Cassidy: How Markets Fail

I recently completed How Markets Fail: The Logic of Economic Calamities (2009, 400 p.) by John Cassidy. Last March I recommended Neil Fergusson's The Ascent of Money as the book to read to understand the Great Crash of 2008. Not to take anything away from Fergusson's excellent book, but I now nominate this book for the task.

The crux of Cassidy's argument lies in his distinction between "utopian economics" and "reality-based economics". The Utopians believe strongly in the myth of homo economicus: rational, economic man. Calculating, analyzing, utility maximizing. Based on this model, economics built structures of beautiful mathematical models of how the world works. Some theorists, following the lead of Frederick Hayek, assumed the markets distributed information in the most efficient and rational way. Indeed, in the 1960s and beyond, the idea of "efficient markets" came to the fore, and eventually Allan Greenspan, as head of the Fed, came to think that "the market" would self-correct for anything like greed, myopia, ignorance, and other such imperfections.

It didn't.

Cassidy, after having taken readers through and quick and very informative history of classical and neo-classical economics, and more recent developments in financial theory (once the forgotten relative of economics), then takes us on a history of what he terms "reality-based economics". In this group, we find those who see the imperfections of markets and human behavior, men like Arthur Pigou, John Maynard Keynes, Herbert Simon, and Daniel Kahneman and Amos Tversky. These individuals saw the limits of human behavior, which often proves economically irrational, and the limits of markets, which have their own paradoxes. For instance, Keynes addressed the "rational irrationality" of depressions and recessions. When the economy takes a downturn, people spend less and save more. However, when the economy goes south, someone needs to spend more to get it going again. Hence, for Keynes, we need government spending and intervention. Sound familiar? No wonder Keynes has made a comeback on economics circles (members of the Chicago School thought him a complete has-been). Cassidy addresses this history very deftly and succinctly, without seeming to leave out anything. (I might note here that Cassidy writes for the New Yorker, so you can assume his ability as a writer and expositor.)

In last portion of the book, Cassidy writes in detail about the events of 2007 and 2008, and the proximate causes of the crash. In sum, Wall Street had perverse incentives that in retrospect were certain to lead them to crash and turn our financial bus. For instance, financial risk that was supposed to have been ameliorated by spreading risk around to different holders. However, it turns out to have been only a spreading of ignorance and responsibility. Meanwhile, before the House of Cards fell, Wall Street rewarded itself for its "innovation". Thus the obscene bonuses.

I fear my humble review doesn't do justice to this outstanding book. If you know some economics it helps, but even if you don't, Cassidy is such a fine teacher that I don't think that you'd get lost. In fact, I hope that every member of our national leadership will read this book. (They won't, don't worry.) Cassidy certainly points the way to how we can do better, and how we must recognize where we will continue to fail and need to plan for that failure. Understand this: Cassidy isn't "anti-market" or anti-free enterprise. I deign to think that, like me, he appreciates markets as the primary template for decision-making, since its decentralized process allows for the best flow of information (hats off to Hayek here); however, it's not infallible, and it does not constitute a perpetual motion machine that doesn't need government guidance (not to mention governmental prerequisites). I highly recommend this book.

Hadot: The Present Alone is Our Happiness

2008 publication. A gem. 

I have finished re-reading Pierre Hadot's The Present Alone is Our Happiness: Conversations with Jeannie Carlier and Arnold I. Davidson.(2008 216 p.)--again. This is my third reading. The first time in a hurry to take in this new delight, a second reading with highlighting to absorb his wisdom, and this time to savor the pleasure of his company. This book, interviews of the eminent French scholar of ancient philosophy and philosopher in his own right, gives me the experience of listening to a man who is genuinely interested in wisdom and learning. Hadot became a Catholic priest at an early age (during WWII), but his main interest seems to have been in philosophy and mysticism. Differences with the Church and the development of a love life lead him away from the priesthood, but not away from his philosophical and scholarly pursuits. After the first couple of chapters recounting personal history, the rest of the book addresses his scholarly and philosophical work, which includes works on Plotinus and Marcus Aurelius. Perhaps Hadot's greatest contribution to me comes from his teaching that ancient philosophy addresses the issue of how one lives and holds little concern for systems of thought. Ancient philosophy, starting with the paradigmatic Socrates, emphasized oral teaching about how one should conduct one's life. Ancient philosophers cared little for systematic consistency. Hadot thus instructs us about how to read Marcus Aurelius's Meditations and others like him (especially the Stoic and Epicurean traditions). Hadot, however, does not limit himself to the Ancients, as he reports his appreciation of Montaigne, Goethe, Bergson, and Wittgenstein, among others. (Goethe provides the quote for the title.) I could go on at some length praising Hadot's work and my enjoyment of it, but I suggest that instead, we spend our time reading his work. (My previously posted comment on Hadot is here (item #23).

Colvin: Talent Is Overrated

Talent Is Overrated: What Really Separates World-Class Performers from Everybody Else
by Geoff Colvin (2008, 206 p.) provides a nice compliment to The Talent Code (item #6). In sum, both books argue that talent comes from deliberate practice. Effort, in terms of meaningful practice, much more that genes, creates skillful performers. Colvin, like Coyle, focuses on some of the most skillful performers. Colvin describes NFL receiver Jerry Rice and Tiger Woods. (Note the publication date of 2008. We're talking strictly golf). He also discusses Mozart, among others. The overriding point: the amount of time spent in dedicated practice, even for a supposed prodigy like Mozart, provides the key to ultimate success in a field of performance. Colvin talks about all of the tangents of this issue: how to raise kids, applications of business, whether old people can still learn and perform (yes). He notes that Arthur Rubenstein, the great pianist who performed into his 89^th year, slowed down in many areas, but last of all in his piano-playing skill. In fact, Rubenstein began to perform some sections slower in order to give the perception of increased speed in following sections when he couldn't perform them as fast as he used to. Old folks can be clever! Overall, a quick, entertaining read. The lesson of this books and Coyle's book may be summed up in the old Beatnik joke: How do you get to Carnegie Hall? "Practice, man, practice." A book for teachers, coaches, and parents to share with students.

James Fallows on American Decline

James Fallows has published an article in The Atlantic (Jan/Feb 2010) entitled "How America Can Rise Again". As usual, Fallows provides a thorough and considered report on the topic. He points out that concerns about American decline are as American as apple pie, and the tradition goes back to the founding of the republic. He dubs the attitude "declinism". He makes a number of salient points, most interestingly, about China. Fallows has been living and reporting from China for the last couple of years, so his insights bear some serious consideration. The short summary: the rise of China, in many ways inevitable, actually can work to America's interest (ditto India). In fact, in a point that I agree with him more and more, our greatest challenge lies in the failure of our political system. He believes, as I do, that it's not working at all well. Although he doesn't cite it, the health care problem is a prime example. We have a very clear majority of Congress who support some core reforms (badly needed), and yet it's fate languishes because a Cosmo-type centerfold dude has been elected senator from Massachusetts. It also languishes because of individuals like Joe Lieberman, who has made himself into a party of one. Congress remains stuck in a culture of rotten boroughs (corrupting, old, and unrepresentative political system) that would make the 19^th century blush. I recommend the article for the thoughtful consideration of the concerns and the not necessarily pessimistic conclusions that Fallows reaches.

Gawande: The Checklist Manifesto

I've finished Atul Gawande's The Checklist Manifesto (2009, 175 p.). Yes, I read a whole book about the humble checklist. Yet, as one would expect from someone who is a regular New Yorker contributor, it's very well written. The basic premise is simple: with increasingly complex undertakings, no person can keep the necessary mental notes needed to do everything that must be done when it should be done. This includes surgeons and their staff, airline pilots, contractors, and yes, even lawyers. (I give myself credit for professional reading on this one.) Gawande gives us a tour of how something as complex as a skyscraper gets built, and built right. He takes us to Boeing to see how simple checklists operate airplanes and save lives. He also takes us into surgery with him and his peers to see how they deal with these problems. Many of his accounts, especially of surgical and airline emergencies, are fascinating and scary. His own challenges getting a working checklist into his OR makes for interesting reading as well. In sum, it's a short, fascinating account of how a simple, rather old-fashion device can do a lot of good. Cooks use them all the time: they call them recipes.

Taleb on Walking & the Paleo Life

A couple of my regular blog reads posted this from my man Nicholas Taleb, the author the The Black Swan, one of my favorite books. This particular link, from Taleb's website (http://www.fooledbyrandomness.com/whyIwalk.pdf) appears to be a portion of an upcoming book. In any event, it's a peek into his current fitness regiment, which he credits Art Devany and Doug McGuff (Body By Science). Of course, I got into Devany after reading Taleb's Fooled By Randomness, where Devany got a shout-out not only for his economics work, but also for his fitness regiment, what Devany dubs as "evolutionary fitness". Since I came across this in 2007, I've read and followed Devany's line of thinking, and I've discovered other like-minded thinkers. (I've let my paid subscription to Devany lapse, but he's supposed to be publishing a book before too long.) So what's all this got to do with Taleb and his black (or gray) swans? Randomness, robustness, variation: all themes in Taleb's work are applied to fitness. In any event, read Taleb's piece and check out some of this information, as I think Taleb, Devany, McGuff, and their ilk are on to something.

Current Intake

Self-help books and advisors often suggest that you make your resolutions public in order to use the pressure of public scrutiny to accomplish your goals. Well, forget it, if you're looking for something interesting. However, I do hope this year to complete many works that I started, but for one reason or another, didn't complete. Also, I want to attempt to leave fewer uncompleted works lying around. Thus, an occasional update on what's been going into my head. The notes and comments will be short with the thought that fuller reviews will follow:

1. Atul Gawande: The Checklist Manifesto: How to Get Things Right. Very well written and informative. Amazing the difference something so simple as a checklist can make.
   
2. Pierre Hadot, The Present Alone is Our Happiness: Conversations with Jean Carlier and Arnold Davidson. The great French scholar and philosopher tell of his life and shares his insights from a life time of considering issues arising primarily from his reading of ancient philosophy. I'm embarrassed to say that I read it last year, but forgot to put it on my "best of the year" list. I've decided to re-read it, so it will appear on this list for this year—and yes, it's worth the re-read—definitely!
   
3. John Cassidy, How Markets Fail: The Logic of Economic Catastrophes. Listening to this one. A very careful yet accessible history of economic thought.
   
4. A lot of mags to catch-up on.

The World of Late Antiquity by Peter Brown

I finished Peter Brown's The World of Late Antiquity: AD 150-750 (1971)(203 p.). Brown writes wonderfully. The only drawback for me was the immensity of his knowledge & his topic. So much was happening! The rise of Christianity, the continuation and deterioration of Roman culture and political rule, the invasions of barbarians, the rise of Byzantium as a separate political entity and culture, and last, but not least, the rise of the Moslem rule and culture. Brown passes through these topics like a knowledgeable museum curator giving you the basic guided tour. Indeed, the book includes a number of illustrations of contemporary art works (love those mosaics!). In all, this work provides a very formidable and wide-ranging survey of this diverse and changing era. No longer will it simply be thought of as the era of the Decline and Fall, or as simply the Dark Ages (although I'm not convinced that this doesn't apply in Northern Europe from about 750-1000 CE). In any event, I'm eager to read more of Brown's work.

Brooks on Avatar

I've must say that I have a lot of sympathy with what Dave Brooks says here about "Avatar", James Cameron's new blockbuster. It does have a "white guys rule" sensibility, like its predecessors, such as "Dances With Wolves" (the film that I first thought of after having viewed "Avatar". Maybe its too much to have something more subtle in the problems & issues; bad guys maybe not quite so bad & good guys (and gals) not quite so good. Americans as a whole need to understand these issues with more nuance IMHO.

New Reading Project & New Infatuation

I'm now into a reading project centered on Late Antiquity. I didn't know the phrase existed until recently. Gibbon defined it as the era of the decline and fall of Rome; most know it as the Dark Ages. However, it seems that especially due to the researches and writing of Peter Brown, we now consider this era (c. 150-750) as Late Antiquity. I'll mention some of the titles that I've dipped into as a part of this project, but I think I may have a new author infatuation: Peter Brown. Commentators on this era all include Brown in their essential bibliographies, and a number mention his prose style. Well, I'm into his The World of Late Antiquity: AD 150-750 (1971), and the reputation seems well-deserved indeed. I'm thinking more and more of diving into his very highly regarded biography of St. Augustine, perhaps the key figure of Late Antiquity (at least in the West). Other good prospects waiting in line:

1. Freeman, Charles, The
   Closing of the Western Mind: The Rise of Faith and the Fall of Reason
   
2. Dodds, E.R., Pagan & Christian in an Age of Anxiety
   
3. Galsworthy, Adrian How Rome Fell
   
4. O'Donnell, James, The Ruin of the Roman Empire: A New History
   
5. More Brown
   

Suggestions?

Niebuhr: Children of Light & Children of Darkness

I completed by first book of the year, Niebuhr's Children of Light & Children of Darkness: A Vindication of Democracy & a Critique of Its Traditional Defense (1944, 190 p.). This was a re-read, but well worth it. I could fill a post with quotes from this wonderfully insightful book. However, as you should read it yourself, I'll limit myself. An example: "There is freedom in history . . . But there is no absolute freedom in history; for every choice is limited by the stuff which nature and previous history present to the hour of decision." (54). Think about that thought not just in the light of nations and national leaders, but in your personal life. I'm all for "thinking outside the box", "possibility thinking", and so on; worthwhile exercises because we can become tired and stale, but in the end, we do face existential limitations from nature and history—personal as well as social history.

Okay, I can't help myself, another quote: "The ideal of the individual self-sufficiency, so exalted in our liberal culture, is recognized in Christian thought as one form of the primal sin. For self-love, which is the root of all sin, takes two social forms. One of them is the domination of other life by the self. The second is the sin of isolation." (55). Or as the dear one says: "The Big Self. Self-centered and self-righteous." Yup, she's Niebuhr to the core. Niebuhr meanwhile harkens back to Augustine's libido dominandi, while we thought that libido was just about the BVH.

Niebuhr touches on subjects such as anti-trust law, feminism, defense of property, social contract theory, issues of race, ethnicity, and religion, among others, making the breadth of his insights quite remarkable. He maintains a middle-way that is not a mushy center, but a perspective that avoids the pitfalls of the extremes.

I'll quit (promise) with one last quote: "[I]f only the proponents of various political theories have some decent and humble recognition of the fact that their theories are always partly the rationalization of their interests. A conservative class which makes "free enterprise" the final good of the community, and a radical class which mistakes some proximate solution of the economic problem for the ultimate solution of every issue of life, are equally perilous to the peace of the community and the preservation of democracy." (148-149). I hope for more Niebuhr to come.

Closing the Books on 2009: Best Books of the Year

It's time for my annual retrospective on the books of 2009. However, before plunging into that topic, a couple of points:

• More and more reading comes from the internet, via blogs primarily, but also on-line editorial pieces from "newspapers" and internet "magazines". These pieces tend to be short and to the point. To a very small extent I've posted some of those that I found pertinent, and one of the resolutions for the new year will be to post those short pieces as they arise.
  
• Magazine reading seems to be the big loser, as the articles are a bit longer than most internet pieces, but they don't provide the depth of a book.
  
• I start many books and become distracted. I will not count them unless I finished them, or at least got far enough to pass the test.
  
• I did some dipping into books that may not receive recognition. For instance, from John Lukacs's Remembered Past: John Lukacs on History, Historians, and Historical Knowledge (2005), an 894-page book Lukas's shorter writings, including some chapters from his books. Also, essays by Jacques Barzun, another cultural treasure. Michael Dirda, book reviewer par excellance. Anyway, those readings, which prove quite rewarding, don't score points on the "books read". Nevertheless, I still do pretty well, I think. (Curse you! Donna Harris!)
  

In no special order, the best books of the year:

1. A Thousand Hills: Rwanda's Rebirth and the Man Who Dreamed It

   (2008) by Stephen Kinzer. My youngest daughter recommended this book to me, and it was fascinating. Of course, if you're like most people, or me, you think Rwanda and genocide. It was a horror in the early 1990's. However, a lot happened before and after that hellish event. This book covers events leading to the genocide and the years that followed, primarily through the life of Rwanda's current president, Paul Kigame. This book addresses:
   

• Issues of colonialism and crackpot racial theories of Belgium missionaries that contributed (if not created) divisions between Hutu and Tootsie.
  

• The complicity of the French government in the genocide.
  

• The problems of corruption in African governments
  

• The failure—indeed cowardice—of the Clinton administration to address the genocide.
  

• The abject failure of the U.N. to address the problem, despite having forces on the ground (and it proves especially damning of Kofi Anan, who could have acted much more aggressively to avert the disaster and who fails to acknowledge this failure).
  

• The hope of Kigame to create an Asian miracle in Africa.
  

• The fact that Machiavellian considerations pervade politics.
  

• How Rwanda seeks to reestablish national unity after such a horrible experience, and the role of informal courts in attempting this feat.
  

• The conflict between those primarily concerned with African development and African human rights when viewing the Kigame regime.
  

 

I could continue at some length, but I trust you get the picture. Really quite a wide-ranging and intriguing book that deals with so many of the issues that African nations face, as well as western nations.

1. The Irony of American History (1950) by Reinhold Niebuhr. My consideration of Obama's Nobel Acceptance speech led me to this Niebuhr book, and I'm very glad that I did. I'm embarrassed that I haven't read it before. In sum, Niebuhr talks about the tragic and the ironic in politics. The ironic efforts are those that intend good but result in less than good results. In this book, Niebuhr addresses American naiveté, and how we think we're so all-fired good when in fact, we're not. Niebuhr is an Augustinian of the first order, and his appreciation of our national faults and virtues is unparalleled. I was astonished at how much is words, written shortly before I was born, still resonate so much in light of current and recent events. This man was a prophet, and the fact that Obama considers him a guiding light gives me a good deal of hope about Obama's leadership.
   
2. Born to Run: A Hidden Tribe, Superathletes, and the Greatest Race the World Has Never Seen (2009) by Christopher McDougall. Okay, time for some fun, and fun this book was. What a gas! It's about sore feet, bare feet, lost tribes, slightly crazy people, modern error, and human evolution. McDougall weaves a compelling narrative with digressions of teaching that make the book compelling listening (I listened). Whether you're a runner or not, I highly recommend this book for a fun, informative read.
   
3. When the Game Was Ours (2009) by Larry Bird and Earvin "Magic" Johnson, with Jackie MacMullan. This Christmas gift from my eldest daughter didn't sit in my reading queue for long, and for good reason. For those of you who are ignorant of basketball (I have to speak bluntly here), these two were great. I saw Magic play here at Iowa, and then I followed him and Bird throughout their careers. This book, based primarily on Bird and Johnson's reminisces, tells how these two intensively competitive and skilled individuals at first only eyed each other from a distance. Then, in 1985, while shooting a commercial for Converse in French Lick (and shame on you if you don't know about French Lick) and with ample helpings of Mrs. Bird's pie, these two rivals came to know each other and understand their common histories and experiences. In fact, while on the exterior they were different, warm and out-going Magic vs. taciturn Bird, Laker v. Celtic, white and black—you could go on—they were very much alike in their dedication and determination to succeed. In the end, they recognized this in one another, and although each would never back down from a competition, they developed a special bond. Who was the greatest player? The question still boggles my mind. An intriguing read.
   
4. War is a Force That Gives Us Meaning (2003) by Chris Hedges. This book (I listened) was extremely intense. Hedges reported from Central America, the Balkans, Africa, and Palestine for the New York Times. He lived in and reported from war zones. Don't let the title fool you. He understands war and its effect on lives better than anyone else that I can think of. Don't be fooled by the title! See my earlier post (7.21.09) for more in this incredible book and his Empire of Illusions (2009), in which he plays the role of prophet. Hedges is a writer that won't let you off the hook easily.
   
5. Inventing the Middle Ages by Norman Cantor. See my earlier post (12.09.09): great fun! Delightful. Intriguing.
   
6. The Talent Code: Talent Isn't Born. It's Grown. Here's How. (2009) by Daniel Coyle. This was my last completion of the year. This audio book explained new developments in the neurology of learning put into layman's terms. In short, the more we use nerves (the source of any human action or learning), the more myelin those nerves develop, giving them greater speed and bandwidth (i.e., effectiveness). Neural efficiency develops best with "deep practice", and to demonstrate this, Coyle visits a Russian tennis academy, Brazilian soccer history, a music academy in upstate New York (ever heard of Yo-Yo Ma?), and a basketball practice run by John Wooden (via a study done by 2 UCLA professors of education). For anyone interested in learning, teaching, coaching, or parenting (if these don't address you, Reader, then you're a space alien), I highly recommend this book.
   
7. Confessions of a Conservative (1979) by Garry Wills. See my post (11.20.09).
   
8. John Lukacs books: Last Rites (2009) (04.02.09); Confessions of an Original Sinner (1990) (10.23.09), Democracy and Populism (2005) (05.06.09)At the End of an Age (2002) (10.26.09, etc.). (Lots more bits and pieces of Lukacs, as I mentioned in the introduction.). Well, I've gone on at some length in the past about Lukacs, and as you can see, throughout the last year. I think that he's very perceptive, interesting, and challenging.
   
9. The Girl With the Dragon Tattoo
   (2008) and The Girl Who Played With Fire (2009) by Steig Larsson. These two thrillers were great fun. Contemporary Sweden seems not as utopian as one might think. The two characters provide an entertaining juxtaposition. Fast pacing with a plausible enough story line gets you involved, although the second one got a bit too convoluted, yet, I'm hooked. The third (and final) book in the series is due out this spring. It should prove fun.
   
10. Redbreast (2008) by Jo Nesbo. Another thriller from Scandinavia, this time from Norway. This book is a police procedural starring Harry Hole, the Oslo detective. However, it reaches back to the Eastern Front in WWII to provide much of the story. Another fast-paced, enjoyable read that gives a glimpse of demons still haunting a Scandinavian nation.
    
11. 
    The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization (2006) by Thomas Homer Dixon. Dixon is a Canadian political scientist trained at MIT. This book weaves scholarly knowledge with boots-on-the-ground investigation and consideration of what makes societies work or fail. For more details on this outstanding book, check out my post.
    
12. 
    Mind in the Balance: Mediation in Science, Buddhism, and Christianity (2009) by B. Alan Wallace. See post 05.26.09.
    
13. The Ascent of Money (2008) by Niall Fergusson. See post 03.01.09.
    
14. Common Wealth: Economics for a Crowded Planet (2008) by Jeffrey Sachs. See post 02.08.09.
    
15. 
    A Whole New Mind: Moving from the Information Age to the Conceptual Age by Daniel Pink (2005). See post 02.08.09.
    
16. Emotional Awareness (2008) by Dalai Lama & Paul Ekman. See post 01.18.09.
    
17. 
    Create Your Own Economy: The Path to Prosperity in a Disordered World (2009) by Tyler Cowen. Thoughts of an economics professor, blogger (Marginal Revolution), and all-around interested guy, focusing a lot on autism and the internet, among other things. A worthwhile tour of some interesting ideas.
    
18. The Invention of Air: A Story of Science, Faith, Revolution, and the Birth of America (2009) by Steven Johnson. Joseph Priestly: a man who "discovered" (or invented) oxygen and who contributed to democracy in America and religious toleration. A mob burned down his house for his efforts. As usual, Johnson weaves narrative with scientific facts and history to provide an engaging account. We need more like Priestly.
    

 

Well, enough for now. There are a number of books that I need to finish. Perhaps, Reader, you'll find something that tickles your fancy. If so, go for it. Happy Reading for 2010.