Tag Archives: review

The history – and future – of American capitalism

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Reading Jonathan Levy’s Ages of American Capitalism: A History of the United States has been quite a commitment: over 700 pages of text, plus notes, in hardback. The sheer weight militated against my taking in the grand sweep if its ambition, as I had to read it sitting at home propped on cushions. Nevertheless, it was well worth it.

As the title suggests, the account is organised into different ages: commerce (early days from late 17th century, and the role of slavery); capital (post Civil War to Fordism and the Depression); control (New Deal & postwar golden age); chaos (1980 on). The organising idea is the changed relationship between state and business in each of the eras, but importantly that the state, and political decisions, always ultimately determined the character of capitalism. The private sector – titans such as Morgan and Ford – clearly made a massive contribution to shaping US industrialisation through their business model choices, union-bashing and personal force of will; but they were not writing the story of capitalism on a blank sheet of paper. Government decisions and political forces constrained them and tamed them. And in each of the eras, there were distinct political visions, starting with the conflicting Hamilton and Jefferson visions.

This political economy framing made the final section the most interesting to me, given the many straws in the wind indicating that the 2020s will prove another junction between eras as belief in the “Magic of the Market” (Chapter 19) evaporates. This isn’t to say the Biden presidency will form the template for a new era – and indeed the book stops with the post-GFC recession – but rather that the Reaganite/Thatcherite order has become a disorder.

As in any Big Book, there are lots of interesting details and eye-catching turns of phrase. The superior logistics of the Union Army for example, involving vast military contracts for provisions and even railroad-building: “A highly functional political economy of corruption helped the Union win the war.” The early signs of the importance of the changing geography in US economic development as NASA and companies such as IBM opened facilities in Alabama in the late 1950s, signalling the rise of the sunbelt. The role of JP Morgan in creating forward-looking corporate valuations in the late 19th century merger movement.

There are points at which it seems like the book isn’t 100% in control of the economic terminology. For instance, Levy frequently uses a phrase about deposits ‘pyramiding into New York’ as if it’s a technical term of art. And there are a few scattered graphs that don’t add much to the words – the reproduced paintings are better illustrations of the points being made, be it about the frontier or 1960s consumerism. These are minor quibbles.

The book ends: “I have emphasized that American capitalism is an especially forward-looking economic system, in which expectations of the future play a prominent role in determining the present.” I think this statement is always true, and that it’s the balance between optimism about the future and nostalgia for the past that shapes an economy. The same page later lights on what is particularly distinctive about the US: “its pronounced historical amnesia.” And as Levy concludes, now is the moment for a better imagined future to come into play. Over to the politicians, Biden and the not-yet dormant spectre of Trumpism.

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The cost of malignant obedience

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Why, oh why, can’t I write like Michael Lewis? Surely everyone who reads his books and dabbles in writing themselves must ask this. I read his latest, The Premonition: A Pandemic Story, more or less in one sitting. It has the same pattern as his other excellent explorations of big, systemic things going wrong, The Big Short and The Fifth Risk. They are all superb books to set public policy students (and practitioners) as they concern the interaction between government and private decision-making: group-think, blame games, information and separating the signal from the noise, accountability, the role of expertise in democracies, of fear – and the rarity of clear thinking, moral fibre and courage. And they are all fantastic reads.

The Premonition concerns the lack of preparedness for the pandemic in the US: the politicisation of the CDC, the hollowing out of the public health system in previous decades, the malign ‘medical-industrial’ complex, and finally the toxic Trump presidency. It has some great characters, as in the other books independent-minded people who for whatever reason are not overly swayed by others around them in how they think or act. It has also given me a great addition to my lexicon: malignant obedience.

Anyway, highly recommended.

41oFjCfUWhL._SX324_BO1,204,203,200_Less so – as it’s one for afficionados – Katrina Forrester’s In the Shadow of Justice about the influence of John Rawls. I was of the Rawls and Nozick generation of undergraduates – their magisterial books were reasonably new then. But I found this heavy going, philosophy academese not being a light read. This is another book that has had rave reviews but I struggled with, so I’m sure the fault is mine. Having subsequently read some of the reviews, it’s clearly an important book. I found this one helpful in telling me what to make of it.

Extending the frontier

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I just read the new Princeton University Press edition of Vannevar Bush’s Science, The Endless Frontier, with an interesting introductory essay by Rush Holt. I don’t think I’d ever read the whole of the famous Bush document before, and it was interesting to see how he made the pitch. The rationale is all about the impact of research on living standards, jobs, progress. Famously, though, Bush advocated for expanded government support of basic research carried out independently and governed by scientists themselves. He argued for the early release of wartime results for the benefit of all (interesting given the contrast with the UK – perhaps we would have stayed stronger for longer in computing if the British government hadn’t kept the Bletchley work secret for so long).

I was also interested to see the essay starts by insisting on the need to include the social sciences and humanities in the body he advocated:

“It would be folly to set up a program in which research in the natural sciences and medicine was expanded at the cost of the social sciences, humanities and other studies so essential to national wellbeing.”

He also argued for a single agency to ensure disciplinary silos could be averted. Later in the essay, however, although the latter point is satisfied by Bush’s proposed structure for what became the NSF, he omitted the social sciences and humanities, believing they were ‘too political’.

Rush Holt’s essay notes that a competing proposal by Senator Kilgore wanted a new agency to serve the country’s economic and social needs more directly, and to ensure research funding was distributed around the US. And argues that the Kilgore vision was correct on this point. Holt writes: “Our scientific enterprise is failing to give citizens some importan things they need. These have not been failures of research …. Rather, they have been failures in the relationship between science and the public.” He argues on the one hand for reintegrating the social sciences and on the other for dialogue between scientists and public but also greater scientific literacy. Some research, he concludes, should be directed to social needs, and to regional economic development.

I hadn’t realised that today’s debate about these aspects of science policy dated right back to 1945. Both the Bush and the Holt essays are well worth a read. One of the lessons from the pandemic must be the high cost of not having better integrated social, medical and natural science research. There has been great work across disciplines, on the hoof – it should have been in place to start with. If we don’t fix this now, how on earth are climate change, biodiversity loss, demographic pressures and other big challenges going to be tackled?

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Finance and the world

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One of the highlights of my career as a  financial journalist was a trip to the Chicago Board of Trade in its open outcry days. It must have been around 1993. I can still remember the physical sensation caused by the explosion of the noise of human voices shouting orders in the huge trading pits as soon as the bell rang. It was an extraordinary experience. But one shouldn’t romanticise open outcry. And as Donald Mackenzie records in Trading at the Speed of Light, one CME trader said to him after the closing bell had rung (this was in 2000): “Look at my glasses. They’re all dirty.” Flecked with spittle from the shouting melee.

I loved this book. I’ve been a keen follower of Prof Mackenzie’s research on high frequency trading since his early articles in the London Review of Books as well as a previous book, An Engine, Not A Camera. Prof Mackenzie describes his research endeavour as ‘material political economy’, and it concerns the interaction between the physics and (literal) construction of financial markets, and specifically HFT, and regulatory or political decisions, or power relations.

HFT is a world which is Einsteinian: the speed of light is the constraint on trade, and what traders (human or algorithmic) know about the market is determined by their physical location and physical connectivity: where are they, to the millimetre; how close to a geodesic curve is their communications connection (and is it fibre optic or wireless or microwave); is it raining (which interferes with certain parts of the radio spectrum more than others); to what extent have they programmed trading activities into hardware (chips and C++) for speed?

I’ve always been deeply fascinated by the physical dependencies and consequences of the online world. For example, I was right to predict in The Weightless World that – rather than the death of distance – digitalisation would enhance the agglomeration effects that concentrated people in certain places (we will see if this changes post-pandemic but I’d still reckon not.) Currently I’m somewhat preoccupied with where the internet is, and with the huge physical investments Big Tech companies have made, the weight of digital activity on climate and minerals.

Trading at the Speed of Light is an amazing, detailed account of why material reality matters for virtual outcomes, and conversely, in the financial markets. Everybody with the slightest interest in modern finance should read it (Prof Mackenzie helpfully flags sections that are technical enough to be readily skipped). The book is based on years’-worth of interviews and attending conferences and visiting remote data centres and masts, snapping photos.

The book describes the arms-race of speed and pushing ever-closer to physical limits. A key interview quotation appears mid-way: “I don’t think there’s any other industry than the finance industry that can pay for it ….It’s mind-numbing to look at this whole industry where you have a lot of people with extended training that spend night and day shaving nanoseconds. Where, if you could put that brainpower to something else, maybe somehthing different……”

Indeed. And yet the HFT we have today is the product of decisions taken by people, politicians persuaded by lobbyists. One of the things I learned from the book is that forex trading remains far more artisanal than share trading, albeit still automated. Alas, this was because of the political power of the banks involved rather than anybody’s deep foresight. Human decisions shape markets shape the world, but the consequences are rarely if ever forseen.

Who knows where it will all end (although, presumably, not well). The book ends by pointing out that ‘material political economy’ is the right lens to turn on both crypto (energy-devouring, CO2-spewing monsters) and the world of Big Tech with its datacentres and algorithmic advertising market. At least in these two cases, regulators are perhaps more aware of the societal challenges than their equivalents were in the early days of algorithmic share and futures trading. But it’s a good while since financial markets served their societies rather than predating on them.

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Getting to Fair

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Where do the days go? I’ve split my reading time between several books this past week or so, and finished only one: To Be Fair: The Ultimate Guide to Fairness in the 21st Century, by Ben Fenton. This is a wonderfully readable book (written by an ex-journalist) that both summarizes a wide range of scholarly literature on fairness – from psychology and evolutionary science to history – and at the same time advocates strongly for the need to put fairness at the centre of public life and policy.

The first part of the book is a summary of what different disciplinary approaches can tell us about fairness. I had read some of this (eg Frans De Waal’s primate studies) but not all. The main message is how profoundly important fairness is to humans. The second part looks at fairness (and its absence) in different contexts, such as sport, politics, business, tax, law and tech. I found these more interesting, and took away lots of nuggets of insight.

I liked the chapters on business and on media/communications best. There is a lot of injustice to skewer in either case. For example, the book points out: “Business and finance words that aren’t about stability are likely to be about sharing: equity, shares, dividend.” Of course there are lots of other business and finance words, but I liked the point. Or about private equity types: “To them fairness is a word for suckers. I am not sure why we keep letting them get away with it.”

Nor am I. The inequality scarring many societies today is fundamentally unfair – there is an absence of justice – and it has been getting worse. This past year I’ve been veering between optimism that this crisis will prove a turning point leading to major reform of an unfair economic system, and pessimism that such trends are only reversed after a period of significant conflict. After all, nothing changed after the 2008 financial crisis. I still can’t decide – who knows? But To Be Fair has found its moment.

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