The terrific David Levine – game theorist and expert on intellectual property issues –  is publishing on his website under a Creative Commons Licence, a new book, Is Behavioural Economics Doomed? He writes:

“Those who have read
about –
and who has not? – the current economic crisis may wonder just how
rational economic man or woman is. Behavioral economics has become the
modern rage. So is rational economic man – homo economicus –  dead? Has
the economics profession moved on to recognize the true irrationality
of humankind? Read on.“

The intro and chapter one are currently available. The whole book will be published by Open Book Publishers, about whom I've blogged in the past. Chapter One is an exploration of what 'homo economicus' actually means. Behavioural economics makes much of experimental results that seem to overturn what conventional economics assumes by way of human behaviour. Levine describes the equally prevalent experimental results which uphold the conventional approach, and concludes:

“[C]ompetitive equilibrium predicts the outcome of market experiments with a high degree of accuracy, with experimental markets converging quickly to approximately the competitive price.”

One of my old colleagues, and one of the UK's most experienced financial journalists, Robert Cole, has just published a handy pocket-sized book stuffed with advice about investment that's both sensible and amusing: The Unwritten Laws of Finance and Investment. A rare combination in this genre.

Some of the headings offer basic economic insights, including “There's no such thing as a free lunch.” Some draw on findings from behavioural finance, such as the warning not to be tempted by gimmicky offers such as free air miles – which of us has not fallen for buying an extra pot of face cream to get the 'free gift' of samples, or bought a bar of chocolate at the till for £1 when we went into the store for a magazine?

The book's the ideal length for a tube journey and filled with common sense cover to cover. I'd pair it with John Kay's 2009 book, The Long and the Short of It. One gives the general principles in a completely painless way, the other more detail on how to. Between them, they provide a realistic and thorough guide to investment for non-experts.

It has taken me a while to read Ian Morris's magnificent Why The West Rules for Now – all 650+ pages of it. Although there's plenty in it to debate and challenge, his general hypothesis is persuasive and it's a terrific read.

Morris's argument goes like this: human social development is the result of an interplay between the upward pressure arising from our ever-evolving biological nature, on the one hand, and on the other hand the challenges posed by geography (mainly changes in climate) and the increasing complexity of social organisation. Like all living beings, we need to extract energy from our environment. Until the Industrial revolution, there were firm limits to our ability to do so. The earlier episodes in history when humankind had taken giant strides in social development had resulted from social innovations such as farming, urbanisation, centralised organisation in empires and nation states. Since around 1800, technological innovation has been the main driver. There is no guarantee of continuing progress. For lengthy periods in the past, human development has gone into reverse – both West and East had their long Dark Ages. But Morris is somewhat optimistic about our collective ability now to avoid that kind of catastrophic setback, when it took half a millennium for the level of development to return to its starting point.

He also discusses at length the dynamics of the process. There is a paradox of development: progress creates its internal tensions including population pressure and the challenge of organising an increasingly complex society. And there are advantages to backwardness: areas on the periphery are more inventive if they are economically marginal or face a less favourable environment. These dynamics mean that history is not 'locked in' – the West has not always been more highly developed than the East (for five centuries from around 1250 to 1750 it was the other way round). Besides, looking over the long sweep of history to 10000 BCE, the paths of East and West are strikingly similar – the people and the processes are the same everywhere. (See my earlier posts on measuring the level of development and on the earliest periods of human history.) However, the dynamics are also very slow so short-term reversals are unlikely.

This book sits firmly in the tradition of authors such as Jared Diamond in Collapse or Joseph Tainter. One grumpy review (by George Walden in the Guardian) has dismissed Morris's argument as completely overlooking the role of culture and ideas. That isn't correct. Rather, Morris sees these are the result of the geographic and biological conditions facing any given society. Conventional historical arguments, he suggests, explain why the Industrial Revolution centred on Manchester rather than Lille (p500) – British politics and institutions, its command of the seas, the character of its inventors. But the broader forces mean there would have been an Industrial Revolution about then somewhere in northern or western Europe. He says: “Intellectuals ask the question that social development forces onto them: each age gets the thought it needs.” (p476). I'm not sure this would satisfy Walden either, but it seems completely persuasive to me – ideas and culture do not emerge in a vacuum but are themselves shaped by society. They in turn shape the resilience of the society to fresh organisational or environmental challenges, and the evolution of ideas and culture helps explain why a second period of Dark Ages did not follow the turmoil of the 16th century, its mini-ice age and widespread war and disease.

I don't think Why the West Rules For Now is a substitute for more conventional cultural or political accounts of history. Rather, it has a different focal length. I highly commend it.

Oh, and the '….For Now' part? Morris predicts that current long term trends indicate the East will overtake the West once again in its level of social development in 2103 or thereabouts. The 22nd century will be the Chinese century. He's careful not to claim this is inevitable. He notes the global challenges which could add up to a serious threat to everybody's level of social development, not least climate change – the world faces another 'hard ceiling' of the kind which led to the collapse of the Dark Ages. The book concludes: “The next 40 years will be the most important in history.” In the face of an account of 15,000 years or so of history, that's pretty sobering.

The cover image of the new UK edition of The Road From Ruin: A New Capitalism for a Big Society features landmarks of the City of London skyline such as the Lloyds Building and the Gherkin. My assumption is that they symbolise the ruin rather than the hope for a better capitalism, but at a fascinating discussion of the book I attended last night with the authors – Matthew Bishop of The Economist and Michael Green – it was hard to move on from the question of the banks and bankers.

Have they shown enough contrition about their role in the crisis? Could we not move on from obsession with bonuses (this from the bankers present)? Were bankers, in their co-ordinated claims at Davos that things are back to normal, in denial of reality? Why was popular hatred of the bankers more acute in the UK than elsewhere? Apart from the fact that the damage done by bail-outs to the UK's public finances is worse than any other large OECD economy, and apart from the fact that in Northern Rock we had the first and only classic bank run of modern times, and apart from the extreme disparity between bankers' bonuses and average pay in the UK (second only to the US), who could say?

Setting aside the sarcasm, the answer is to be found in the subtitle of the book – the reason for the heightened political salience on this side of the Atlantic lies, it seems to me, in the fact that we have a government which is more or less explicitly reshaping the role of the state in society. At this stage, what voters see are cuts to public services and higher taxes, which makes the continuing subsidy to banks and the outrageous bonuses so toxic – all the more so when leading bankers with catastrophic timing try to persuade the public that it's time to move on. I rather think the bankers will find themselves unable to move on from the debate about their culpability for a while yet.

However, there is much more to this book than diagnosis of the crisis and the banking system. The authors argue for an updated popular capitalism, with stronger connections between individuals and business in general. They argue ardently that institutional investors need to rethink their role and aim for a longer-term perspective. This is partly a matter of principles and values, and partly a matter of changing seemingly dull technicalities such as the nature of their fiduciary duties. I'm sure this is correct, and indeed the short-termism of investment in the UK has been part of the diagnosis of our flawed version of capitalism since at least Will Hutton's 1995 The State We're In, or possibly the 1980 Wilson Committee report into financial institutions and 1931 Macmillan Report.

Developing a long-term perspective is the key challenge of our times – it's what my forthcoming The Economics of Enough is also about, albeit from a different angle. I argue that having a sufficiently long time horizon in taking decisions is the only way of bringing about sustainability in its broadest sense. So of course I wholeheartedly agree with this theme in The Road From Ruin. The discussion about the book centred on two themes: the need for business and political leaders to take personal responsibility for reinvigorating the sense of (moral) value in what they do; and the importance of transparency as both a lever or process for reform and as a source of legitimacy, so badly needed given the low levels of trust in key social and economic institutions. Anyway, read this timely and clear book for the authors' more detailed agenda. I should add that there is a prior US edition for American readers. It was reviewed in the FT, Strategy & Business and elsewhere earlier this year.