the English people rich, and being rich has made them free.”

Castles Battles and Bombs by Jurgen Brauer and Huburt van Tuyll
University of Chicago Press (2009)
978-0-226-07164-0

The former Fed chairman Alan Greenspan was for many years revered for his management of US monetary policy, which covered the period from the stockmarket crash of 1987 to just before the banking crisis of 2008. During the intervening years he also steered through the Savings and Loan debacle, the bond market crash of 1993-4, the late 1990s Asian crisis and the collapse of LTCM, crisis and default in Mexico and Argentina, the Enron and World Com collapses – and no doubt other events I've forgotten.

It's only since his departure that his reputation has come into question, although a number of economists had earlier started to question the 'Greenspan put' whereby monetary policy seemed to offer financial markets a promise that if the markets started to fall, a monetary stimulus would come to the rescue. And Robert Shiller had even more pointedly in his bestsellingbook Irrational Exuberance challenged the Fed's intellectual model of the financial markets, arguing that policy needed to take account of the realities of psychology and tackle the asset price bubble.

Greenspan's memoir The Age of Turbulence published in 2007 gave us his account of the story so far. Recently the Brookings Institute has issued a paper he has written about the recent crisis. It's very interesting indeed, setting events of the 1990s and 2000s in the context of the end of the Cold War and the great sweep of history. He sets his choices in the context of the battle of ideas between markets and communist planning, and the victory of the former. It is rare to see a prominent public figure set out so clearly, I think, the philosophical basis of everyday practical decisions. Greenspan is of course well known for being a follower of the writer Ayn Rand. Greenspan recommends higher capital and collateral requirements as the best regulatory response to the 2007-08 crisis. But he concludes:

“Unless there is a societal choice to abandon dynamic markets and leverage for
some form of central planning, I fear that preventing bubbles will in the end turn out to be
infeasible. Assuaging their aftermath seems the best we can hope for. Policies, both
private and public, should focus on ameliorating the extent of deprivation and hardship
caused by deflationary crises. But if an effective way to defuse leveraged bubbles
without a major impact on economic growth is discovered, it would be a major step
forward in organizing our market economies.”

There is also an interesting blog on the Greenspan article by David Indiviglio of The Atlantic.