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ON THE BOOKSHELF: May 2020

The Economic Review looks ahead at five new titles published next month.

1) FLASH CRASH by Liam Vaughan, Doubleday, pp. 272, $26.95. A thrilling new account of the 2010 Flash Crash that describes the downfall of lone wolf trader Navinder Singh Sarao.

2) A PHILOSOPHER’S ECONOMIST by Margaret Schabas and Carl Wennerlind, University of Chicago Press, pp. 328, $45. A new assessment of Adam Smith’s contribution to economics that unpicks his nuanced view of the modern commercial world.

3) ULTIMATE PRICE by Howard Stephen Friedman, University of California Press, pp. 232, $26.95. Statistician Friedman takes a candid look at how companies and governments price human life -- and the inequalities these calculations often entail.

4) THE POLITICAL ECONOMY OF INTERNATIONAL FINANCE IN AN AGE OF INEQUALITY edited by Gerald A Epstein. Edward Elgar (paperback edition), pp.288, $45. This important collection of essays looks at the damage inflicted on political structures and global finance by the 2008 financial crisis.

5) THE HOUR OF FATE by Susan Berfield. Bloomsbury, pp. 416, $30. An account of the battle that raged at the beginning of the twentieth century as US President Theodore Roosevelt sought to break up JP Morgan’s empire.

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Flash Crash by Liam Vaughan

Published by Doubleday, pp. 272, $26.95, May 2020.

On 6 May 2010, for about 36 minutes, the US equities markets crashed and no one could work out why. An initial report by regulators suggested the chaos had been kick-started by a Missouri-based mutual fund unloading a large position, but this wasn’t the whole story. After additional analysis the Securities and Exchange Commission (SEC) and the Chicago Futures Trading Commission (CFTC) found the sharp decline had been exacerbated by an army of high frequency traders and laid much of the blame at the door of one lone wolf: Navinder Singh Sarao. The Hound of Hounslow — as he would be dubbed by the press — worked out of his parents’ house in west London, and was in 2015 deported to the US to face trial.

This new title captures how Sarao’s innate talent for spotting complex patterns in digital trades morphed into something more illegal. What began as legitimate arbitrage and digital gamesmanship ended with him commissioning software that would automatically queue-jump and deceive other traders on the digital markets he worked. Through an assiduously-reported account Bloomberg journalist Liam Vaughan reveals the uniquely gray area of late capitalism that is digital spoofing — a controversial practice thought of by some as legitimate subterfuge and downright criminal behavior by others.

In addition to a blow-by-blow account of Sarao’s modus operandi and unusual personality (there are surely few such multi-millionaires who carry their belongings around in a plastic grocery bag), the book raises important questions about high frequency trading (HFT). Many large funds pay for privileges such as high latency connections and preferential fee agreements with the markets they trade. This facilitates profit at speed, and one could argue more effective provision of market liquidity, but it also entrenches a divide between the sharks and the minnows; between those who benefit from economies of scale and those that don’t. In addition to page-turning narrative, Flash Crash sounds an effective warning about what may happen if we fail to question the assumption that technology democratizes markets.

[theeconomicreview]

Dark Towers by David Enrich

Published by Custom House, pp. 416, $29.99, February 2020.

Banks were not popular after the 2007-08 financial crisis largely because of the huge sums doled out by taxpayers to keep them afloat. Deutsche Bank wasn’t one of the institutions in which the US government took a stake (although it did receive billions of dollars in loans from the Federal Reserve), but this hardly makes up for the criminal behavior revealed by David Enrich in this astonishing new exposé.

Need to convert dirty rubles into dollars? No problem. Looking to send funds to a terrorist group in Iraq? Deutsche could help. From the early 2000s the financial institution once synonymous with German stability and prudence became the bank of choice for unsavoury characters doing business in unsavoury places. Enrich’s new title is forensically reported – we are brought into the room as senior executives rip into each other apart over the permissibility of transactions, and details of surveillance carried out by the bank after the death of one senior executive leaves the reader wondering how the bank’s top team could be so devoid of scruples but also business sense. The book sheds light on the finances of Donald Trump and raises the curtain to examine a range of the characters that allowed him to run for president. Particularly notable is Rosemary Vrablic, Trump’s private banker and personal advocate within Deutsche, who papered over many a financial crisis on his behalf.

Perhaps most striking in this morality tale for the twenty-first century is the speed at which Deutsche Bank’s culture began to disintegrate. In the 1990s a clutch of power hungry senior executives were able to rapidly steer the institution down a path that would lead it to compete with other Wall Street monoliths for high risk, high margin business. Instead of pursuing long-term client relationships it shifted its focus to a strategy of short termism, selling complex financial instruments to unsuspecting buyers in the hope of reaping high commissions. Financial institutions require a competitive tension between risk-takers and risk managers in order to survive, and this story is a clear reminder of what happens when the scales are pushed too far in favor of the former.

[theeconomicreview]

ON THE BOOKSHELF: April 2020

The Economic Review looks at five interesting titles published this month.

1. A HISTORY OF BIG RECESSIONS IN THE LONG TWENTIETH CENTURY by Andrés Solimano, Cambridge University Press, pp.238, $29.99. A wide-ranging treatise on recent major slumps and crashes.

2. DIASPORAS AND FOREIGN DIRECT INVESTMENT IN CHINA AND INDIA by Min Ye, Cambridge University Press (paperback edition), pp.258, $34.99. Boston University academic Min Ye examines China and India and shows how the outflux of human capital has produced differing approaches to liberalization and growth.

3. COFFEELAND by Augustine Sedgewick, Penguin Press, pp. 448, $30. A history of the world’s most popular drug that also recounts the rise of coffee baron James Hill.

4. ACTIVE MEASURES by Thomas Rid, Farrar, Straus and Giroux, pp.528, $38. A new book about disinformation and the impact of deception organisations on liberal democracy.

5. REIMAGINING CAPITALISM IN A WORLD ON FIRE by Rebecca Henderson, PublicAffairs, pp. 336, $28. Harvard professor Henderson argues free market capitalism has lost its way and that we must rethink our growth assumptions.

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ON THE BOOKSHELF: March 2020

The Economic Review highlights five interesting titles published this month.

1) THE MYTH OF CHINESE CAPITALISM by Dexter Roberts, St Martin’s Press, pp. 288, $20.99. Former Bloomberg Businessweek bureau chief Roberts writes about China’s explosive growth and explores the reality of the country’s manufacturing sector. 

2) RUST: A MEMOIR OF STEEL AND GRIT by Eliese Colette Goldbach, Flatiron Books, pp. 320, $27.99. This memoir by a former steelworker takes the reader deep inside the forgotten and economically deprived American rust belt.

3) A QUESTION OF POWER by Robert Bryce, PublicAffairs, pp.352, $28.00. This history of electricity shows our reliance on the energy source and the gulf between those with access to it and those without.

4) CHOOSE ECONOMIC FREEDOM by George P. Shultz and John B. Taylor (with foreword by Milton Friedman), Hoover Press, pp. 136, $14.95. Two veteran policymakers reconstruct economic debates from the 1960s and 1970s to show that letting the market function without government intervention is a recipe for success.

5) THE TRILLION DOLLAR REVOLUTION by Ezekiel J. Emanuel and Abbe R. Gluck, pp. 464, PublicAffairs, $19.99. This collection of essays by eminent academics and political insiders explores the impact of the 2010 Affordable Care Act on America’s healthcare system, its economy and the law.

[theeconomicreview]

Animal Viruses and Humans by Warren A. Andiman

Paul Dry Books, pp.258, $19.95, May 2018.

Widespread misinformation and the human impulse to blame someone else are striking features of the current Covid-19 crisis — sample sound bites from any Donald Trump or Boris Johnson press conference and you’ll hear questions along the lines of “were social distancing measures implemented fast enough?”, “Do our leaders really understand the gravity of the situation?”.

Warren Andiman’s short book doesn’t offer direct answers to these political questions but it does run the reader through a recent history of viruses that have jumped from animals to humans: Middle East respiratory syndrome (MERS), Severe acute respiratory syndrome (SARS), swine flu, hantavirus, monkeypox, rabies, Ebola, to name a few of the most egregious suspects. All these nasty illnesses are connected by the the ease with which they can be transmitted between species, a fact Yale epidemiology professor Andiman illuminates with a litany of memorable anecdotes. Who would have thought the first case of MERS was identified in a camel owner who had spent time applying ointment to the nostrils of his sick herd? Or that farm animal pathogens would cause chaos on a US military base in the form of a novel strain of swine flu? Or that the contamination of date-palm juice with bat excrement played a likely role in spreading the deadly Nipah virus in Bangladesh?

This short book makes absolutely clear that the forensic tracking of transmission is critical during any serious outbreak. When Ebola struck the Democratic Republic of Congo (DRC) and Uganda in 2007 it was only after researchers discovered a spike in the DRC’s fruit bat population that the international community could understand how best to respond.

As markets crash and nations struggle to respond to this pandemic, Andiman’s guide helps the reader to make better behavioral decisions. At the very least, knowing there’s a direct correlation between number of virus particles ingested and severity of sickness should make you less likely to touch your face and more likely to wash your hands.

[theeconomicreview]

ON THE BOOKSHELF: February 2020

The Economic Review looks ahead at five interesting titles published next month.

1) FINANCIAL STABILISATION IN MEIJI JAPAN by Steven J. Ericson. Cornell University Press, pp. 216, $49.95. Dartmouth historian Steven Ericson examines fiscal reforms introduced in Meiji Japan – the era of Japan’s first empire – and argues measures were more liberal and expansionary than previously thought. Published 15 February.

2) THE BELT AND ROAD INITIATIVE AND GLOBAL GOVERNANCE edited by Maria Adele Carrai. Edward Elgar, p.288, $145. China’s titanic overseas investment strategy continues to provoke heated debate. This collection of scholarly articles looks at the wider implications of the Belt and Road Initiative for global governance and the international economic order. Published 28 February.

3) 10% LESS DEMOCRACY by Garett Jones. Stanford University Press, pp. 248, $28.00. As populist movements sweep polities around the globe, Jones argues that some nations would actually benefit from giving experts more freedom and sheltering them from direct accountability to the voting public. He says this would actually enhance stability and result in better decision-making. Published 4 February.

4) GOING THE DISTANCE by Ron Harris. Princeton University Press, pp. 480, $39.95. Before the rise of the English and Dutch East India Companies, commerce in Eurasia was undertaken largely by Chinese, Indian and Arabian traders. This new history explores pre-1600s commerce without Europeans. Published 11 February.

5) THE CITIZEN’S GUIDE TO CLIMATE SUCCESS by Mark Jaccard. Cambridge University Press, pp. 296, $19.95. Devastating bushfires in Australia have buttressed calls for global action on climate change. Professor of renewable energy Jaccard outlines a methodology for identifying crucial policy measures and how to tell when politicians purposefully tell untruths about the climate. Published 6 February.

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ON THE BOOKSHELF: November 2019

The Economic Review takes a look at five interesting new titles published next month.

1. GOOD ECONOMICS FOR HARD TIMES by Abhijit V. Banerjee and Esther Duflo, PublicAffairs, pp. 432, $17.99. The publication of this book comes after Banerjee and Duflo recieved the 2019 Nobel Prize for economics. In this title they argue for the importance of evidence-based policy and the role economics can play in tackling climate change. Published 12 November.

2. REPOWERING CITIES by Sara Hughes, pp. 224, Cornell University Press, $41.95. Amid mounting pressure on politicians to tackle the climate crisis, this new title looks at what cities can do to reduce greenhouse emissions. Hughes spells out a new analytical framework and uses it to examine whther action taken by New York, Los Angeles and Toronto have responded and whether the action of these cities has been effective. Published 15 November.

3. IN CHINA’S WAKE by Nicholas Jepson, pp. 288, Columbia University Press, $30. Jepson shows how demand from China spurred the development of commodity markets and provided resource-rich states the financial freedom to pursue their own policy agenda. The title combines close analysis of China with an in-depth explanation of how the commodity boom has played out in 15 different countries. Published 26 November.

4. THE HARDER YOU WORK THE LUCKIER YOU GET by Joe Ricketts, Simon & Schuster, pp. 336, $28. This rip-roaring memoir by TD Ameritrade founder Joe Ricketts pulls no punches, offering a vivid account of his rise from son of a house builder to billionaire. The memoir is full of candid details about the trials of founding (and nearly losing) one of the world’s largest stockbroking operations, showing both Ricketts’ successes and failures along the way. Published 5 November.

5. BROKE by Jodie Adams Kirshner, pp. 368, St Martin’s Press, $14.99. Kirshner follows the lives of seven Detroiters in the wake of the city’s 2013 bankruptcy. The author has undertaken extensive, in-depth interviews, and leads the reader to the conclusion that federal and state government policy failures exacerbated poverty and social deprivation, even before the city’s decision to default. Published 19 November.

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Free Enterprise by Lawrence B. Glickman

Advertising billboards on Herald Square, 34th and Broadway, Manhattan (Image credit: New York Public Library).

Yale University Press, pp. 360, $32.50, August 2019.

The phrase ‘free enterprise’ holds as important a place in the American psyche as the American dream. Since the 1800s myriad political projects have used it to mean many different things. To anti-slavery campaigners at the end of the nineteenth century it was a rallying cry against racist political structures; a slogan encapsulating the hope and determination of a movement fighting for equality of opportunity in the labor market. To those fighting the introduction of New Deal measures in 1933 it epitomized the positivity of forces fighting the forced redistribution of resources — a result of perceived federal government overreach. Advertising and marketing executives in the 1960s adopted the term widely as a means of helping big business fight communism. As they saw it, nothing could be more efficacious than reminding consumers of the luxury of choice, and highlighting that this choice was in fact a right.

Glickman’s new book is useful because it does something all too unusual in the current climate. Instead of polemic the academic offers a careful historiography of the phrase, recording how the use of ‘free enterprise’ by corporations and politicians has changed over the decades. Through painstaking analysis the title charts in detail how the phrase was deployed to oppose the New Deal. As Franklin D Roosevelt’s major public spending plans came to light in the early 1930s, those on the right used it to launch a grassroots campaign intended to show that such an ambitious project would stymy productivity and reward indolence.

What began as a term associated with civil liberation turned into an ideological slogan for the defense of economic freedoms. Glickman’s exploration shows that ‘free enterprise’ has been deployed on the campaign trail by US Republican politicians ranging from Marco Rubio to Arizona senator Jeff Flake. The use of language often runs in cycles, and perhaps most compelling is the academic’s suggestion that we may see ‘free enterprise’ return as a term of civil resistance once again.

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ON THE BOOKSHELF: October 2019

Five new titles The Economic Review will be reading this month.

1) THE GREAT REVERSAL by Thomas Philippon, pp.368, Belknap Press, $29.95. In this highly-anticipated tome, New York University professor Philippon offers persuasive evidence that America’s problems stem not from inherent flaws in capitalism but in fact a lack of corporate competition. According to his research firms have systematically and comprehensively depressed growth and wages by stacking regulation in their favour. This is a comprehensive account of how politics has interfered with the market and suggests what must be done to return the US to a free and fair market economy. Published on 29 October.

2) DRIVING TOWARDS MODERNITY by Jun Zhang, pp.240, Cornell University Press, $23.95.This ethnographic study of demand for the automobile chronicles the desires of China’s rising middle class. Looking at China’s Pearl Delta River region Zhang examines the symbolic importance of the vehicle and asks just how closely physical and social mobility are intertwined. Published on 15 October.

3) ORACLES, HEROES OR VILLAINS by George E. Shambaugh, pp. 275, Cambridge University Press, $32.99. As populism and trade wars threaten economic stability and politicians around the world are at war, can we place our trust in the central bankers? This new title by Georgetown professor Shambaugh interrogates the role of the economic technocrat and asks whether experts can save us and foster cooperation as global power structures fragment. Published on 24 October.

4) NOTHING SUCCEEDS LIKE FAILURE by Steven Conn, pp. 280, Cornell University Press, $32.90. Do business schools really produce outside-the-box thinking and responsible business leaders? The answer, according to Conn, is a resounding ‘no’. In this pugnacious and controversial title the historian shows how, since the founding of the Wharton Business School in 1881, business schools have failed in their dual mission to educate and produce ethical leaders. Published on 15 October.

5) ORGANISATIONS FOR PEOPLE by Michael O’Malley and William F. Baker, pp.248, Stanford Business Books, $35. This title is a practical examination of the way in which twenty-one firms treat their employees. Profits are the bedrock of corporate endeavour but will not alone produce a healthy company say the authors. Firms must treat every person as an equal, sentient partner, and second satisfy their needs for financial security, belonging, meaning, autonomy, self-acceptance, self-confidence, and growth. Published on 22 October.

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Kidnap by Anja Shortland

(Image Credit: Flickr/ Connor Tarter)

Oxford University Press, pp.249, $24.95, April 2019.

As Harvard philosopher Michael Sandel reiterates in his tome on the moral governance of financial transactions The Moral Limits of the Market, there are some things money can’t buy. But if you’re a billionaire or an oil major exploring the Niger Delta, you can do your best to offset the risk of being kidnapped or held to ransom by purchasing an insurance policy designed to guard against such a mishap. This secretive type of cover can only be bought at one place in the world — the Lloyd’s of London insurance market — where a tight-knit community of underwriters jostle to insure wealthy families and the employees of corporations operating in hostile environments. Policies can be purchased for anyone at risk of being abducted and held for money.

The main thrust of Shortland’s new book is that this market (which only really works when the insured subject doesn’t know they are covered) functions because it introduces tight structures of self-governance into an exceptionally murky world. Underwriters at insurance firms work closely with crisis consultants, who in turn work with local negotiators and hostile actors to negotiate with kidnappers. They create norms and protocols for interaction that show criminals it is not in their interest to kill the people they abduct. And the statistics speak for themselves — between 2000 and 2014, leading global security firm Control Risks recorded the safe release of hostages in 85.5 percent of kidnap cases it dealt with.

This forensically researched book shows us how insurers require actors to function in a predictable manner and therefore reward reliability. A military junta with a reputation for treating hostages well and settling after a period of patient negotiation is more likely to get what they want, which in this market means fewer people die. Criminals and paramilitary groups around the world learn that by adhering to a certain playbook they can achieve a reasonable exchange through extortion and obtain their financial goals.

However, the payment of ransoms by nation states is outlawed under international law. The passing of UN Resolution 2133 in 2014 after years of pressure meant countries had to stop payouts to retrieve citizens. In reality many states have for a long time failed to abide by this, with a notable payment made to Somali pirates by the Spanish government in 2008 sparking an escalation in ransom demands from pirates operating in the region.

Shortland contends that UN resolution 2133 is not fit for purpose and that the world would be safer if the private sector was permitted to introduce structure to the market for politically-motivated kidnap.

This of course relies on the assumption that nation states are willing to engage directly or indirectly with counter-parties whose values often stand in opposition to those of western liberal democracy. For the utilitarian market-maker it may seem a no-brainer — after all, every extremist has their price — and formalizing barter-based transactions of this kind could save lives. And this is where Shortland’s reasoning leaves us wondering: even if participating in deals like this could secure the safe release of victims, are there still be some transactions too unsavoury for nation states to touch?

[theeconomicreview]

The Box by Marc Levinson

Princeton University Press, pp. 544, $19.95, April 2016.

Shipping containers may seem relatively mundane objects; steel oblongs found stacked en masse in every port around the globe. However, this history by Marc Levinson shows how the container reshaped the global economy and serves as a reminder that technological innovation alone cannot move a market. Challengers looking to disrupt incumbents require a heady mixture of determination, political capital and good fortune to succeed.

At the center of Levinson’s story is a tycoon called Malcom MacLean who in the early 1960s bought cut-price naval vessels from the US government. He cane up with the revolutionary idea of adapting ships to carry standardized metal boxes — a concept that would prove path-breaking for shipping lines that had previously relied on labor-intensive breakbulk cargo.

Like most forms of industrial innovation, development in shipping was underwritten by government subsidies and spurred by international conflict. Throughout the 1960s and 1970s consecutive US administrations provided subsidies for shipping routes and the International Standards Organisation sought to establish universal standards for container sizes — a feat requiring a degree of unity from shipping monoliths fighting tooth-and-nail to remain profitable. As the American government turned to the private sector for logistical assistance in the Vietnam War, MacLean and his associates showed how the standardization brought about by the container could ensure boots, bullets and food arrived in the right place at the right time.

The contraction of the supply chain that accompanied the rise of the container made it cost effective for a dress being sold in Manhattan to be manufactured in Manila. Companies were now able to move production of their goods to wherever labor and raw materials were cheapest. A corollary of this was that governments around the globe began pouring investment into new port infrastructure in the hope of luring new maritime business. In the late 1970s the Singaporean government built the largest port in the world at Pasir Pajang. The following two decades also for the first time saw major private sector investment in maritime infrastructure — an area that until then had been the sole province of the state.

This story is more than a dry historical account of the evolution of a steel box because it illustrates the intimate forces at play with any type of global innovation. Intermodal transport changed the shape of the world and brought economies together. This history shows that while the processes of globalization were spurred by entrepreneurs like MacLean, the evolution of new technology relied ultimately on permissive government policy, international collaboration and a spike in global demand for the cost effective transport of consumer goods.

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Deep Stall by Philip K. Lawrence and David W. Thornton

(Image credit: The Boeing Company)

DEEP STALL by Philip K. Lawrence and David W. Thornton. Routledge, pp. 172, $165, October 2005.

US corporate monolith Boeing has in recent months received the negative attention reserved only for the gravest of public relations disasters. Following the 10 March Ethiopian Airlines disaster that killed 157 people, concerns over the safety of the 737 Max family of jets have grown and lawsuits mounted.

Deep Stall is by no means an especially up-to-date corporate history, but it is the most granular available, offering a broad-brush view of Boeing’s largest ventures that place the company’s current woes in perspective.

The grounding of the worldwide fleet of 737 Max aircraft may have knocked about a tenth — a cool $25bn — off Boeing’s market capitalisation, but this is far from a standalone disaster in the company’s recent past. Examples of astonishing mismanagement and chronic value destruction abound: $1.5bn allocated to a Super Sonic Transport (SST) aircraft mothballed in 1971, an estimated $3bn bill for the development of the commercially disastrous 757, and widespread production problems following its merger with McDonnell Douglas in 1997.

The central thesis of Deep Stall is that over its 103-year history state support has played an under-acknowledged role in the survival of Boeing by smoothing out market cycles and underwriting research and development (R&D). From the role of US Air Mail subsidies in the early 1930s to the development of technology for Cold War military jets, to federal funding offered for production of the 787 Dreamliner, Boeing has relied on government backing to bankroll the development of new aircraft, which is about as slow-burn an engineering project as you can get.

As Lawrence and Thornton wryly observe, it is ironic that Boeing pursued a campaign against Airbus at the World Trade Organisation (WTO) throughout the 1990s, complaining that European subsidies had given its closest rival unbridled competitive advantage.

This corporate history also captures the truth that despite its zealous marketing slogan Forever Final Frontiers, the key to the company’s success is as much down to its ability to sell as its path-breaking technical expertise. Boeing has shown itself to be behind the competition in the development of key myriad systems such as fly-by-wire, but time and time again the deal-making acumen of senior executives has prevailed.

This is a history that, while highlighting the company’s extraordinary achievements, pulls no punches. In many ways Boeing represents the ideal of American commercial endeavour; gutsy, technically brilliant and supremely competitive. But across its recent history it has also shown itself prone to hubris and vulnerable to the winds of change in the fickle international aviation market — whether underestimating Airbus, failing to place sufficient value on customer goodwill, or overestimating its own technical capabilities as the recent 737 Max issues have shown.