When I was a teenager in a small northern British town, it was my ambition to become a French philosopher when I grew up, and spend my days reading and writing in an atmospheric Paris cafe. My old friend Daniel Cohen, an economics prof at the Ecole Normale Superieure, has achieved this ambition on my behalf. His new book [amazon_link id=”026201730X” target=”_blank” ]The Prosperity of Vice: A Worried View of Economics[/amazon_link] (out next month) covers the territory that interests me – historical trends, the changing deep structure of the economy, the multiple crises or points of inflection facing our societies – and does so in an elegantly Gallic way. This is a slim 200 page volume, not a three volume tome. Once on a business trip in Paris during an election campaign, I caught a late night discussion programme on TV. The guests had evidently been given a fine meal and plenty of wine in the studio, then the cameras quietly turned on. This book reminded me of the character of that discussion: rather abstract and high-fallutin’, but immensely entertaining too. You have to like that style to enjoy the book: I very much do like it.

The bulk of the book addresses global economic history, looking at the different accounts of what has driven economic growth and the escape from the Malthusian trap: culture, the competition of ideas, institutions, resources, trade. The classics of economic history are all referred to, both French and English (I am needless to say not familiar with the former group). Daniel includes a discussion of Kondratiev cycles, which [amazon_link id=”1843763311″ target=”_blank” ]Carlotta Perez[/amazon_link] has recently popularised again in the Anglo-sphere. Here is a diagram from one of my old notebooks (2002) which sums it up:

The Kondratiev long wave view

The worry to which Daniel’s subtitle refers is that the limit of post-Malthusian growth has been reached because of both environmental and social constraints. The latter include the emerging generational conflict due to demographic change and apparently intractable inequality. (He does also worry about the supposed breakdown between growth and happiness. Regular readers of this blog will know about my happiness-scepticism, so I’ll draw a polite veil over this section of the book.)

The book does end on a slightly more cheerful note, discussing the importance of ideas and images – “the other theatre of globalization”. He even refers to the ‘weightless’ economy (although alas not citing my 1996 book The Weightless World (pdf).). This may yet allow us to develop a new form of global society and new technologies to address the ecological crisis, he suggests. “At a time when it is tempting to wander around in the cyber-world, human kind should accomplish a cognitive task as immense as that realized during the Neolithic Revolution or the Industrial Revolution: to learn to live within the limits of a solitary planet.” (p188). But that’s not quite his last word – he concludes that there is huge uncertainty about whether we are up to the challenge.

So there is an melancholic mood in the end. If you find yourself in a reflective and philosophical mood one quiet Sunday afternoon, when it’s cold and grey outside, but cosy on the sofa with some Bach or Keith Jarrett or maybe the new Leonard Cohen album playing in the background, this is an ideal read.

[amazon_image id=”026201730X” link=”true” target=”_blank” size=”medium” ]The Prosperity of Vice: A Worried View of Economics[/amazon_image]

The Daily Telegraph has a list of books President Obama – a voracious reader – is known to have read in recent years. As the article notes, the range of his interests is impressively wide. Also impressive, given the anti-intellectualism of modern politics, is the fact that he’s not ashamed to be known as a reader. (One has to wonder what the Republican candidates say when asked about their reading. If admitting to speaking a foreign language is an election negative, they must be tempted to hide any evidence of literary taste or intellectual aspiration.)

There are some terrific books on his list. [amazon_link id=”0141043725″ target=”_blank” ]Team of Rivals[/amazon_link] by Doris Kearns Goodwin is marvellous. Political biography features prominently, not surprisingly.

However, there are not many economics books there. Jeff Sachs makes it with [amazon_link id=”0141026154″ target=”_blank” ]Common Wealth [/amazon_link]and I suppose one can (reluctantly) include Thomas Friedman’s [amazon_link id=”0141036664″ target=”_blank” ]Hot, Flat, and Crowded: Why We Need a Green Revolution—and How It Can Renew America. [/amazon_link]But clearly the President needs to read more books about economics.

I nominate as essential:

[amazon_link id=”0691142165″ target=”_blank” ]This Time is Different[/amazon_link] by Carmen Reinhardt and Ken Rogoff

[amazon_link id=”1846140552″ target=”_blank” ]Thinking, Fast and Slow[/amazon_link] by Daniel Kahneman

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

[amazon_link id=”B005WTR4ZI” target=”_blank” ]Race against the Machine[/amazon_link] by Brynjolfssion and McAfee and [amazon_link id=”0525952713″ target=”_blank” ]The Great Stagnation[/amazon_link] by Tyler Cowen

as relevant recent reads. Other suggestions please!

An update: by serendipity, I just came across this article (pdf) by Australian MP Andrew Leigh about what top Australian politicos read. He expresses the importance of considered reading beautifully:

“[W]hen it comes to our leaders, the need for an inner life, so often fostered and nourished through reading, is not some elitist private matter of little concern to the wider public. Deep and considered reading furnishes the mind with standards, gives wing to the moral imagination, maps the expanses of the individual and national character and dusts off the detritus of political life. It can teach our leaders how we might do things better, not just in terms of policy, but in terms of the responsibility, measure and humility we need within our own lives and within the country at large.”

Oh, and the answers ranged from Potter (Harry) to Plutarch.

The 2012 edition of Banking Banana Skins (published by the Centre for the Study of Financial Innovation) is out and as ever makes fascinating reading. It reports a survey of bankers, regulators and observers of the industry – in particular, their views about the top current risks.

In one sense there is an impressive consensus. All three categories of respondents are extremely gloomy – the risk index is at the highest ever recorded by the survey (which has run since 1998). All three say the top dangers are macro-economic weakness, credit risk and liquidity (lack of), although in slightly varying orders.

There are some revealing differences, however. “The bankers’ response is especially notable for its concern with the negative impact of regulation, and growing political interference in the business,” says the report, written by David Lascelles. Well, with Fred Goodwin losing his knighthood, this is understandable at one level – there’s a nasty whiff of populism about this decision.

On the other hand, the populism is the consequence of dissatisfaction with the (lack of) action so far over the abuse of political and economic power by the financial sector. We are into the fourth year of recession, output remains well below its pre-crisis levels, unemployment is rising – and there is still a financial crisis. Nothing has changed in the banking industry. Large, complex, interconnected global financial institutions still cannot be allowed to fail, and are still being supported by cheap central bank funding, while at the same time they are not lending to business and not delivering good customer service (with no mis-selling). The bankers’ apprehension about political banana skins is understandable, but then so is the politicisation of banking.

Banking Banana Skins 2012

I’m preparing, slowly and steadily, to give the Tanner Lectures at Brasenose College, Oxford in May, on ‘The public responsibilities of the economist’. One of the issues I’m reading about is the question of the ‘performativity’ of economics – I mentioned it in my talk last week to the Stiftervervand/Handelsblatt conference on Rethinking Economics. This is a term from linguistic philosophy, originating with J.L.Austin, and it refers to phrases whose utterance forms the action they describe – for example, to say ‘I’m sorry’ is the act of apology.

Just a few social scientists have thought about this, and they feature in a book called [amazon_link id=”0691138494″ target=”_blank” ]Do Economists Make Markets?[/amazon_link], edited by Donald Mackenzie and others. He argues very persuasively that the model of the options market has been performative, as the prices that enable the market to exist could not be calculated before there was a model. Other authors in the volume take the theme more broadly. The introduction starts in an attention-grabbing way with the young Jeff Sachs flying from Harvard to La Paz to advice the Bolivian Government on a shock therapy to counter hyper-inflation. It was only much later, Sachs realised, that the fact that Bolivia is mountainous and land-locked plays a lead role in explaining its persistent poverty. Despite gasping for breath at the altitude of La Paz, his original analysis of the economy was entirely abstract.

The books comments: “Economics is at work within economies in a way that is at odds with the widespread conception of science as an activity whose sole purpose is to observe and study, that is to ‘know’ the world.”

Hence (and with a nod to John Quiggins’ excellent book [amazon_link id=”0691145822″ target=”_blank” ]Zombie Economics[/amazon_link]) my thought about [amazon_link id=”0199537151″ target=”_blank” ]Frankenstein[/amazon_link] economics. Has the nature of the subject itself shaped the way the economy works and thus caused the crisis?

[amazon_image id=”0199537151″ link=”true” target=”_blank” size=”medium” ]Frankenstein: or `The Modern Prometheus’: The 1818 Text (Oxford World’s Classics)[/amazon_image]

The contributors to the Mackenzie et al volume have no doubts. But they’re all academics, and are looking only at the effect of academic economics on the world. I’m beginning to conclude that there has been a low-profile but rather serious drifting apart in the past decades between academic economics and practical economics as carried out in regulatory agencies, consultancies and business. The kind of abstract Bolivia of the mental model that Jeff Sachs had in mind when he first landed there in 1986 would have differed importantly from the Bolivia of a Foreign Office analyst. The practical economists have certainly adopted the models of the academic economists but – I hypothesise – didn’t take them so seriously.

If so, we practitioners did wrong to ignore them. Dr Frankenstein’s monster seems to have been on the rampage….

[amazon_image id=”0691138494″ link=”true” target=”_blank” size=”medium” ]Do Economists Make Markets?: On the Performativity of Economics[/amazon_image]

Two political theorists writing on globalisation and urban identity – normally indicators of a worthy tome written in the special impenetrable jargon of modern academic social science. But [amazon_link id=”069115144X” target=”_blank” ]The Spirit of Cities: Why the Identity of a City Matters in a Global Age[/amazon_link] by Daniel A Bell (no relation to the other Daniel Bell) and Avner de-Shalit doesn’t live up to those fears. I’ve greatly enjoyed reading it, although I’m not completely sure what to take from it.

The two write about a handful of cities they know well, for the most part places they have lived. The method of selection means Beijing and New York are there but London isn’t, Oxford and Paris make it but not Boston. The method of study is to walk around and talk to people and draw on their own accumulated lived experience. I’m a huge fan of the walking around method. It’s my own approach to any city I visit, although it can cause bemusement – as in Delhi where a business visitor is expected to take taxis everywhere. The authors cite Baudelaire and Walter Benjamin as authorities for the tradition of flanerie, but oddly don’t mention [amazon_link id=”0955955335″ target=”_blank” ]Guy Debord[/amazon_link], the derive and modern psycho-geography. Odd because this modern tradition explicity aims to reclaim individual identity from the anonymity of modern consumer society.

Having quibbled, I must say I think the approach in this book works well in illuminating the way different cities retain a distinctive character. [amazon_link id=”0571276660″ target=”_blank” ]Orhan Pamuk once wrote[/amazon_link] that cities have their own sounds – the electric buzz of New York, the squeal of Metro trains in Paris, the background hum of traffic in London. The visual iconography of the streets is different, the smells. The homogenising effect of globalisation has been over-stated (as Tyler Cowen has pointed out in [amazon_link id=”0691117837″ target=”_blank” ]Creative Destruction[/amazon_link]) – it’s more kaleidescopic than grey goo. The Spirit of Cities does, I think, establish that each can have a distinctive ethos as well. The argument is that urban planners should promote their ethos, and let the economy look after itself. Or at least that economic instrumentalism is not the criterion for judging policies or outcomes. They are not against urban planning, and on the contrary even rather admire the ambitious failures,  but they argue that plans “must be rooted in some latent ethos that the residents care about.” There is almost a paradox that aiming for success too directly will lead to failure: aim instead to enhance the spirit of the city. Hence each chapter labels each city with its dominant ethos – learning for Oxford, materialism for Hong Kong, religion for Jerusalem and so on.

It’s hard to argue with this (although I suspect many urban planners might consider economic instrumentalism trumps anything else). But this isn’t a highly analytical book, but rather one to sit back and enjoy, especially if you know any of the cities described: Jerusalem, Montreal, Singapore, Hong Kong, Beijing, Oxford, Berlin, Paris New York.

[amazon_image id=”069115144X” link=”true” target=”_blank” size=”medium” ]The Spirit of Cities: Why the Identity of a City Matters in a Global Age[/amazon_image]