I’ve just finished reading Nicholas Wapshott’s enjoyable book Keynes-Hayek: The Clash That Defined Modern Economics. I’ll be writing a full review for The Business Economist, so will save the detail for then. But one thing that struck me was actually a striking similarity between the two of them, compared to the kind of macroeconomics prevailing since the 1940s. That is the role dynamics played in their thinking. I mean real dynamics, one kind of reaction following another, unfolding in time and not in the abstract. Keynes clearly saw this as a disequilibrium process, Hayek as a process that was extended over time because of the role of investment and capital.

What a contrast in either case to the comparative statics, giving way to the instantaneous solving of differential equations, that has characterised modern macroeconomics. Post-crisis, we know the modern macro is wrong, a discredited intellectual framework. Who knows yet what will crystallise the new consensus – but it has something to take from Keynes and Hayek.

As it happened, as I finished the book, Tim Harford alerted his devoted Twitter followers to this blog by Greg Fisher looking at Hayek through the prism of complexity theory. Very interesting.

At the weekend, Tony Barber reviewed a new batch of books on Europe – Walter Laqueur’s After The Fall, The Future of Europe by Jean-Claude Piris, and Brussels, the Gentle Monster: Or the Disenfranchisement of Europe, by Hans Magnus Enzenberger. After all, there is a lot to say about the subject at the moment.

However, I was most struck by the apparent emphasis on demography in the first of these. According to the review:

‘Laqueur foresees a potential clash of generations as young Europeans, increasingly outnumbered by the old, are condemned to more expensive education, more precarious jobs and less generous pensions. “Depriving citizens of services that were taken for granted could lead sooner or later to a political earthquake, and even a lethargic Europe could witness violence,” he forecasts grimly.’

This is a theme of a recent book by David Willetts, The Pinch, and I also touch on exactly this last point in the quotation in my book The Economics of Enough. What I’m now wondering is whether an economy with an ageing population – and shrinking too as many European ones will have before long – can achieve real economic growth? China has managed so far but is enjoying catch-up growth to the world productivity frontier. And apart from the absence of counter-examples, endogenous growth theory also predicts that a higher population contributes to higher per capita growth (because knowledge is embodied in people, and with a positive feedback loop – Michael Kremer did a nice paper about this.)

Besides, I’ve always found it odd that nobody quite understands why the birth rate fell so much in some European countries, and why it has the north-west/south-east gradient it does. The only demographer I’ve discovered who addressed this at all was Emmanuel Todd, although no doubt there are others.

So a final question – is it demography, and not history or geography, that is destiny? If so, it casts an even gloomier light on the Greek and Italian debt traps.

Who are the historians of the strange institutional developments in modern financial markets? I mean the straight narrative accounts that could, say, be used as reading material in university courses on money and banking (whose re-introduction was one of the suggestions made at the recent Bank of England/Government Economic Service conference on the teaching of economics). David Kynaston’s history of the City of London, a work to which the adjective magisterial has to be applied, runs up to 2000 and is London-centric. (John Lanchester explains here why it’s  essential reading.) Michael Lewis has given us Liar’s Poker for the 1980s and The Big Short for the 20002. There have also been some terrific books, post-crash. Gillian Tett’s Fool’s Gold is one that illuminates a corner of the investment banking world in the 2000s. But I hunger for the kind of book which is common in business history – there are loads looking at the car industry, the oil industry, the computer industry. Finance suffers from a dearth of this kind of scrutiny, a mix of history, sociology and journalism.

The reason this comes to mind is because of some of my weekend reading. One is a terrific essay by Andy Haldane of the Bank of England, The Doom Loop, in the London Review of Books. It has some obviously good suggestions. For example, bankers’ pay should be linked not to the return on equity (which incentivises them to take risks) but to return on assets (i.e. the loans they make, which would test whether they were doing their basic job of intermediating between savings and investment). The essay notes the increasing concentration of banking in the UK and the evolution of incentives to take risks. How did banking change its character so much? What regulatory and technological and social changes got us here?

The second was a terrifying Wired report on new research into high speed trading. ‘Flash crashes’ like the one that occurred in May 2010 turn out to happen very often, except normally so fast that humans can’t spot them. A new $300m undersea cable is being laid across the Atlantic (the first since the mid-1990s) to cut 0.006 of a second off the time it will take computers to communicate financial orders between the US and UK. How did this high speed financial market come about, who are the participants, what is being traded and where?

For now we have fiction – Robert Harris’s The Fear Index, John Lanchester’s forthcoming Capital. One sociologist – Donald MacKenzie – has also looked at high frequency trading. But we need more light on this hidden world of finance. This is the story I want to be told.

There’s something very appealing about those bright plastic ducks one can but for children. Who can forget Ernie from Sesame Street singing this classic?

So my eye was caught by a new book, Moby Duck: an accidental odyssey (The true story of 28,800 bath toys lost at sea) by Donovan Hohn. It turns out the toys are pretty much indestructible, so when a large cargo container full of them capsized, in 1992, they sailed to the end of the ocean and stayed there. Fifteen years later, Hohn set out on their trail, with destinations including Alaska and the North Pacific Gyre, which has become a large garbage dump in the ocean.

Books about the nuts and bolts of globalisation always fascinate me. I enjoyed Travels of a T-Shirt in the Global Economy by Pietra Rivoli, and The Box (about shipping containers, by Marc Levinson – which also inspired a BBC project to follow a container).

So I’m going to have to read this one. It’s been favourably reviewed in the FT and The New York Times.

There are some chances in the next few days to hear Avner De-Shalit, co-author of The Spirit of Cities, speaking in the UK – on Monday 20th February and Tuesday 21st in London and on the Tuesday evening in Bristol. It’s a lovely book and I’m sure it will be worth getting to one of the talks if you can. I can’t but had chance to put a few questions to Avner.

Which are your favourite books about cities by other authors, and why?

If it’s a sociology of cities I like coming back to Georg Simmel’s classic book, but it’s because I think the opposite — he thought it was impossible to
create a sense of community in the city and I think it’s the only place where
a genuine community can rise. But my best cities book is Yehuda Amichai’s poems book on Jerusalem. I wish I could do the same: squeeze the entire city
into two to three sentences.

Of all the cities you’ve visited which are the most interesting to walk
around?

Well, I am biased. I am just in love with Jerusalem, and it’s such a lunatic
city. Half of its inhabitants believe they have a direct line to God. But
outside my city, I think Berlin is the most exciting city today. One can see
that the city simply changes every day, and that people are excited about it.
The combination of ultra modern architecture with the remains of the Communist
architecture, and the abundance of sites of collective memory — this is just
amazing. Not very easy for somebody Jewish like me, but still, terribly
interesting.

Your book advocates walking to imbibe the spirit of cities. Which group is winning the battle for control of urban space – people or vehicles? Are many cities becoming unwalkable?

Well, now that Time Square NYC is walkable, there is hope. In the US there is
a list of the 50 most walkable cities and the 50 which are most friendly to
cyclists. While cars still dominate today’s cities, at least planners and
mayors are well aware of the need to think differently.

If you had to choose another city to live in, which would it be?

Oxford, Oxford, Oxford. When I studied there one of my professors heard me
saying I liked it a lot, and he said: But you know it’s not a real place. Now
I know he was wrong. Oxford is a city which is full of life and energy and
creativity. Only one has to get away from the colleges, to walk in the
neighbourhoods. You can see artists, novelists, poets, and people who want to
be artists, novelists and poets.

Avner De-Shalit

By the by, I noticed that Ed Glaeser’s The Triumph of the City, another terrific read for lovers of the urban, is out in paperback. Worth a read if you haven’t so far.