Ideal wet weather reading

In time for the long weekend, Behemoth: A history of the factory and the making of the modern world by Joshua Freeman has just arrived at Enlightenment Towers. It’s pouring with rain (well, what else would the weather do on a holiday weekend), I have an easter egg to eat, so as soon as I’ve finished reviewing a research proposal I know what I’ll be doing…

 

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Euro-vision

Benn Steil’s The Marshall Plan: Dawn of the Cold War reminded me at times of the movie 13 Days (about the scary 1961-62 confrontation between the US and USSR over Soviet missiles heading for Cuba): you know how the story ends, but even so the dramatic tension of men in suits talking in a room is almost unbearable. The dawn of the Cold War – particularly the status of Berlin and the airlift – was one of those extraordinary turning points too. Steil is also a terrific writer. For example, here he describes Kennan: “George Kennan would make a career out of repeatedly testing his powers of persuasion and then recoiling from the consequences.”

It’s also particularly poignant to read this book in Brexit Britain, for it makes clear the Marshall Plan’s bold vision of political cooperation and growing economic links between all of the western European nations, and the achievement of American politicians and diplomats in enabling this in a continent devastated by the war and not surprisingly beset by mutual suspicion. Prosperity and security for the whole were inextricably linked – hence the biggest challenge in launching the plan was to overcome the Europeans’ pursuit of individual national aims when the whole could be so much bigger than the sum of the parts. This went for making steel more efficiently and also for collective defence. It was difficult for the French in particular to see the (west) Germans and the Ruhr in this light. Kennan and others were clear that outside a new intergrated western Europe, “Britain would appear to have no future.” It depresses me utterly that we are turning our back on the vision that kept western Europe at peace and prospering since 1945 – this time without the Americans to set us straight.

The Marshall vision, however, also in a way sowed some Cold War seeds, for the Soviets were just as keen as the French to ensure German industry could not recover to its own benefit, but only to the extent that its outputs could be shipped to the USSR as reparations. The main issue was still Stalin’s desire to extend Soviet control as far as possible, including encouraging the Communist parties in France and Italy to engage in economic sabotage; but it’s fascinating to see how often questions of politics and influence were played out in seemingly dry economic issues such as the right to print currency, and whose versions of different currencies circulating in Berlin could be used to purchase which goods.

The essence of the Marshall Plan, Steil writes, was that the US taxpayers would sustain a minimum standard of living in the beneficiary countries in return for economic liberalization and integration to kick start the war-devastated economies and the momentum for continuing growth. “In essence the State Department was tendering the largest foreign aid program in history as a social shock absorber for the largest structural adjustment program in history.” The book covers the American political debate in detail, revealing new (to me) heroes, notably Arthur Vandenburg, the Republican senator who ensured President Truman got Congressional approval for the deal. And new villains: we all know Philby, Burgess and Maclean spied for the Soviets but they’ve been too sanitised by literature.

There are loads of nice details in the book too – for instance, when Molotov visited London on 1942 to negotiate an Anglo-Soviet treaty, he distrusted his hosts so much he slept with a revolver next to his bed. (If he were visiting London now, of course, he’d be having to distrust his compatriots more.)

A highly recommended read (and given the appendices and footnotes, not as daunting as its size suggests!)

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Beyond simple-minded economics (and policies)

It isn’t that I haven’t been reading. I devoured a proof copy of Kaushik Basu’s The Republic of Beliefs and Michael Best’s How Growth Really Happens. As they’re not out until the summer, it’s a bit early to post reviews, but they will both be contenders for the 2018 Enlightened Economy Prize, essential reads.

It was interesting in the light of reading those two to also read this week an important pamphlet by Rachel Reeves MP, who chairs the Business, Energy and Industrial Strategy Committee in the House of Commons. The Everyday Economy starts the left-of-centre policy task of bringing together a vision of how the economy operates – or can operate –  more fairly, to the benefit of many more people than has been the case for a generation. It isn’t a work of economic theory of course, but is aligned with important strands of work in modern economics incorporating the importance of institutions and political economy, bargaining power, asymmetric information, and so on. I was pleased to see it cites the work of the Industrial Strategy Commission. Although the focus of Reeves’s pamphlet is fairness and sharing the benefits of economic growth, rather than how that growth should be generated in the first place, this seems to me to be an important contribution to the development of a coherent and realistic policy framework for a left-of-centre party. What’s particularly encouraging is that the two main parties here now both speak of industrial strategy and the need for a strategic framework for managing the economy on the supply side. It’s about time.

Anyway, what all of these signal in their various ways is a decisive public intellectual shift away from simple-minded states vs markets economics – at least from the non-partisan and from thoughtful politicians. As I’ve been saying for some years now, the high tide of simplistic free marketism in academic economics occurred a long time ago. I hope this is filtering through into the world of policy and politics. Maybe I’m being over-optimistic…. (reading the headlines).

In between I read Jon Kalman Steffenson’s About the SIze of the Universe. I was in a discussion with him (and director Anna Ledwich, and Dharshini David, whose new book is The Almighty Dollar) on Start the Week recently, about the aftermath of financial crisis. The novel isn’t really about post-crash Iceland, as the discussion led me to expect, but the universal theme of escape from a small nowheresville and the pleasures and pains of uprooting.

Price: £12.18
Was: £14.99

Now I’m starting with great eagerness Benn Steil’s The Marshall Plan – first chapter already ace.

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The culture of finance

Shelia Kolhatkar’s Black Edge is a cracking good read about how the growth of hedge funds was rocket-fuelled by their extensive reliance on insider trading. The focus of the story is Steve Cohen’s SAC capital. The abuse was enabled by the fact that the regulators were slow to cotton on to the scale and interconnections of the sector, and by the presence at the head of the SEC at the time a Bush-appointed free marketeer who thought the government should keep out of the way of the markets. The book reads like a thriller (leaving just the usual slight uneasiness about how the author knows what people were feeling, and wondering who spilled the beans out of two people in a reported conversation).

It left me reflecting about the culture of financial markets and how quickly and extensively unethical and illegal behaviour spread, like a rampant infection, after the deregulatory turn in the US and UK. Perhaps the obvious conclusion is that a culture of eternal vigilance is necessary in finance, and there was something sensible about the extremely strong cultural prohibitions applying to finance in times past. It is interesting, and sobering, to note how much the main characters in this sorry saga act just like homo economicus.

The authorities did eventually charge Cohen with failing to prevent insider trading; SAC was fined Capital and the fund was closed. Cohen is active again in the markets and a super-wealthy man.

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Republic of Beliefs

I’ve just devoured the proof copy of Kaushik Basu’s The Republic of Beliefs: A New Approach to Law and Economics, which is due to be published in June. It’s too early to post a review but I can’t resist a quotation from the intro: “For the law to develop roots and the rule of law to prevail requires ordinary people to beliefe in the law; and to believe that others believe in the law. Such beliefs and meta-beliefs can take very long to get entrenched in society.” The book addresses a key contradiction in standard law and economics models, for my mind in a thoroughly convincing and accessible way despite it being 100% game theoretic.

In my years in various policy roles, it’s always amazed me how few policy makers think in terms of how all the other parties involved will respond to their interventions, and how in turn they ought to adjust what they do. I’ve always revered Thomas Schelling, who did apply game theory to policy. Republic of Beliefs might be joining his Micromotives and Macrobehavior in my pantheon of must-reads. It certainly should prompt a more rflective (or reflexive) approach to setting policy.

 

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