I’ll admit to being generous rating this five stars on Goodreads, but it’s a rare delight to find a book on economics to be so engaging. There is even a call out to Terry Pratchett and a couple of quotes by Douglas Adams, two of my favorite (sort of) philosophers. It’s written as a kind of Platonic dialogue, a narrative in which the ‘reader’ (or just some guy with a mild interest in the subject) poses reasonable questions and provides appropriate comments while the ‘author’ offers responses that are informative but not overly detailed or technical. So sure, the explanations tend to be fairly superficial and gloss over nuances, but the basics are here. What are the essential differences between Keynesian and classical economic theories? What’s GDP and how does it differ from GNI? Is inflation always bad? How might problems like unemployment, poverty, and economic inequality be mitigated? Is perpetual economic growth possible? I found it all interesting and about as delightful to read as a nonfiction book can be. If you’re looking for a serious, in depth study on macroeconomics, this isn’t it. But for a clear introduction, this is hard to beat.
The Unbanking of America: How the New Middle Class Survives by Lisa Servon
Taking jobs at a check cashing service in New York, and at a payday lender in California, a professor at the University of Pennsylvania (and a writer and lecturer on consumer financial services) attempts to obtain some ground truth on the plight of financially insecure Americans.
I think it comes as no surprise that a great many Americans are struggling financially. The economy isn’t what it once was. Adjusted for inflation, wages have declined since 1972. Secure jobs with benefits are relatively scarce. Although productivity has increased over the past few decades, most of the resulting benefits have filtered up to CEOs, managers, and stockholders. They no longer trickle down as pay raises or benefits for average workers. Personally, I don’t see how this situation is sustainable. Too many people are living paycheck to paycheck, saving little, and are unable to cover contingencies such as medical expenses or car repairs, let alone luxuries. What may come as a surprise to some is how pervasive economic insecurity is. It’s not just for the poor anymore. It’s now affecting the middle class. Far too many find themselves marginalized in an economy that still hinges on consumer spending. With so many consumers effectively excluded, how can the system endure?
Anyone interested in this subject has seen the statistics. The author of this book goes beyond those to the personal level, showing what the impact is on some of these excluded individuals and relating how they cope. Many have turned away from banks to alternative financial services such as check cashers and payday lenders. When you simply look at the numbers, these services may seem predatory. Paying close to 2% of the value to cash a check, or 400% annual interest on a payday loan certainly seem excessive. But for some, this turns out to actually be less expensive than similar services from traditional banks, which do not offer small, short-term, unsecured loans, and charge exorbitant fees for maintaining low balances and for overdrafts. It’s an interesting read about a subject that I think should be getting more political attention. There is a problem here that needs to be addressed.
Will the availability of Big Data permit the social sciences to collect objective information, test hypotheses, and provide predictions in ways traditionally possible only for the hard sciences? In this book, a bright young economist argues that that the answer may be yes.
The title, Everybody Lies, refers to the fact that people lie, a lot, about all sorts of things. They lie in interviews, on surveys, and even on anonymous opinion polls. They even lie to themselves. Until recently, the best way for social scientists to understand what people were thinking and feeling was to ask them. But because people lie, the information collected was unavoidably flawed. Enter Big Data. It seems a person’s internet searches and online activity are better predictors of their behavior than what they are likely to tell you. Mining such data is becoming not only a powerful tool for the social sciences but also a big business.
Despite the author’s undergraduate degree in philosophy, he doesn’t address the question of whether or not this is a ‘good’ thing. He makes few value calls. He simply demonstrates that these data are out there, and they can be used to understand, predict, and even manipulate human behavior. But there is an an unaddressed ethical question here. Can special interests successfully manipulate human attitudes and behavior for selfish economic or political gain? Are they doing so already? That’s a rhetorical question, of course. Advertisers and politicians have been waging wars of domination for the minds of people for years, but now with Big Data, they’re better armed. My cynical soul quivers at the thought.
Glass House: The 1% Economy and the Shattering of the All-American Town by Brian Alexander
Glass House provides a case study of how the theory has worked for Lancaster, Ohio. It’s a compelling account of the Anchor-Hocking glass company, once a major U.S. producer of glassware and the lifeblood of this small city. The company has generated a lot of wealth for investors over the last half century, but there has been a cost. This is the story of those who paid it.
There’s a lot of pro-capitalist ranting in this book. There’s even some name-calling. It’s hardly a scholarly or objective work. It is, however, a succinct but superficial overview of banking and Wall Street. It reminds us (repeatedly) of the legitimate purpose of banks—saving and lending money. I doubt many people would claim otherwise. What most, including myself, are upset about are the abuses, the clever manipulations, the deceptions—what amount to high stakes versions of shell games and pyramid schemes, and of course, the impact of all these on people who may not even realize they’re in the game.
The root cause of all of these, Cohan claims, is that when investment banks went public (starting in 1970 with the IPO of DLJ), investment bankers could make big personal profits without much personal financial risk. As many have pointed out before, this allows them to privatize gains and socialize losses. “When people are rewarded to take big risks with other people’s money, that’s exactly what they will do. The problem is that the top bankers, traders, and executives on Wall Street collectively no longer have enough of their own skin in the game to make a difference to them when the things they do go awry. They get rich either way.” (page 114) That, he says, is pretty much the only problem. Don’t blame Wall Street per se, the problem is a system that shields those making unwise, even knowingly bad loans from the consequences. Worse, it rewards them for it.
Well, maybe. This definitely is a problem. He doesn’t believe the solution is financial regulation, though. He’s clearly opposed to such things. “The fix for Wall Street should be directed at its compensation system, not at the functioning of Wall Street itself. It’s really as simple as that. Fix the compensation system—make bankers, traders, and executives fear for their art collections, their co-ops, and their homes in the Hamptons—and sit back and watch how quickly it works to change people’s bad behavior.” (page 146) As simple as that, huh? It doesn’t sound simple to me. There are a lot of people, people with power, people with influence, people with heaps of money, who are getting more of all of the above through this system. They’re going to resist attempts to stop this gravy train. I certainly don’t see them doing it voluntarily.
I disagree with much of what Cohan is saying in this book, including a couple of his underlying but unstated assumptions (concerning the ‘value’ of money and the desirability of perpetual economic growth). I do, however, agree that those who make risky investments must be held responsible for their actions. There is no prudence if there are no consequences.
This book firmly stands in the tradition of cautionary tales of the future that have been told in such classics as Brave New World, 1984, and Fahrenheit 451. The title, New York 2140, tells you when and where the story is set, and the cover art suggests one of the two great threats to human civilization it is warning us about. That’s right. It’s climate change. Our imaginary descendants in this this book are muddling through that, as humans tend to do. We’re innovative and adaptive creatures, after all. We may not have a lot of foresight when it comes to avoiding self-inflicted injuries, but when we do harm ourselves, we’re quick to apply a bandage and get on with life.
The other existential threat featured in this story is—
No, not terrorism.
Not another large asteroid.
Not religious extremism.
Not alien invaders.
Not renegade robots or homicidal artificial intelligence.
No, Not even Donald Trump.
As scary as those are, the threat Kim Stanley Robinson warns us about here is far more insidious, and it’s real.
The author obviously did some background reading in economics as he was drafting this fictional book because the kinds of financial manipulation he describes are far from fictional. They have gone on and are going on still today. (I’ll list a few recent and popular books on the subject that he may have consulted below. You may want to read them. But I’ll warn you; they’re scary.) But New York 2140 book isn’t just a warning, or an apocalyptic thriller, or a tale of likeable characters overcoming adversity. It’s not even just a painless lesson on macroeconomics. It is all of those, but it also proposes a course of action that could, conceivably, change things. To say what that is would be a spoiler, so I won’t. I will, however, recommend this book.
Makers and Takers: The Rise of Finance and the Fall of American Business
The New Grand Strategy: Restoring America’s Prosperity, Security, and Sustainability in the 21st Century
Saving Capitalism: For the Many, Not the Few
Capital in the Twenty-First Century
Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity by Douglas Rushkoff
It is obvious that the economic system we have now is not working as well as it might for most. The US is an incredibly wealthy and prosperous nation that is filled with people struggling to get by today and who are uncertain about the future. In this book, Douglas Rushkoff, a professor at Queens College, CUNY, explains why. He summarizes the problem succinctly in this sentence: “People who work for a living are suffering under a system designed to favor those who make their money with money.” (Page 138) This isn’t a new insight. Karl Marx made it in the 19th Century. Rana Foroohar showed how it applied to today’s world in Makers and Takers: The Rise of Finance and the Fall of American Business.
Rushkoff proposes a new business model that focuses on sustaining value rather than on extracting value. This, too, has been suggested before. (See The New Grand Strategy: Restoring America’s Prosperity, Security, and Sustainability in the 21st Century; Saving Capitalism: For the Many, Not the Few, and Capital in the Twenty-First Century.) Digital currencies and peer to peer trading facilitated by digital technology could be a part of this. (See The History of Money.)
As with many books on this subject, there are valid insights about the problems of our current economic system. The perpetual growth it demands is unsustainable. A system that prioritizes extraction of wealth rather than creation of value is ultimately destined to collapse. I’ve yet to read a book on this subject that I thought provided an achievable way out of the problem, though, this one included. Top down solutions require a far more functional (and possibly dictatorial) government than we have, and bottom up solutions rely on a seemingly impossible mass enlightenment of people who suddenly and miraculously decide it is now time to act for the common good. Call my cynical, but I doubt that’s going to happen.