Monthly Archives: November 2013

Tigers and snakes in the global economy

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The other serious book I read among my holiday reading ([amazon_link id=”0718159209″ target=”_blank” ]The Collini Case[/amazon_link], [amazon_link id=”0340994150″ target=”_blank” ]Breakdown[/amazon_link]) was Jonathan Fenby’s [amazon_link id=”1847394116″ target=”_blank” ]Tiger Head, Snake Tails[/amazon_link], which is a pleasing combination of high-level overview and complex detail. Pleasing because – as he points out in the introduction – there is a tendency in books by US and UK authors to either over-hype the marvellousness of China’s prospects or over-emphasise the pitfalls and difficulties the country will face in continuing its growth. The title Tiger Head, Snake Tails captures Fenby’s theme: the amazing promise combined with the multitude of problems and challenges being created by such rapid growth and change. I’ll write a review when I’ve finished it. Meanwhile, I’m learning a lot. And as a longtime journalist the author certainly knows how to keep the reader paying attention.

[amazon_image id=”1847394116″ link=”true” target=”_blank” size=”medium” ]Tiger Head, Snake Tails: China Today, How it Got There and Why it Has to Change[/amazon_image]

Actually, it has been a good year for my reading on China. I thought Michael Pettis was terrific on its role in the global economy, and how its domestic policy affects global imbalances, in [amazon_link id=”0691158681″ target=”_blank” ]The Great Rebalancing[/amazon_link]. Joe Studwell’s [amazon_link id=”1846682428″ target=”_blank” ]How Asia Works[/amazon_link] was excellent, although relatively little of it is about China. While I’m mentioning the forthcoming Perspectives series, one of the titles is by Jim O’Neill, [amazon_link id=”1907994130″ target=”_blank” ]The BRIC Road to Growth[/amazon_link]. He is more nuanced about China’s prospects than often assumed, acknowledging that its growth rate will slow compared with the recent past, but argues that even so the institutions of global economic governance urgently need to find a place for the large BRIC countries. I think Michael Pettis would agree.

Poverty, fear and loathing

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One of the books I read on holiday this past week was Alan Johnson’s memoir, [amazon_link id=”0593069641″ target=”_blank” ]This Boy.[/amazon_link] It’s a very moving testament of love to his mother, who was abandoned by her feckless husband and died young, and his older sister, who subsequently brought him up despite being just a teenager herself. Born in 1950, he grew up in extreme poverty in wast London. Few people who experience that kind of deprivation – cold, damp, cramped rented housing, hunger, constant debt, second hand clothes, lack of hot water, power being cut off – write about it or are paid any attention if they do so. It was Mr Johnson’s success, via his union, in politics that gave him a voice and an audience. His story is both a great family saga, both sad and uplifting, and an unusually authentic account of being brought up in material poverty. It is especially revealing to see how hard it is for anybody – even someone as hardworking and determined as his mother Lily – to safeguard children from their circumstances. It must be heartbreaking for parents not to be able to stop their children being hungry, not to be able to protect them from the everyday violence of the streets.

[amazon_image id=”0593069641″ link=”true” target=”_blank” size=”medium” ]This Boy[/amazon_image]

It would be a mistake to think that this kind of poverty is history. Conditions are somewhat better than in the 1950s and 60s, but it is still hard for most of us to appreciate the lives of people on low incomes. This column by food blogger Jack Monroe recounts how scarily easy it is, too, to become poor – as she points out forcefully here, she did not fall in to any of the usual tabloid blame categories. Julia Unwin, Chief Executive of the Joseph Rowntree Foundation, has written a marvellous book, [amazon_link id=”1907994165″ target=”_blank” ]Why Fight Poverty[/amazon_link], out soon in a new series I’ve been editing, in which she highlights both the standard failure of imagination about poverty, and the fear that either makes us unwilling to think about the lives of people who do not have enough money, or turns into loathing and blame.

[amazon_image id=”1907994165″ link=”true” target=”_blank” size=”medium” ]Why Fight Poverty?: And Why it is So Hard (Perspectives)[/amazon_image]

I think she’s right to draw our attention to the emotional baggage we bring to the subject, and the barriers to tackling poverty created by our unacknowledged fear. I do recommend reading [amazon_link id=”0593069641″ target=”_blank” ]This Boy[/amazon_link].

Fortune tellers, astrologers and economists

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[amazon_link id=”0691159114″ target=”_blank” ]Fortune Tellers[/amazon_link] by Walter Friedman is a provocative title for a book about economic forecasters – or perhaps not. For many people would agree about the resemblance between the two activities. Besides, this is the tale of the early forecasters who preceded or perhaps more charitably laid the foundations for the model-based, computerised macroeconomic forecasting of our own times.

[amazon_image id=”0691159114″ link=”true” target=”_blank” size=”medium” ]Fortune Tellers: The Story of America’s First Economic Forecasters[/amazon_image]

The first character to stride onto the stage is literally a fortune teller. Evangeline Adams was an astrologer who offered stock market tips and predicted business trends for affluent New Yorkers in the early 20th century. Her enormous influence was cemented by the claim to have correctly forecast the 1929 stock market crash. Friedman writes: “Even in her own time, many regarded Evangeline Adams as a fraud and a scam artist. Her success, however, points to a profound anxiety about the future. Capitalism, after all, is a uniquely future-oriented economic system.” The other characters range from the more respectable Roger Babson, whose forecasts prefigured technical analysis, based on charts and trends, to the highly respectable Irving Fisher, who based his forecasts on theory and models, and John Moody, who collected masses of detailed data and analysed the figures, founding what would become the famous ratings agency.

The book is a great read, based as it is around the personalities of these early forecasters. A surprising number were sufferers from tuberculosis – it is hard to resist the amateur psychology of speculating that they particularly wanted to foresee the future, living as they did in the shadow of mortality. They were inventive and entrepreneurial. Babson (who founded Babson College in Wellesley*) built the world’s largest relief map of the United States. Fisher patented a precursor to the Rolodex and invented a prize-winning tent to aid the treatment of tuberculosis. He also built a machine showing the circular flow of income in the economy, well before the famous Phillips Machine.

These men (Adams is the only woman) founded businesses, wrote books, travelled around giving lectures and promoting themselves. I can see a terrific movie in the ‘forecasting wars’ of the 1920s as these larger-than-life, quintessentially can-do Americans competed with each other to call the stockmarket, win followers and make a fortune. Leonardo di Caprio, Benedict Cumberbatch, and George Clooney, with Tilda Swinton as Evangeline Adams. It would be a great way to tell the story of the bubble and stockmarket crash. It was an era of such forecasting mania and desire to know the future that even AT&T and Macy’s started generating their own economic forecasts in the 1910s. The government, too,  got into the business, through Herbert Hoover and Wesley Mitchell in the mid-1920s.

I spent a couple of years in the late 1980s producing macroeconomic forecasts, enough time watching the sausages being made to put me off eating them. Nate Silver’s book [amazon_link id=”0141975652″ target=”_blank” ]The Signal and the Noise [/amazon_link] has an excellent chapter on economic forecasts, comparing and contrasting them to weather forecasts. The problems are similar – non-linear dynamic systems of great complexity, although economics is harder because the ‘particles’ are conscious human beings. Weather forecasting is much improved at very short time horizons but still not good longer term, despite the huge increase in data collection and processing that has occurred. It is foolhardy to think economic forecasting will ever be accurate. Forecasts are no more than a tool for thinking about current trends. Still, as Friedman points out, the appetite for forecasts will never diminish, and that demand will always create a corresponding supply.

* Corrected from earlier thanks to Edward Hadas