Reading about Italy’s ejection of Silvio Berlusconi in favour of economist Mario Monti, and in particular Mr Berlusconi’s reported mutterings that we would yet see that he was still in charge really through his supporters in the Italian parliament, I turned back to one of the best books about banking crises. That is Liaquat Ahamed’s brilliant history of the role of banking in the Great Depression, [amazon_link id=”009949308X” target=”_blank” ]Lords of Finance[/amazon_link]. As he notes in the introduction to the paperback edition I have, “Nothing brings home the fragility of the banking system or the potency of a financial crisis more vividly than writing about these issues from the eye of the storm.” He continues:

“Watching the world’s central bankers and finance officials grappling with the current situation – trying one thing after another to restore confidence, throwing everything they have at the problem, coping daily with unexpected and startling shifts in market sentiment – reinforces the lesson that there is no magic bullet or simple formula for dealing with financial panics. In trying to calm anxious investors and soothe skittish markets, central bankers are called upon to wrestle with some of the most elemental and unpredictable forces of mass psychology.”

The other lesson is that those who do not have the public interest at heart can fan those unpredictable forces of mass psychology too, in an adverse way. Mr Berlusconi still has the capacity to damage Italy and the euro, even out of office.

[amazon_image id=”009949308X” link=”true” target=”_blank” size=”medium” ]Lords of Finance: 1929, The Great Depression, and the Bankers who Broke the World[/amazon_image]

I’m just back from a two day conference of senior policy people, gathered in an idyllic English country house to debate the post-crisis outlook for capitalism. There were people from other European nations and the US as well as the UK. It was interesting to find universal agreement in this group that some quite fundamental reforms are necessary, albeit disagreements over the specifics – a Tobin tax versus a Financial Activity Tax for example, or the mechanics for stopping the bankers’ bonuses merry-go-round. The tone of the debate about the responsibilities of the state via a vis markets was completely different from similar gatherings just two or three years ago.

It was also interesting to hear which books got name checked. They were:
[amazon_link id=”0691152632″ target=”_blank” ]Fault Lines: How Hidden Fractures Still Threaten the World Economy [New in Paper][/amazon_link] Raghuram Rajan
[amazon_link id=”0691152640″ target=”_blank” ]This Time Is Different: Eight Centuries of Financial Folly[/amazon_link] Reinhardt and Rogoff
[amazon_link id=”1846140552″ target=”_blank” ]Thinking, Fast and Slow[/amazon_link] Daniel Kahneman
[amazon_link id=”0140296727″ target=”_blank” ]The Truth About Markets : Why Some Countries are Rich and Others Remain Poor[/amazon_link]John Kay
[amazon_link id=”1408809737″ target=”_blank” ]Capitalism 4.0: The Birth of a New Economy[/amazon_link] Anatole Kaletsky
[amazon_link id=”B005WTR4ZI” target=”_blank” ]Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy[/amazon_link] Erik Brynjolfsson and Andrew McAfee
[amazon_link id=”0691153191″ target=”_blank” ]The Darwin Economy: Liberty, Competition, and the Common Good[/amazon_link] Robert Frank

It’s a great selection – how encouraging that these influential chaps (yes, mainly men of course) are reading seriously. Fingers crossed for action now.

Since the onset of the crisis in 2008, it has been natural to look to past masters for wisdom and a few names have recurred more than most: [amazon_link id=”0071592997″ target=”_blank” ]Hyman Minsky[/amazon_link] for his analysis of the inherent instability of finance, [amazon_link id=”0199535701″ target=”_blank” ]Karl Marx[/amazon_link] for predicting the inherent instability of capitalism per se, and above all John Maynard Keynes for all round brilliance about the economy in crisis: what should our governments and central bankers actually be doing? However, there have been at least as many interpretations of Keynes as books written about him, and one might imagine there is no room for another on the crowded shelves of that new section in our bookstores, ‘Economic Crisis’. That would be wrong. Roger Backhouse and Bradley Bateman have written a new book, [amazon_link id=”0674057759″ target=”_blank” ]Capitalist Revolutionary: John Maynard Keynes[/amazon_link], which is a brilliant summary of both what Keynes said about his own times, how his work influenced policy at different times in the past, and how to interpret him for our times. As they put it early in the book, there is a Keynes for good times and bad times.The book is a terrific read, marvellously clear, and will illuminate this great economist for both experts and general readers.

They have one underlying message as well, which is that we should take above all from Keynes the lesson that there is a moral dimension to policy as well as a technical one.  As he put it: “No man of spirit will consent to remain poor if he believes his betters to have gained their goods by lucky gambling.” (Quoted here p59). One chapter in Capitalist Revolutionary explains Keynes’s deep engagement with moral philosophy, starting as an acolyte at Cambridge of G.E. Moore. This, they say, is the real relevance of his work to the present crisis: economists must re-learn how to discuss morals, and the nature of the whole economic system. The authors’ recent New York Times article summarised this line of argument.

The book does a great job of setting Keynes’s influence in the context of his times. In the 1930s, “There was a deep-seated change in attitudes toward government policy that was the result of many political and social factors, to which Keynes’s name came to be attached.” (p30). It shows that [amazon_link id=”0230004768″ target=”_blank” ]The General Theory of Employment, Interest and Money[/amazon_link] was so important because it is the lens through which subsequent generations see previous work and also provided a framework for a subsequent explosion of creative thinking by other economists. That framework proved flexible, and Keynes himself encouraged younger economists to take different paths, and hence the many interpretations now of what it is to be ‘Keynesian’. What’s more, Keynes insisted that macroeconomics was contingent, that it had no truths that stood for all time. Earlier in his career, although clear that “capitalism was an imperfect machine that needed to be maintained and updated if it were to continue to work to meet society’s needs” (p56), he had hunted for a ‘magic formula’ to solve the economic crisis. But by the time of the General Theory he had concluded that the radical uncertainty that is the most important feature of the world, and the importance of the specifics of time and place, meant there could be no noisy certainty about simple solutions.Indeed he embraced ambiguity.

Would Keynes share either the certainty of one branch of macroeconomics that what the world needs now is bigger government deficits to maintain effective demand, or of the other branch that what we need is to eliminate deficits to keep real interest rates low and encourage investment? The authors are clear that he was more cautious about budget deficits than the economists labelled ‘Keynesian’ who advocated fine-tuning in the 1960s and 70s. He thought the government should not borrow for consumption, but only to finance investments, so the deficit would ultimately pay for itself. He scaled back William Beveridge’s initial plans for the welfare state to ensure it was affordable. By the end of the book, however, it is clear that trying to read off an answer to today’s problems from The General Theory – never mind from the other works of a man who was not afraid to change his mind – is a meaningless exercise. Keynes himself would have wanted to know the detail of our times, and would know that any given policy might or might not work depending on how it affected people’s expectations, inherently unforecastable.

This relatively short book also gives a tremendous flavour of the richness of Keynes’s interests, the importance he attached to the arts as the meaningful part of life, his idiosyncratic career as a mix of policy expert, academic, journalist, bohemian and speculator. I would say that if you’re only going to read one book about Keynes, it should be this one. I really enjoyed it and learnt a lot.

[amazon_image id=”0674057759″ link=”true” target=”_blank” size=”medium” ]Capitalist Revolutionary: John Maynard Keynes[/amazon_image]

Ha-Joon Chang’s 2010 book, [amazon_link id=”0141047976″ target=”_blank” ]23 Things They Don’t Tell You About Capitalism[/amazon_link], came out in paperback this year, eliminating my already paltry excuses for not having read it. Now I have.

1. It’s very well written, a lively read, and I’m not surprised it’s done so well. Hooray for a distinguished academic economist joining the roster of those who want to communicate the subject widely.

2. But I don’t like the format of a list of things headed Thing 1 to Thing 23. Not only does it remind me of Dr Seuss’s [amazon_link id=”0007158440″ target=”_blank” ]The Cat in the Hat[/amazon_link], it also militates against sustained reasoning. Still, maybe this is related to the popular success mentioned in my Thing 1, so I’ll stop complaining.

3. There are tremendous pockets of interesting facts. I enjoyed, for example, the pocket summary of the history and effects of limited liability, discussed in Thing 2. The eminent Bank of England executive Andy Haldane made similar points about the effect of limited liability on management incentives in his outstanding Wincott Lecture (pdf).

4. Ha-Joon Chang is not afraid to discuss ethics, something warmly to be welcomed in an economics prof. He takes on, for example, equality of opportunity versus equality of outcome (Thing 20). As he points out, just talking about Pareto optimality, our usual welfare assessment, will not do.

5. Like Hans Rosling, Ha-Joon Chang thinks the washing machine (and other domestic labour-saving machines) have had a bigger social and economic impact than the internet (Thing 4). This is neatly contrarian, but makes the mistake of portraying the current wave of technologies is all about blogs and Twitter. The current industrial revolution is the immense, unprecedented fall in price in computer processing and the conveying of information, a General Purpose Technology used throughout the economy from hunting for new medicines to logistics in global supply chains, from nanotechnology and molecule design to mobile telephony in Sub-Saharan Africa. I don’t know how you weigh the liberation of women’s time from domestic work against the introduction of communications in a whole continent. Probably best not to try.

6. The author has a fine turn of resounding phrase – but they don’t always bear the weight of scrutiny. On Economics, he says: “Economics is not a science like physics or chemistry, but a political exercise. Free-market economists may want you to believe that the correct boundaries of the market can be scientifically determined but this is incorrect. If the boundaries of what you are studying can not be scientifically determined, what you are doing is not a science.” (Thing 1). Hmmm. Economics applies the scientific method to issues with a political dimension. I can live with that. I think even free market economists would recognize that the public sector is different in scope in Singapore compared to Denmark. And that last sentence just isn’t correct. Physics and chemistry have fuzzy boundaries too.

7. The tendency to over-stating his case is also revealed in Thing 3, which says people would be paid the same in rich and poor countries if there were unlimited scope for immigration. While removing barriers to movement would create a global labour market (a) offshoring means we have gone part-way there without removing barriers to movement; (b) people from different places would still have different productivity levels due to differences in human capital, physical capital and institutional frameworks.

8. I would like to know if Ha-Joon Chang predicted the crisis, back in 2007 or 2008. His earlier work seems to be about trade. He criticises other economists for failing to warn of the impending disaster, (Thing 23), but there is a real issue about how to ensure decision-makers pay attention to the things they need to, as discussed in this recent conference (pdf) at the Toulouse School of Economics – and as we see in the current Euro crisis.

9. By the way, he isn’t opposed to capitalism, just to the Anglo-Saxon variety. South Korea, Japan, the Scandinavians – their versions get the thumbs up.

10. It’s terrific to be having this debate about reforming capitalism. Can we all agree on the basics now, like outlawing ludicrous executive and financial pay packages, and acknowledging that economies work best when both markets and governments are pulling together, and that history and political economy are important?

[amazon_image id=”0141047976″ link=”true” target=”_blank” size=”medium” ]23 Things They Don’t Tell You About Capitalism[/amazon_image]

* It would carve too long out of my working day to do 23 Things, sorry.

One of the striking aspects of the Occupy movement is its claiming of some open spaces in major cities, striking because it puts a line in the ground (literally) against the steady erosion of urban public space during the past quarter century. Many people have written about this, prominent among them the more-or-less-mystical geographer of London, Iain Sinclair. The relentless building of mega-towers on all possible sites in financial hub cities like London and New York,  the enclosure of open space in private malls, the design of street furniture to make sitting down (never mind sleeping) a challenge, the bearing down on demonstrations and gatherings and even photography on the grounds of law and order or security, have all contributed to discouraging public gatherings. A large part of the tizz among the top brass at St Paul’s Cathedral has been due to their internal debate about whether or not to turn to the law to evict the Occupy tents from a small area of land at the side of and in front of the Cathedral.

As a serious walker, one who would rather hoof it for half an hour than take a taxi between meetings, I’ve long regretted the increasingly antiseptic character of a number of western cities, London among them. A book I finished yesterday, [amazon_link id=”1844675580″ target=”_blank” ]Wanderlust: A history of walking[/amazon_link] by Rebecca Solnit, drove home the political aspect of the enclosure of formerly open and public urban spaces. Writing about her native San Francisco’s parades and protests, she writes:

“This is the highest ideal of democracy – that everyone can participate in making their own life and the life of the community – and the street is democracy’s greatest arena, the place where ordinary people can speak, unsegregated by walls, unmediated by those with more power. It’s not a coincidence that media and mediate have the same root; direct political action in real public space may be the only way to engage in unmediated communication with strangers, as well as a way to reach media audiences by literally making news. ….. Parades, demonstrations, protests, uprisings and urban revolutions are all about members of the public moving through public space for expressive and political rather than merely practical reasons.” (p216)

[amazon_image id=”1844675580″ link=”true” target=”_blank” size=”medium” ]Wanderlust: A History of Walking[/amazon_image]

Thanks to Occupy, she can add encampments to that list of manifestations. The same impulse for everyone to be “a producer rather than a consumer of meaning” lies behind radicalism in the arts, whether Joseph Beuys’ call for “Everyone an artist” or punk’s insistence on DIY roughness. Such movements emerge in times of economic crisis, like the late 1970s as well as now. But the serious political impact of the Occupy movement on the establishment, in all its branches including the ecclesiastical, is due to that literal occupation of public space.

Tents outside St Pauls