More on parallel universes

The holiday wasn’t all work (although below is the photographic evidence of me writing my next book). One of the novels I read was [amazon_link id=”1846556260″ target=”_blank” ]The Banker’s Daughter[/amazon_link] by Emran Mian. The daughter of an international banker flees London with her father when his BCCI-style bank collapses under allegations of fraud, some time before the global financial crisis. The two of them live an odd, deracinated life in a luxury hotel in Beirut. For the character of the title, the only meaning comes from designer shopping – until she discovers a photograph that raises in her mind a dreadful suspicion that her father has done something much worse than commit fraud. The action moves on to Lahore and finally back to London for the denouement. To say more would reveal too much about the plot.

[amazon_image id=”1846556260″ link=”true” target=”_blank” size=”medium” ]The Banker’s Daughter[/amazon_image]

The novel is a terrific read, a page turner with complex and credible characters – a rarer combination than one might hope. It is set in not one but three universes completely outside my own experience – globe-trotting banking, designer-shopping levels of wealth, and a Pakistani family. Like all good novels, The Banker’s Daughter is universal and specific at the same time, and I found the depiction of these parallel universes really interesting. Highly recommended. We need more creative and literary engagement with the world of the bankers and financial markets.

As a footnote, I’m afraid my other fiction reading was crime novels. The latest Camilleri paperback in his Montalbano series, [amazon_link id=”0330507672″ target=”_blank” ]The Track of Sand[/amazon_link], and another book by the outstanding South African writer Deon Meyer, [amazon_link id=”B003ODIWCS” target=”_blank” ]Heart of the Hunter[/amazon_link]. Well, I deserved some lighter reading after writing about the history of GDP for two hours a day.

An author at work

In their own moral universe

After two weeks in Brittany with next to no internet and email access, and two days at home getting the email inbox down from 449 unread after the immediate deletions to 21 read and needing action, I can start reporting here on some of my holiday reading.

First up is a book that could have been either a bit of a disappointment or a gripping read, and that’s because it’s an anthology. It’s [amazon_link id=”0231160739″ target=”_blank” ]The Best Business Writing 2012[/amazon_link], selected by editors for the Columbia Journalism Review. The times could not be more suited to compelling reporting about the world of business, finance and economics. We have seen events that will, with due hindsight as well as now, change the course of history. I’d read/heard/seen some of the essays and extracts in this book already but the collection of this superb reporting in one volume is compelling.

To read them one after the other is to have the experience of one’s sense of righteous anger about the behaviour of the business and financial elite being focused like a laser. Merrill Lynch bankers having a saying: “We’re in the moving business, not the storage business.” The use of crops for ethanol making millions of people hungry. Corporate executives in a healthcare business ignoring multiple warnings from the FDA about breaches of cleanliness and failure to uphold proper procedures – and the agency for doing nothing more than issue verbal warnings for a decade. A human resources director taking a company helicopter to commute to work while imposing major redundancies. Social security effectively requiring low-income parents in the US to medicare their children with inappropriate drugs in order to qualify for certain payments. And more on every page.

[amazon_image id=”0231160739″ link=”true” target=”_blank” size=”medium” ]Best Business Writing Book 2012 (Columbia Journalism Review Books)[/amazon_image]

In case there is any doubt, this is not because all the contributions are written from a particular partisan standpoint. The range of perspectives and subjects is wide. I found the corporate reporting particularly interesting because I was least likely to have read any of it before. In fact, it is the very breadth of these reports that made me so furious. It seems that many people in the world of finance, and some people in the corporate world too, have been living in an entirely separate moral universe from the rest of us. Nor is it clear that they have yet returned through the wormhole back into normal decency.

This is the first volume of an annual series, and I’ll certainly be adding the next edition to my reading pile for summer 2013.

While the dog snoozed on the beach, I read

Frankenstein’s monster at large

The possibility that economic theory is ‘performative’ – that the theory creates the reality – has long fascinated me. I talked about it in my Tanner Lectures earlier this year. Donald Mackenzie of Edinburgh University has long related the concept to the financial markets. It was with what I thought was some dramatic hyperbole that I described financial economics as [amazon_link id=”0140623329″ target=”_blank” ]Frankenstein’s Monster[/amazon_link], on the rampage still despite the crisis. Melodramatic because at that time – although I had read Mackenzie’s [amazon_link id=”0262633671″ target=”_blank” ]An Engine Not A Camera: How Financial Models Shape Markets[/amazon_link] and [amazon_link id=”0691138494″ target=”_blank” ]Do Economists Make Markets?[/amazon_link], Robert Harris’s thriller [amazon_link id=”B005EWDAFQ” target=”_blank” ]The Fear Index[/amazon_link], and a few articles about the 2010 Flash Crash, including this one also in Wired, not to mention some regulatory reports and specialist algo trading publications – even so, high frequency trading hasn’t been dominating the headlines.

Now we have had, of course, the Knight Capital meltdown. I’ve also come across some other things well worth reading, among them Scott Patterson’s excellent [amazon_link id=”1847940978″ target=”_blank” ]Dark Pools[/amazon_link] (which I reviewed here),a new Wired feature, Raging Bulls, and among several by Felix Salmon this blog post with an astounding animation showing the growth of high frequency trading. On my list too is Sal Arnuk’s [amazon_link id=”B0085AQS3A” target=”_blank” ]Broken Markets[/amazon_link].

[amazon_image id=”B0085AQS3A” link=”true” target=”_blank” size=”medium” ]Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio[/amazon_image]

I do sincerely hope financial regulators are not too busy fretting about their failures to limit the credit boom to pay attention to the next financial disaster. Algo trading is how it’s going to happen. Besides, as Patterson’s book makes clear, there is no efficiency gain here; this is a zero sum game in which algo traders win and investors (you and me) lose.

[amazon_image id=”1847940978″ link=”true” target=”_blank” size=”medium” ]Dark Pools: The rise of A.I. trading machines and the looming threat to Wall Street[/amazon_image]

Woolly complexity

It has taken me a while to get round to reading Stuart Kauffman’s [amazon_link id=”0465018882″ target=”_blank” ]Reinventing the Sacred: A New View of Science, Reason and Religion[/amazon_link]. Although I was looking forward to reading one of the gurus of complexity expound on the meaning of life, culture and technology, the mention of religion in the title must have rung some kind of subconscious warning bell. For I found the book an infuriating mix of interesting reflections on complexity – particularly why it should warn us against being too reductive, or locked into interdisciplinary silos – and woolly philosophy. Actually, it’s a book about why science is not only compatible with spirituality but should drive us to spirituality and belief in God. While perfectly happy for anybody else to worry about reconciling science and the sacred, I’m just not that interested in it.

There is a chapter on the economy that skates over the application of evolutionary theory and complexity to economics. This is brief and may be a handy introduction for anyone who knows nothing about this subject. If you do, it will be very familiar. Inevitably for a book with extremely broad scope, it lacks depth.

In terms of the underlying hypothesis about the dangers of being reductive, this book suffers by comparison with another one I’m currently reading, [amazon_link id=”0300188374″ target=”_blank” ]The Master and His Emissary [/amazon_link]by Iain McGilchrist. By contrast to Reinventing the Sacred, it’s a real doorstop of a book, and goes in depth into the human brain as well as many aspects of human culture. It’s a shame – I enjoyed Kauffman’s other book [amazon_link id=”0195095995″ target=”_blank” ]At Home in the Universe: The Search for Laws of Self-Organization and Complexity[/amazon_link], and he has obviously been a massively influential thinker in introducing these ideas to the way we analyse social as well as biological phenomena.

[amazon_image id=”0465018882″ link=”true” target=”_blank” size=”medium” ]Reinventing the Sacred[/amazon_image]

Best economics books – The Enlightened Economist Prize

The announcement of the shortlist for the FT’s Business Book of the Year is always interesting – tellingly, the article about it in yesterday’s paper had the headline A reading list to reflect loss of faith in capitalism. As ever, I’ve read some, but not all, of the titles, so it adds some interesting new ones to my reading list. Of the shortlist, I’ve reviewed Why Nations Fail, Paper Promises and What Money Can’t Buy.

I’ve gone back through the months since January 2012 to pick out my own longish shortlist for The Enlightened Economist Prize (the criterion is that I happened to read them in the past 12 months, and my non-economics reading is excluded).

The list is:

[amazon_link id=”1612191819″ target=”_blank” ]Debt: The First 5000 Years[/amazon_link] David Graeber

[amazon_link id=”0674057759″ target=”_blank” ]Capitalist Revolutionary: John Maynard Keynes[/amazon_link] Roger Backhouse and Bradley Bateman

[amazon_link id=”0141033576″ target=”_blank” ]Thinking, Fast and Slow[/amazon_link] Daniel Kahneman

[amazon_link id=”0393077489″ target=”_blank” ]Keynes-Hayek: The Clash that Defined Modern Economics[/amazon_link] Nicholas Wapshott

[amazon_link id=”0306818833″ target=”_blank” ]The End of Money [/amazon_link]David Wolman

[amazon_link id=”0099541726″ target=”_blank” ]Treasure Islands: Tax Havens and the Men Who Stole the World[/amazon_link] Nicholas Shaxson

[amazon_link id=”1846684293″ target=”_blank” ]Why Nations Fail: The Origins of Power, Prosperity and Poverty[/amazon_link] Daron Acemoglu and James Robinson

[amazon_link id=”0199794642″ target=”_blank” ]Working Hard, Working Poor: A Global Journey[/amazon_link] Gary Fields

[amazon_link id=”0691147566″ target=”_blank” ]The Long Divergence: How Islamic Law Held Back the Middle East[/amazon_link] Timur Kuran

[amazon_link id=”0300117779″ target=”_blank” ]The New Industrial Revolution: Consumers, Globalization and the End of Mass Production [/amazon_link]Peter Marsh

[amazon_link id=”1906924775″ target=”_blank” ]Economic Fables[/amazon_link] Ariel Rubinstein

[amazon_link id=”0571279201″ target=”_blank” ]Positive Linking: How Networks Can Revolutionise the World[/amazon_link] Paul Ormerod

[amazon_link id=”1847940978″ target=”_blank” ]Dark Pools: The rise of AI trading machines and the looming threat to Wall Street [/amazon_link]Scott Patterson

[amazon_link id=”0691155895″ target=”_blank” ]The Quest for Prosperity; How Developing Economies Can Take Off[/amazon_link] Justin Yifu Lin

The winner of The Enlightened Economist economics book of 2012 will also be announced in September. I can’t offer a cash prize but will be delighted to offer a nice dinner in London to the winning author(s).

The prize – dinner’s on me