The holidays must be approaching – at least, I'm getting that irresistible urge to sit in the garden and read books rather than sitting at my desk writing articles. I polished off Tim Harford's terrific new book Adapt, but am not allowed to review it until near its publication date. I'm midway through David Marquand's Death of the West, which is very thought-provoking especially after David Runciman's lecture on 'the democratic trap' during the week.

In the absence of a review, however, it seems well worth pointing readers of this blog to Jeff Madrick's excellent feature in the current New York Review of Books covering books about the financial crisis. One of the titles he covers, the report of the Financial Crisis Inquiry Commission, has been reviewed on this blog by Phil Thornton. Madrick calls it: “[T]he most comprehensive indictment of the American financial failure that
has yet been made” This in a field which includes indictments such as Matt Taibbi's utterly brilliant Griftopia.

The article also covers the Charles Ferguson documentary Inside Job (the movie website – slow to load), well worth viewing, and two other titles for which I'm currently seeking reviewers for The Business Economist. Volunteers welcome! They are

Regulating Wall Street: The Dodd-Frank Act and the New
Architecture of Global Finance

edited by Viral V. Acharya, Thomas F. Cooley, Matthew
P. Richardson, and Ingo Walter

                              

Reforming US Financial
Markets: Reflections Before and Beyond Dodd-Frank

by Randall S. Kroszner and Robert J. Shiller, edited
and with an introduction by Benjamin M. Friedman

    

This week has of course brought publication of the UK's own polite inquiry into the crisis, the Interim Report of the Vickers Commission. The analysis in the document is compelling, but the proposals feeble, the outcome of intense lobbying by the banks. I wrote about its inadequacies in the FT (registration/£), along with Professor Jonathan Haskel, earlier in the week. Will Hutton has a strongly critical column about it in today's Observer.

In his article, Madrick notes that the US at least has the Dodd-Frank Act and that didn't go far enough:

“The Dodd-Frank Act could have been much more effective. It could, from
the outset, have set high capital requirements—the amount of money that
banks and other financial institutions have to put aside for possible
losses. It could have broken up today’s enormous banks, which have grown
rapidly in size since the crisis. Measured by their profits, the six
largest financial institutions in the US now
account for 55 percent of all banking assets. It could have divided the
banks by function in order to reduce the overlapping of investment
activities, which increases the chances of damage to the entire
financial system. For example, those banks that accept federally insured
deposits from savers could have been restricted to making loans to
consumers and businesses.”

We in the UK haven't got anywhere yet in terms of banking reform, and it looks like whatever emerges from the Vickers Commission will be even less effective.

Time to put away your Kindles and iPads for reading? I'm excited by the news of an innovative new format for books. It has paper pages between somewhat more substantial covers, and you can easily pop it into a pocket or handbag for convenience, or hold it in one hand while reading. Even better, there's no recharging required, once you buy it you own it, and you can give it away or resell it.

This innovation – an ultra-small paperback on thin paper and set in a new font for clarity – will be called the Flipbook in English and will be launched by Hodder in June. They arrived first in the Netherlands in 2009, and are called dwarsliggers in Dutch. I love small books – perfect for commuting and delightful as artefacts in their own right. Now all I want is print-on-demand meets dwarsligger so I can get the latest economics books in that format.

Yesterday evening I heard David Runciman give the Princeton Annual Lecture about his forthcoming (2012) book The Confidence Trap. The title of the lecture was 'Can Democracy Cope?' – there's a rather fuzzy snapshot below of Her Majesty looking on as he spoke. It was certainly enough to make me eager to read the book when it's out.

The question David posed was whether the long run (over decades) success of democracies is coming to an end given the setbacks the leading democracies have faced in the past 10 years – unsuccessful wars in Afghanistan and Iraq, the intractable public finance problems, possible environmental catastrophe and the plausibility of autocractic Chinese capitalism as a rival model. He noted it was hard to be sure there is a crisis of democracy, given that people think there's one a decade but in fact there have only been 2 or 3 – the 1890s, 1930s and possibly 1970s.

He then outlined three traditions of thought about the nature of democracy.

One, dating back to Plato and including Burke and Nietszche, is that democracy is a sham – the elites tell the people what they want to hear and the people elect those who say the pleasing things, and real power is exercised back stage. (The 'confidence trick')

A second, dating from Paine and Condorcet at the end of the 18th century, is that democracy needs to pass a critical threshold to survive but once past that it can defeat its enemies and becomes self-sustainingly robust. (The confidence threshold)

The third – and this is his preferred model, which he attributes to Volume 2 of Tocqueville's Democracy in America – is that democracies, once successful, become complacent. They succeed so well that people don't have enough to worry about and behave in ways that undermine success. This is the confidence trap.

This reminded me of the famous El Farol oscillating equilibrium in economics, and seems highly plausible. I think I'd add a time trend on to the cycles David identifies, that of the increasing complexity of modern democracies and economies, and the consequent tension between technocracy and populism. (This was noted by Daniel Bell in The Coming of Post-Industrial Society.)

It was highly stimulating. For a flavour of it, David was on Start the Week. If you missed both, you'll have to wait for the book next year.

Yesterday evening I took part in a discussion at Policy Exchange with Professor Avner Offer about treating the future with due respect (the video will be up later today) – my comments linked of course to The Economics of Enough. The new campaign group Action for Happiness provided me with my topical intro, as it launched yesterday.

The group has touched a nerve, or a need, clearly – its website has been overwhelmed by traffic. Without at all meaning to downplay the extent of many people's anxieties, or of depression and other illnesses, I've posted here before about the economic nonsense being spouted by 'happiness' campaigners, so won't repeat it. A lot of what they say is in fact perfectly sensible, drawing on lessons from the positive psychology movement. The group's website has a lot of good advice for people who seek to improve their own well-being. My problem is with happiness as a government policy, and it's twofold.

First, it is simply not correct to say that because there's no link between measured happiness (on a scale of 1 to 3 or 1 to 5) and measured GDP (on a scale of zero to anything), governments should stop bothering about economic growth. GDP is a vital (although flawed) indicator of welfare, as it captures the innovations and increased opportunities that are how market capitalism increases welfare.

Secondly, measured happiness changes little over time, given its construction, and we're pretty happy in the UK (2.6 out of 3). So no matter what else happens in the economy the government will claim all is ok because we're happy. The focus on happiness is a perversely debilitating force in any effort to reduce poverty or improve the quality of life. (For a contrary view, see the blog post by Matthew Taylor of the RSA.)

The 'happiness' movement seems to be one in a succession of romantic nihilist movements that have co-existed with capitalism. John Ruskin, a better art critic than an economist, was an early founder. In Unto This Last he wrote:

Wealth, therefore, is 'The possession of the valuable by the valiant';
and in considering it as a power existing in a nation, the two elements,
the value of the thing, and the valour of its possessor, must be
estimated together. Whence it appears that many of the persons commonly
considered wealthy, are in reality no more wealthy than the locks of
their own strong boxes are, they being inherently and eternally
incapable of wealth; and operating for the nation, in an economical
point of view, either as pools of dead water, and eddies in a stream
(which, so long as the stream flows, are useless, or serve only to drown
people, but may become of importance in a state of stagnation should
the stream dry); or else, as dams in a river, of which the ultimate
service depends not on the dam, but the miller; or else, as mere
accidental stays and impediments, acting not as wealth, but (for we
ought to have a correspondent term) as 'illth', causing various
devastation and trouble around them in all directions; or lastly, act
not at all, but are merely animated conditions of delay, (no use being
possible of anything they have until they are dead,) in which last
condition they are nevertheless often useful as delays, and
'impedimenta.'

(Don't you love the Victorian skill with the semi-colon?)

Another classic example is Karl Polanyi's 1944 book The Great Transformation, with its aching nostalgia for pre-capitalist forms of production in the household and barter exchange. Like Ruskin, Polanyi's vision of the past managed to overlook its poverty, squalor and rigid social hierarchies. Richard Layard's fond memories of a boyhood of cold water and no central heating, recounted in his Happiness: Lessons from a New Science lie firmly in this romantic tradition.

It has no appeal for me, having also grown up with no central heating, and having to chip ice off the inside of my bedroom window in the winter. My happiness is my business, not the government's. They can stick with delivering stable GDP growth, encouraging innovation and creating jobs, thanks.

Next month I'm appearing with Mark Stevenson at the Bristol Festival of Ideas, and I just finished his book An Optimist's Tour of the Future. This is great fun, a conversational guide to some key areas of technological innovation, with the conversationalist a stand-up comedian (although – sorry, Mark – some of the one liners are truly groan-worthy).

One of the things I really like about the book is that it covers several strands of technology – life sciences, robotics, energy and climate change, as well as computers. In my talks, one of the standard slides is headed 'It's more than just computers' – people who dismiss the social and economic impacts of technology always focus only on ICTs, or even just the internet, and claim that it's only making people waste their time playing Angry Birds. There are even some omitted from this book: mobiles and advanced materials come to mind. The tech revolution has many facets.

My favourite chapters were the one on private sector space exploration – it had never crossed my mind that getting into space could be done cheaply – and on agriculture in Australia. The latter has the fascinating revelation that improved management of grazing alone can keep the land fertile during long droughts and trap CO2 in the soil in vast quantities. There's also a discussion near the end of the book with John Seely Brown about the interaction between social structures and the adoption and impact of technologies. I'm a long-time fan of JSB's writings, particularly The Social Life of Information.

All in all, this is an entertaining tour of radical technical change. I don't know if it will convert pessimists to optimists, though. Maybe we'll find out in Bristol on 20th May.