Category Archives: Book review

In 1939, I didn’t hear war coming. Now its thundering approach can’t be ignored

BOOK REVIEW

Don’t Let My Past Be Your Future, Author: Harry Leslie Smith.

By Harry Leslie Smith – Because I am old, now 94, I recognize these omens of doom.

Chilling signs are everywhere, perhaps the biggest being that the US allows itself to be led by Donald Trump, a man deficient in honour, wisdom and just simple human kindness. It is as foolish for Americans to believe that their generals will save them from Trump as it was for liberal Germans to believe the military would protect the nation from Hitler’s excesses.

Britain also has nothing to be proud of. Since the Iraq war our country has been on a downward decline, as successive governments have eroded democracy and social justice, and savaged the welfare state with austerity, leading us into the cul de sac of Brexit. Like Trump, Brexit cannot be undone by liberal sanctimony – it can only be altered if the neoliberal economic model is smashed, as if it were a statue of a dictator, by a liberated people. more> https://goo.gl/HaqHQ7

How Trump v Kim can wreck the world economy without a shot being fired

By Larry Elliott – The assumption underlying the muted response is that there will be no war between the US and North Korea, nuclear or otherwise, and that the smart investment play is to buy into any dips.

The markets are part right. It still looks unlikely that Trump will sanction a pre-emptive strike. Kim knows that, which is why he would be dumb to up the ante by aiming some missiles into the sea off Guam first.

But the financial markets – and the broader global economy – could still turn nasty in an repeat of what happened 10 years ago even without a shooting war.

For a start, the world has never really recovered from the last crisis. Growth rates have been weak and have only been possible because years of low interest rates and quantitative easing have encouraged consumers and businesses to rack up large amounts of debt. As the economist Steve Keen notes in his new book Can we avoid another financial crisis (Polity), many countries have become what he calls debt junkies.

“They face the junkie’s dilemma, a choice between going ‘cold turkey’ now, or continuing to shoot up on credit and experience a bigger bust later.”

Keen says the countries to watch out for have two characteristics: they already have high levels of personal debt and have relied substantially on credit as a source of demand in the past five years. Australia, Canada, South Korea, Sweden and Norway are all on his list of candidates to be future debt zombies. But so is China. more> https://goo.gl/f7WBnq

The Psychology of a Nuclear Standoff

By Tom Jacobs – The “nuclear taboo” has held for 70 years for two reasons, according to Jacques Hymans: “the enormity of the decision of use nuclear weapons,” and the unpredictability of the consequences of doing so. Nevertheless, he warns, these are dangerous times.

New nuclear states have always been highly interested in trying to use their weapons as means of compellence, i.e. threats to get some benefit. New leaders have also had such tendencies. This is understandable, because it takes time and experience to accept the counterintuitive reality that the biggest bomb in the world is mostly useless as a military weapon, and therefore also useless as a means of compellence. So, history teaches us that both the U.S. and North Korea at present are liable to try to push their nuclear luck. That makes for a dangerous situation.

The chances are higher that the U.S. will launch first. But this would be a terrible humanitarian catastrophe and the U.S. would lose Asia politically for a hundred years. more> https://goo.gl/CtHxCU

Away from Oil: A New Approach

By Basil Oberholzer – Two main problems arise from the connections between monetary policy, financial markets and the oil market: the first is financial and economic instability caused by oil price volatility. The second is an environmental problem: a lower oil price inevitably means more oil consumption. This is a threat to the world climate.

Is there a joint answer to these problems? There is. While hitherto existing policy propositions like futures market regulation or a tax on fossil energy face some advantages and disadvantages, they are not able to deal with both the economic instability and the environmental problem at the same time. What is proposed here is a combination of monetary and fiscal policy. Let’s call it the oil price targeting system.

First, to achieve economic stability in the oil market, a stable oil price is needed. Second, to reduce oil consumption, the oil price should be increasing. So, let us imagine that the oil price moves on a stable and continuously rising path in order to fulfill both conditions. To implement this, the oil price has to be determined exogenously. Due to price exogeneity, speculative attacks cannot have any influence on the price and bubbles cannot emerge anymore. The oil price target can be realized by monetary policy by means of purchases and sales of oil futures. Since the central bank has unlimited power to exert demand in the market, it can basically move the oil price wherever it wants. more> https://goo.gl/eUh85j

Bribery, Cooperation, and the Evolution of Prosocial Institutions

By Michael Muthukrishna – There is nothing natural about democracy. There is nothing natural about living in communities with complete strangers. There is nothing natural about large-scale anonymous cooperation.

There is something very natural about prioritizing your family over other people. There is something very natural about helping your friends and others in your social circle. And there is something very natural about returning favors given to you.

The trouble is that these smaller scales of cooperation can undermine the larger-scale cooperation of modern states. One scale of cooperation, typically the one that’s smaller and easier to sustain, undermines another.

When a leader gives his daughter a government contract, it’s nepotism. But it’s also cooperation at the level of the family, well explained by inclusive fitness, undermining cooperation at the level of the state. When a manager gives her friend a job, it’s cronyism. But it’s also cooperation at the level of friends, well explained by reciprocal altruism , undermining the meritocracy.

Bribery is a cooperative act between two people, and so on. It’s no surprise that family-oriented cultures like India and China are also high on corruption, particularly nepotism.

Even in the Western world, it’s no surprise that Australia, a country of mates, might be susceptible to cronyism.

Part of the problem is that these smaller scales of cooperation are easier to sustain and explain than the kind of large-scale anonymous cooperation that we in the Western world have grown accustomed to.

So how is it that some states prevent these smaller scales of cooperation from undermining large-scale anonymous cooperation? more> https://goo.gl/gZg5mY

How the Postal System and the Printing Press Transformed European Markets

By Prateek Raj – Until the end of the fifteenth century, impartial institutions like courts and police that serve all parties generally—so ubiquitous today in the developed world—weren’t well developed in Europe. In such a world without impartial institutions, trade often was (is) heavily dependent on relationships and conducted through networks like merchant guilds.

Such relationship-based trade through dense networks of merchant guilds reduced concerns of information access and reliability. Not surprisingly, because the merchant guild system was an effective system in the absence of strong formal institutions, it sustained in Europe for several centuries.

In developing countries like India, lacking in developed formal institutions, networked institutions like castes still play an important role in business.

If information access is poor (lack of transparency) or businesses don’t adopt reliable business practices (poor financial reporting or opaque quality standards), these deficiencies at the business level can make customers and investors question the reliability of new businesses.

Politicians, like medieval rulers, may be more willing to enter into a nexus with dominant businesses, like medieval merchant guilds, if 1) market frictions or 2) lack of incentives make the economy dependent on such businesses. more> https://goo.gl/faiBJ4

The quitting economy

When employees are treated as short-term assets, they reinvent themselves as marketable goods, always ready to quit

BOOK REVIEW
Down and Out in the New Economy: How People Find (or Don’t Find) Work Today, Author: Ilana Gershon.

By Ilana Gershon – Saying that ‘the market is the best way to organize or determine value’ overlooks many sorts of life dilemmas.

Inspired by the Nobel Prize-winner Gary Becke in adopting the market idiom, business writers began to talk about how people need to think about investing in themselves, and viewing themselves as an asset whose value only the market could effectively determine. Over time, a whole body of literature emerged advocating that people should view themselves as a business – a bundle of skills, assets, qualities, experiences and relationships to be managed and continually enhanced.

Not so long ago, business people thought that companies provided a wide variety of benefits to a large number of constituents – to upper management, to employees, to the local community, as well as to shareholders. Many of these benefits were long-term.

But as market value overtook other measures of a company’s value, maximising the short-term interests of shareholders began to override other concerns, other relationships. Quarterly earnings reports and stock prices became even more important, the sole measures of success.

How companies treated employees changed, and has not changed back.

In general, to keep stock prices high, companies not only have to pay their employees as little as possible, they must also have as temporary a workforce as their particular business can allow. The more expendable the workforce, the easier it is to expand and contract in response to short-term demands. These are market and shareholder metrics. Their dominance diminished commitment to employees, and all other commitments but to shareholders. more> https://goo.gl/vAoBxe

The Soviet InterNyet

Soviet scientists tried for decades to network their nation. What stalemated them is now fracturing the global internet

BOOK REVIEW
How Not to Network a Nation: The Uneasy History of the Soviet Internet, Author: Benjamin Peters.

By Benjamin Peters – First proposed in 1962, the All-State Automated System, or OGAS, was intended to become a real-time, remote-access national computer network built on preexisting and new telephony wires. In its most ambitious version, it would span most of the Eurasian continent, mapping itself like a nervous system onto every factory and enterprise in the planned economy.

The forces that brought down OGAS resemble those that eventually undid the Soviet Union: the surprisingly informal forms of institutional misbehavior. Subversive ministers, status quo-inclined bureaucrats, nervous factory managers, confused workers and even other economic reformers opposed the OGAS project because it was in their institutional self-interest to do so. Without state funding and oversight, the national network project for ushering in electronic socialism splintered in the 1970s and ’80s into a patchwork of dozens and then hundreds of isolated, non-interoperable factory local-area control systems.

The Soviet state failed to network their nation not because it was too rigid or top-down in design but because it was too fickle and pernicious in practice.

There is an irony to this. The first global computer networks took root in the US thanks to well-regulated state funding and collaborative research environments, while the contemporary (and notably independent) national network efforts in the USSR floundered due to unregulated competition and institutional infighting among Soviet administrators. The first global computer network emerged thanks to capitalists behaving like cooperative socialists, not socialists behaving like competitive capitalists.

In the fate of the Soviet internet we can glimpse a clear and present warning to the future of the internet. Today the ‘internet’ – understood as a single global network of networks for advancing informational liberty, democracy and commerce – is in serious decline. more> https://goo.gl/Ha9MmF

The new astrology

BOOK REVIEW

The Gluten Lie: And Other Myths About What You Eat, Author: lan Jay Levinovitz.
Mathiness in the Theory of Economic Growth, Author: Paul Romer.
The Rhetoric of Economics, Author: Deirdre N McCloskey.
Economics as Religion, Author: Robert H Nelson.
Astral Science in Early Imperial China, Author: Daniel P Morgan.
Book of Documents, Author: king Yao.

By lan Jay Levinovitz – Unlike engineers and chemists, economists cannot point to concrete objects – cell phones, plastic – to justify the high valuation of their discipline. Nor, in the case of financial economics and macroeconomics, can they point to the predictive power of their theories.

In the hypothetical worlds of rational markets, where much of economic theory is set, perhaps. But real-world history tells a different story, of mathematical models masquerading as science and a public eager to buy them, mistaking elegant equations for empirical accuracy.

The notion that an entire culture – not just a few eccentric financiers – could be bewitched by empty, extravagant theories might seem absurd. How could all those people, all that math, be mistaken?

This was my own feeling as I began investigating mathiness and the shaky foundations of modern economic science. Yet, as a scholar of Chinese religion, it struck me that I’d seen this kind of mistake before, in ancient Chinese attitudes towards the astral sciences.

Back then, governments invested incredible amounts of money in mathematical models of the stars. more> https://goo.gl/tYDpbv

The New Normal: Radical Inequality, Suffocating Debt, and Growing Job Uncertainty

By Servaas Storm – The U.S. economy is suffering from two interrelated diseases: the secular stagnation of its potential growth, and the polarization of jobs and incomes. The two disorders have a common root in the demand shortfall, originating from the ‘unbalanced’ growth between technologically ‘dynamic’ and ‘stagnant’ sectors, which—crucially—is bringing down potential growth.

The key mechanism is just this: rising real wages, as during the period 1948-1972, provide an incentive for firms to invest in labor-saving machinery and productivity growth will surge as a result; but when labor is cheap, as during most of the period 1972-2015, businesses have little incentive to invest in the modernization of their capital stock and productivity growth falters as a consequence.

Financial globalization, in addition, enabled the rich to have their cake (profits) and eat it (by channeling them to offshore tax havens or into derivative financial instruments). In this way, trade and financial globalization have been essential building blocks of the dual economy. more> https://goo.gl/5EFndw