As the weeks and months elapse since the most intense point of the financial crisis in October 2008, I for one find myself unclear about where major governments have got to in terms of reforming the financial sector. The banks are clearly back to business as normal – building bonus pots for next year, hiring madly, egging companies on to M&A activity and so on. Does this mean the momentum for reform has evaporated? Have governments wasted a good crisis?

Two recent books go a good way to refreshing my mind about the issues and in particular addressing global, systemically-risky institutions. One is a new report from the Centre for Economic Policy Research, A Safer World Financial System: Improving the Resolution of Systemic Institutions, by Stijn Claessens, Richard Herring and Dirk Schoenmaker. As the title indicates, it's about the thorny issue of cross-border regulatory co-ordination and bankruptcy procedures for large, important institutions, given that national authorities care only about national effects and ignore international spillovers. The report identifies three things policy makers want – national level decision-making, cross-border banking activity and global financial stability – and points out that there is a 'trilemma' – all can't be achieved simultaneously. Any reform procedures have to adapt to that reality.

The second book is Balancing the Banks: Global Lessons from the Financial Crisis, by Mathias Dewatripont, Jean-Charles Rochet and Jean Tirole. It too takes a cross-border perspective and focuses on two issues, the future of banking regulation and the treatment of distressed banks. On the former issue, nobody I've spoken to about Basel II believes the regime did anything other than make financial stability worse. One senior banker – working for a bank that didn't get in to trouble – even told me they made one set of risk assessments for the regulators and another for themselves, so dreadfully inadequate did they think the regulatory regime. The authors of this book aren't so scathing, although they do note the need for greater standardisation of liquidity rules and products, and revisiting capital requirements so that they can vary over the business cycle. On tackling distressed banks, they also argue that a single capital requirement isn't enough, and the authorities will need other indicators of distress and other levers. Under both headings, the book covers a wide range of necessary reforms, from improving and making more transparent credit rating to international regulatory architecture to improving the Basel regime. The book give a useful overview of the entire waterfront of necessary reforms – and my goodness, there's a lot to do.

However, my main conclusion after revisiting these various issues is the realisation that there is still so much that ought to be done in terms of regulatory reform. Given the lobbying power of the banks, and their evident lack of moral compass, it's going to be a long slow haul. I owe to the FT's John Plender the fact that there are five banking lobbyists for every member of the US Congress. Here in the UK, a good start would be the new Banking Commission under John Vickers recommending the break-up of the major banks, reversing decades of mergers and the consequent concentration of power, both economic and political. (For anyone in the UK who didn't catch last night's BBC Panorama on the high street banks, Banks Behaving Badly?, it's well worth a viewing.)

Meanwhile, let's hope economists for their part keep up the pressure by continuing to analyse what went wrong and what needs to be done. That includes pointing out unpalatable truths (always, I think, one of the strengths of economics and its delight in the absence of free lunches). The trilemma is one unavoidable truth. Another is the sheer long haul before we have anything like a socially useful financial sector.

The Facebook Effect: The Inside Story of the Company That Is Connecting the World – A Guest Review by Rory Cellan-Jones

At a high-powered meeting of wealthy figures from the technology industry recently, someone whispered in my ear about the youngest billionaire to have emerged on the scene in the last decade: “He needs adult supervision,” they told me.”He just isn't convincing as a CEO, he needs someone to hold his hand.” Having come across Mark Zuckerberg a couple of times and found him rather a low voltage presence, I felt some sympathy with that view. A shortish 26 year old, always dressed in jeans and sneakers, and apparently happiest talking to fellow geeks, he seemed uneasy in the role of tech tycoon.

Then I read The Facebook Effect, David Kirkpatrick's masterful account of the short history of the social network founded at Harvard just six years ago by Mr Zuckerberg, and my view was changed radically.  Why? Because as the story of Facebook's extraordinary rise from a bedroom start-up to a global web superpower unfolds, the sheer cussed cleverness of its founder becomes ever more evident.

The author, a journalist from Fortune magazine, has had unprecedented access to Facebook, and in particular to Mark Zuckerberg, so it is perhaps not surprising that a positive picture has emerged.  It is a breathtaking ride, as thefacebook.com, one of many website ideas tried out by Zuckerberg as a computer science student at Harvard,  takes off so rapidly that within months he has moved to California, set up in business and thrown in his studies.

A simple idea – take the  paper “face books” which introduce American students to each other and put them online – proved immensely potent, spreading from Harvard to other Ivy League universities and then to every campus in the United States. By late 2004, just ten months after it was founded, Thefacebook had its millionth user. The following year it moved beyond campuses into high schools, then into the workplace, and rapidly out into the wider world – and became simply Facebook.

With more than 500 million people around the world now using the social network to share intimate details of their lives, to engage in political campaigns, to trade news stories and jokes, the force of the original idea has been proven. But what is still not entirely clear is whether it adds up to business that can make sustainable and growing profits.

From early on, the smart venture capital money was stalking Zuckerberg, seeking a stake in a fast growing company, despite the absence of any revenues to speak of. In most such cases, any cash will only be handed over in return for two things – a sizeable share of the equity, and tight control over the leadership and direction of the business.

But somehow Mark Zuckerberg has managed to avoid that. Throughout Facebook's short history he has been adamant that growth, and improving the customer experience, are far more important than revenue. It sounds like the recipe for a dot com disaster of the kind we saw a decade ago, when businesses which obsessed about “eyeballs” rather than the bottom line, grew like topsy, then blew up just as fast.

At just about every stage of the journey, doubters have warned Zuckerberg that he is trying to move too quickly – whether it's in moving from the campus into the workplace, or introducing innovations such as photo uploads or the newsfeed, or the opening up of the Facebook platform to outside developers. On many occasions the users themselves have bawled and protested about changes to their beloved site – usually by setting up Facebook groups – proving that there is nothing as conservative as an early adopter.

Throughout, the young CEO has ploughed on regardless, convinced that he is on the right path, and that his vision of a world where everyone uses Facebook to share more and more of their lives, is becoming a reality.

David Kirkpatrick has unearthed details of Zuckerberg's negotiations with Google and Microsoft, in which he is seen skilfully playing one giant off against another, and then winning substantial investment funds without ceding much in the  way of equity or control. We see him encountering the elder statesmen of the media and technology worlds, from Bill Gates to Rupert Murdoch to the Washington Post's Don Graham, without appearing cowed by their age and experience.

His success – so far at least – is something of an antidote to the conventional wisdom that young companies need a CEO with grey hair to shepherd them out of adolescence. The classic example is Google, where the founders Larry Page and Sergey Brin recruited Eric Schmidt as a chief executive, with the trio functioning as a very successful team. But Zuckerberg, while he has recruited plenty of older managers, is still in charge, apparently retaining the confidence of his investors and his team.

With all of this success, of course, comes a vast amount of self-belief, indeed arrogance, about the way the company conducts itself. And here is Facebook's least attractive side, its belief that it is just a vehicle driven by its users, and has no real responsibility when some of them get hurt. While it has undoubtedly brought a rich new means of communication to many, there are victims of this success. The children who feel pressured to join the network,  pretending  to be above the minimum age – and then become prey for stalkers who are themselves lying about their age. The students who post embarrassing pictures of themselves online – then find that potential employers are combing the site. The unwary who reveal  too many personal details, then fall victim to the scammers, fraudsters and identity thieves.

Kirkpatrick does not skirt over the various crises the company has endured, the most notable being the outrage over an update of privacy settings which seemed designed to encourage users to be less careful about sharing their data with the world. But as the book ends he says  Zuckerberg “has a conviction about the importance of helping people protect their most sensitive personal data,” a conclusion somewhat at odds with the evidence that Facebook's founder really wants us all to chill out a bit more about sharing our lives with the world. As a student, Zuckerberg joked about the “dumb f*@ks” who handed over their private data to him – how much has he changed?

Within the next twelve months the creator of this extraordinary phenomenon is likely to face the ultimate test for any entrepreneur, the stock market debut of his company. If it works out Mark Zuckerberg really will be worth billions.  There is still a mountain to climb however, and a chance that Facebook could stumble, wrong-footed by another crisis over privacy or the challenge from rival networks like Twitter or FourSquare. But after reading David Kirkpatrick's book, I'm betting that Mark Zuckerberg will make it to the summit.

The fashion business is big business, especially if you consider not just sales of clothing but also the magazines and TV shows, billboards and blogs, logistics, design, accessories – in short, the whole supply chain and the related markets. This shouldn't be surprising as both having something to wear and dressing decoratively to enhance one's status and effectiveness are pretty fundamental human needs, close behind food and shelter. So I was pleased to see Patrik Asper's book Orderly Fashion: A Sociology of Markets.

Of course, sociologists should be encouraged to take a look at all markets – I'm sure we all look forward to reading 'Chaos and testosterone: a sociology of financial trading'. But fashion markets are especially interesting because, well, there are fashions. Twice a year or more consumers have to be induced to buy another set of clothes, and the global supply chain and logistics have become enormously sophisticated at delivering the latest seasons fashions with just a few weeks' lead time.

Aspers looks at the ways in which order is brought to this constant change. He focuses on the role of 'branded garment retailers' such as Zara and Top Shop, and distinguishes two kinds of fashion market, the standard market and the 'status' market (haute couture and designers' diffusion/ready-to-wear ranges). In status
markets,  the identities of the deisgners and celeb purchases rather than the quality of the goods orders the market, whereas in standard markets
the opposite holds true, quality determines desirability and pricing.

It's interesting for an economist to think about the role of social relations in constructing the menu of quality-price combinations from which consumers select, and indeed to realise that quality and price needn't always be positively correlated. Quality and other intangible aspects of competition (such as service) are taken into account in applied economics – for example, in competition inquiries – but in a bit of a theoretical vacuum. The concept of product differentiation doesn't fully capture all of the dimensions which shoppers clearly take into account.

The book has a lot of interesting detail on how the fashion business works, particularly in the big retail chains. As with other works of sociology, I'd much rather have had a more journalistic version than the full academic monty, complete with references to Georg Simmel and Edmund Husserl; but Aspers writes quite well for a sociologist. And I love the cover image.

Somewhere in Valuing the Unique: The Economics of Singularities by Lucien Karpik (translated by Nora Scott) is a fascinating book trying to get out. First, the good news. The book analyses a type of product/service steadily growing in importance in the advanced economies, a category to which standard economic analysis of markets does not apply. “These overlooked markets are markets of singular, incommensurable products.” Examples are works of art, fine wines, personalized professional services or other kinds of expertise, tourism, handcrafted luxury goods, and so on.

All are sufficiently distinctive that they go beyond the conventional category of product differentiation, which is of course addressed by standard economic models. Many of them are experience goods, which are known to present problems for conventional analysis. But they go beyond that – not only does the purchaser not know until consumes them what they are like, which is true of any book or TV programme or movie, but even after consuming or using a singular good, it will still be hard to evaluate their quality. For instance, suppose you hire an expensive consultant – how do you know even after the event how good his advice to your business has been? It depends on evaluation against an unknown counterfactual. Or to give another example, the utility derived from owning a painting will continue to depend on the evaluation of others as well as the continuing experience of the owner looking at it.

Karpik argues, interestingly and plausibly, that the valuation of goods and services in the category of singularities depends on judgment, a mode of thought which calls on rational self-interest but is distinct from the process of calculated decision which we apply in conventional economics. He notes that most models rely on assumptions about an entity called information: It is “immaterial and homogeneous; it creates objective knowledge about reality and, thereby, the universality of rational choices.” Models can cope with asymmetries of information, or gaps, but not with the non-applicability of information. It struck me that this is true, and 'information' plays a role in economic analysis much like the role of 'ether' for earlier generations of natural scientists. Introducing a decision domain in which judgment is applied strikes me as very interesting.

The book goes on to explain the kinds of construct which facilitate the making of judgements, devices which build trust in products or services. These include institutions (often appealed to as devices for overcoming information asymmetries) but also adverts, reviews and critics, and so on. Karpik lists the following categories: social networks; 'appellations' such as brands or trademarks or professional titles; 'cicerones' or guides such as critics or media pundits; rankings either by critics or by popularity such as bestseller lists; and 'confluences' which means techniques such as organising items on supermarket shelves or using mall architecture to influence consumer choice. He goes on to give examples of all of these decision devices.

So all this is very interesting. Now the bad news. Much of the book is written in almost impenetrable language, even for an academic text. I always hesitate as an economist to criticize the writing styles of people in other disciplines, but I do find the language of academic sociology almost always militates against understanding. What's more, the author is French and although it is no doubt an excellent translation, French academic language (j'accuse Roland Barthes) superimposes semiotics on sociologese. There are many sentences I literally could not understand, despite several goes.

So here's a challenge for blog readers. Can you suggest clearly written and accessible sociology books? My nomination is Heatwave by Eric Klinenberg, a brilliant and utterly readable analysis of how differing social contexts led to dramatically different death rates around the city of Chicago during the 1995 heatwave. More ideas please.

There's a long and largely positive review (by Claude Fischer) of The Spirit Level  by Richard Wilkinson and Kate Pickett in the ever-excellent Boston Review. Fischer welcomes the enthusiasm and commitment of the authors to social justice. He is somewhat critical of their argumentation, however. This is the nub of his critique:

“….[I]f the authors took their analysis literally, they might suggest
direct manipulations of inequality: send the richest people—or, probably
more efficiently, the poorest people—out of the country or the state.
Inequality would go down and well-being would go up. Alternatively,
leave the inequalities as they are, but devise ways to hide them from
people—censor the media, say (no more Lifestyles of the Rich and
Famous)—so that people do not know their relative positions. That
should, according to The Spirit Level, bring down crime,
disease, obesity, and so forth. The authors do not go in these
directions, and these are, of course, not plausible solutions in a
democratic society. But they are the logical implications of The
Spirit Level’s explanation.

There are more productive avenues they might have considered. The
authors eschew economic growth to lift the poor because their data
suggest that national wealth is not as critical as national inequality
in affecting health, because growth might preserve or even expand
inequality, and because growth violates their green principles. Further
economic development in developed nations, they assert, is an exhausted
route to greater well-being. Most economists, I am sure, would disagree.
Most politicians, I suspect, would consider the dismissal of economic
growth a wrong-headed strategy for electoral victory.”

Still, he's kinder about the book than I was on this blog, or John Kay in the FT. I thought it was great as political polemic and very weak on statistical evidence.