Daniel Ben-Ami has long been an ardent advocate of the benefits of markets. His latest book, Ferraris for All – a great title and great cover image – is a polemic in favour of economic growth. The financial crisis and its aftermath have reinforced the earlier anti-globalisation arguments, so that everyone from deep green environmentalists to the Archbishop of Canterbury are now cheerfully arguing that capitalism is broken, consumerism is morally bankrupt and the world economy must go ex-growth. Ben-Ami wholeheartedly disagrees and in this book explains why.

The first half of the book traces the emergence of what he describes as growth scepticism. The environmental movement plays a prominent role. So too does the ever-present thread of regret for the social and cultural disruption caused by the 'creative destruction' of a capitalist economy. Ben-Ami argues that, furthermore, growth scepticism has become the mainstream view amongst the political and cultural elite. 'Sustainable development', for example, has become motherhood and apple pie in all policy and business circles – linked, he argues, to a deep pessimism about the possibility of progress and a consequent determination on the part of the elites in western countries to defend their own situation. “The campaign against popular prosperity is designed to put the rest of us in what the elite regards as our proper place – below them in the social hierarchy.” (p64) While I agree that anti-globalisation and environmentalism have certainly been preoccupations of the affluent, I think Ben-Ami needs to trace the political economy of it more thoroughly. It seems a valid empirical observation calling for a more thorough theoretical explanation.

The second half of the book sets out Ben-Ami's counter-arguments, explaining why growth is beneficial and we should continue to embrace it wholeheartedly. Some of this is very enjoyable, such as his blast against the 'happiness' gurus. Who would be against happiness, he asks? “This appeal to the lowest common denominator should immediately alert readers to the fatuousness of the arguments of the happiness movement.” (p169). It is, he argues, a misanthropic and conservative movement. It sees people as the passive subjects of a technocratic elite, which can manipulate them to make them more content. O Brave New World! Even worse, normal human desires are characterised by some experts (Ben-Ami singles out Oliver James, author of Affluenza) as pathological.

I very much enjoyed Ben-Ami's vigorous attacks on the various platitudes and follies of trendy, bien pensant environmentalists, happiness gurus and the like. It's about time somebody challenged the snobbish platitude that consumerism is a bad thing, always uttered by people who consume plenty themselves.

However, Ferraris for All falls into the opposing trap of thereby claiming that there's nothing wrong with modern capitalism. I do think the profound social trends set in train by technological upheaval, the institutional and political failures which allowed the emergence of massive global imbalances and the financial crisis, the social corrosion arising from inequality, not to mention environmental pressures, all need to be acknowledged. All is not for the best in the best of all possible worlds. Still, this is a good, lively read – although I fear it will not be read by those who most need to have their minds changed.

It’s been back to work with Raghuram Rajan’s Fault Lines: How Hidden Fractures Still Threaten the World Economy as
my Tube reading. Professor Rajan is one of the economists who warned in advance
of the impending financial crisis – there were more of them than received
wisdom holds, but he was certainly one of the most prominent. His highest
profile warning came at the 2005 Jackson Hole Conference, when he presented a
paper arguing that recent financial developments had greatly increased risk in
the world economy and financial markets. At the time he was mocked for his
pessimism, but of course turned out to be correct.

Having been both right and brave enough to say so ahead of
the Crash, Prof Rajan has instant moral authority when it comes to diagnosis of
what happened and what to do next. His thesis is that the catastrophe was the
result of several deep systemic problems in the world economy, the faultlines
of the title.

Some of these are reasonably familiar. One is the imbalances
arising from the focus of certain major economies – Germany, Japan, China – on
export-led growth as opposed to domestic consumption. When some economies for
long periods run current account surpluses, others will have to over-consumer
and run deficits, and the US largely played that role. Martin Wolf focussed on
this issue in his book Fixing Global Finance.

Another is the clash between relatively transparent and
contract-based financial systems and those that are relationship-based rather
than market-based. Rajan makes some very interesting points about how the
information asymmetries arising from these differences affect the structure of
international financial flows – in particular, channelling them through banks,
in short-term instruments, and with an over-reliance on credit ratings.

Most interesting of all, though, is his analysis of the
political fractures contributing to systemic financial weakness. In short, he
argues that the massive increase in income inequality – especially the
politically salient gap between the 90^th and 50^th
percentiles of the income distribution – was patched over by easy credit. For
some years this meant that consumption inequality did not rise as fast as
income inequality. Rajan writes: “Easy credit has been used as a palliative
throughout history by governments that are unable to address the deeper
anxieties of the middle class directly.” Even more fundamentally, he notes the
tension between capitalism and democracy – identified of course by other
thinkers in the past such as Daniel Bell in his Cultural Contradictions of
Capitalism. And yet, we need both, as each mitigates the other’s deficiencies.

Rajan is somewhat pessimistic about fixing the structural problem. As he
writes: “Politicians today vow ‘Never again!’. But they will naturally
focus on
dealing with a few scapegoats, not just because the system is harder to
change,
but also because if politicians traced the fault lines, they would find a
few
running through themselves.” (p5)

Still, the book goes on to ask how we can fix the system to
enjoy the benefits of capitalism but in a politically tolerable way that doesn’t
rely on unsustainable fixes. Not an easy question, and no silver bullet
answers. Let’s hope politicians have the appetite for the long hard slog of
policies we all know are needed to fix the deep faults in western economies.

Anyway, a terrific book, clear and authoritative, from one
of the economists who was spot on about the crisis.

 It was also reviewed recently by Clive Crook in the FT.

Emerging from the shock of getting back to work after a week on holiday, I've not had chance yet to catch up on my economics reading. Meanwhile as light relief, here are some brief reviews of my holiday reading.

I've written on this blog in the past about the affinity many economists have for detective fiction and science fiction. Last week I fitted in two books in the former genre. The first was Matthew Pearl's The Last Dickens, another page-turning and intelligent historical romp linked to classic fiction following The Dante Club and The Poe Shadow. The second was Barbara Nadel's River of the Dead. I had high hopes of this novel, featuring an Istanbul-based detective, as I tend to like crime fiction rooted in a particular place, whether it's Donna Leon's Venice or Sara Paretsky's Chicago. But I'm afraid it was badly written and oddly unspecific about what Turkey is actually like.

For non-genre fiction I turned to Paul Murray's Skippy Dies, set amongst adolescent boys in a Catholic boarding school in Ireland. Hilarious and tragic, a terrific novel with vivid characterisation. And also Simon Mawer's The Glass Room, about Europe's great 20th century tragedy but about modernity, and love too. In some ways comparable to Iain Pears' Dream of Scipio, an aslant perspective on the Holocaust, but all the more powerful for it.

Then, just to prove my brain was still working despite long hours by and in the pool, non-fiction. David Byrne's Bicycle Diaries is exactly what it says, his reflections on cycling in the different cities he tours, with some interesting thoughts about technology, markets, livelihoods and other matters. And Harold Evans' My Paper Chase, a fascinating and inspiring autobiography by one of the all-time great newspaper editors.

Fresh back from my holiday (more on my holiday reading later), I've found that my choice of the five best accessible books on economics is up on the fabulous Five Books website. As well as my interview there are loads of others – another recent one for example is Danny Dorling on Inequality. I've reviewed his own book Injustice on this blog recently. Anyway, Five Books, experts recommending the best five books on everything, is a great resource for anyone planning their summer holiday reading.