My one liner: Fratricide, Patricide, Matricide, Infanticide, Blood, Guts, Gore, Pillage, Murder, Incest, Intrigue, Betrayal, Incompetence, Brilliance, Genius, Aggression, Passion, Fervour, Docility, Stupidity, Hubris. In other words the first five hundred years of the Byzantine Empire as described by John Julius Norwich in this classic account.
 
“After over half a century of contact with the Romans, his people had become perhaps one degree less bestial than at their first arrival; but the vast majority still lived and slept in the open, disdaining all agriculture and even cooked foods – though they would often soften raw meat by putting it between their thighs and their horses’ flanks as they rode.  For clothing they favoured tunics made, rather surprisingly, from the skins of fieldmice, crudely stitched together; this they wore continuously, without ever removing them, until they dropped off of their own accord.  And as they had always done, they still practically lived on their horses, eating, trading, holding their councils, even sleeping in the saddle.”
 
The Huns were a savage tribe which smashed their way out of the Central Asian steppes around 376AD.  Attila the Hun, “the scourge of God”, led a series of attacks on the Byzantine Empire and built up a vast dominion stretching from Constantinople to the Balkans in the East to Italy and France in the West. He came within a whisker of invading Rome itself.   
  
The Hun invasion is  just one example of the incursions and travails that beset the Byzantine Empire during the period covered in this book, 300 to 800AD. 
This colourful account by John Julius Norwich tells the story of the early Byzantine Empire, established by Emperor Constantine I (“Constantine the Great”) in 311 AD in the new city of Constantinople on the banks of the River Bosphorus.  The New Rome.
 
Whilst the Pope, and hence the religious centre, of the Roman Empire continued to be seated in Rome, the political centre had now gravitated towards the East.  

It was not a smooth and unambiguous transition, and often there were
Co-Emperors, one for Byzantium and one for the West of the Roman Empire.  
 
However, throughout the period of this volume, there was one inalienable and unargued article of faith for every Byzantine (and from which they drew strength of unity in times of turmoil), namely that the Emperor (or Co-Emperor) was the sole Vice-Gerent of God on earth.  This volume ends with the shattering of that practice in the most remarkable way in the year 800AD.  Pope Leo III produces a document (proved to be fraudulent only several centuries later) entitled the “Donation of Constantine”, pursuant to which Constantine the Great had allegedly, 500 years earlier, “retired” to the “province” of Byzantium, having bestowed on the Pope the right to confer the title of Emperor. 

By this document the Frankish ruler Charles (“Charlemagne”) was crowned
Emperor by Pope Leo and despatched to Byzantium to replace the supposed Empress Irene whose reign over Byzantium had been an economic and political
disaster.

Of course, the transition was helped by another factor: “That the Empress was notorious for having blinded and murdered her own son was, in the minds of both Leo and Charles, immaterial: it was enough that she was a woman.  The female sex was known to be incapable of governing, and by the old Salic tradition was debarred from doing so.”  
  
In between the bookends of Constantine the Great and Charlemagne, we read of a fascinating period of Christian history.  Of Emperors who were disastrous.  Of others who ruled Byzantium with skill, care and competence.  
  
For example Heraclius came to the throne in 610 AD.  He introduced a new structure into the eastern side of Byzantium, organising it along military
lines:
 - The part of Asia Minor (the northeast coastline running from Selifke in the Mediterranean to Rize on the Black Sea) which had recently been recaptured from the Persians was divided into four “Themes”, or regions.  The choice of word was significant, because tema was the Greek word for a division of troops, thus underlining the warlike division of the region. 
- Each tema was put under the governorship of a“strategos”, or military governor.  
 -  A reserve army was maintained by providing potential soldiers with inalienable grants of land, in return for hereditary military service if called up.  
 - The net result was that Heraclius did not have to rely on ad hoc recruiting or on doing deals with dodgy barbarians in order to raise an army.  
  
On the economic front he fixed the parlous fiscal position of the Imperial economy through:
 - Taxation and government borrowing
 - Restitution from supporters of the previous corrupt regime
 - Subsidies from “friends and family” in Africa
 - Most importantly however, he persuaded Patriarch Sergius, the Archbishop of Constantinople, to declare that the coming war would be a religious war.  Hence all of the Church assets and treasure would be at the disposal of the Emperor. 

Leadership 101 for aspiring modern warmongerer.  
  
You will need to read the book to find out what became of Heraclius.  

Every Emperor was confronted by tribes trying to nick territory.  The Gauls and Franks perennially switching their loyalties to and from Rome.  The Lombards (from modern Germany and Austria) settling in Northern Italy. The Slavs trying to take the Balkans. The Goths, the Vandals and Huns having to be bought off or fought off.  
 
But, there are two stand-out foes of Byzantine Christendom over this period.  
 
First, the Persian Empire, whose rulers always seemed to have the knack for knowing when they had the upper hand. As an example, in 359AD Emperor Constantius II receives a letter from the Persian King:
 
“Shapur, King of Kings, brother of the Sun and the Moon, sends salutation...
 
Your own authors are witness that the entire territory within the river Strymon and the borders of Macedon was once held by my forefathers; were I to require you to restore all of this, it would not ill-become me...but because I take delight in moderation I shall be content to receive Mesopotamia and Armenia which were fraudulently  extorted from my grandfather.  I give you warning that if my ambassador returns empty-handed, I shall take the field against you, with all my armies, as soon as the winter is past.”
 
I guess a lawyer would call that a Letter Before Action.

And of course the other formidable challenge to Byzantium was the rise of Islam.  

In 633 AD, shortly after the foundation of the religion, it suddenly “burst out of Arabia.”  First Damascus, then Jerusalem.  Next, the whole of Syria.  Egypt and
Armenia fell within the decade. The whole Persian Empire was subsumed within 20 years.  And then Afghanistan and Punjab within another 10 years. 
To the West, North Africa and Spain. Across the Pyrenees and finally checked
at the banks of the Loire.  
 
The rest, as they say, is history.
 
The various Emperors acceded and reigned using diverse styles of governance and deployed some interesting procedural instruments.  

The Emperor Maurice, though fundamentally a good man, faced financial
pressures as a result of the extravagance and incompetence of his predecessor.  Around 602AD he introduced austerity measures, but went too far, at one point cutting military rations by 25%, refusing to ransom 12,000 captives of the Avars (leading to them being put to death), and decreeing that the army should not return to base for winter but should sit it out in inhospitable territory beyond the Danube.  Eventually he become so unpopular that he took the decision to flee to Persia (with whose king he had previously  concluded a truce), taking his family with him.

His successor Phocas, embarked on a brutal purge of all his enemies. 
 
“Debauched, drunk, and almost pathologically cruel, he loved, we are told, nothing so much as the sight of blood..; it was Phocas who introduced the gallows and the rack, the bindings and mutilation which were to cast a sinister shadow over the centuries to come.”
 
First, Phocas despatched troops to Asia and killed Maurice and family. Then he exterminated his own brother and nephew. Plus a whole bunch of military men.  He even managed to kill Narses, his best general in the East.  Unsurprisingly, the Persians took their chance, invaded, and took
significant chunks of territory, including Mesopotamia, Syria, Armenia,
Cappadocia, Paphlagonia, and Galatia.  
  
Other examples abound. 

Julian the Apostate, who eventually became Emperor in 361 AD, had to bide his time (indeed he didn’t really have imperial designs, and in fact was a sort of travelling scholar, and by all accounts a little bit of a geek).  

His cousin Constantius II preceded him as Emperor.  He had had Julian’s father and stepbrother killed when Julian was a young child.  Constantius made the error of elevating Julian, appointing him as the Caesar of Gaul.  Julian must have had a festering hatred for Constantius II.   He bided his time, and then led an army against Constantius.  
 
This book has some other useful features.  The tables of lineages, emperors and family trees, the maps and illustration all add to understanding.  Moreover there is a tourist guide, providing a list of the Byzantine monuments still surviving in Istanbul today.  
  
I agree with the author in his Introduction that Byzantium is an era of history under-taught in schools, yet it has more than enough material to capture the imagination of a schoolchild.  
  
The narrative of this book is tight, so it leads you swiftly from one reign to another quite seamlessly.  
 
And that perhaps, is a clue to the central message of the book. 

Dynasties come and go.  Some leaders are good people, some are bad, most a bit of both. They are able to wield huge power. And yet they are all merely human beings powerless against the passage of time and events.

The wikipedia link to the book is here.

My one liner: Neuroscience is a discipline still in its infancy.  This book reaches some quite startling conclusions about how we  can “re-wire”our own brains and hence tweak or change our own personality.

We know intuitively that our minds can be “trained” so that we become an expert in something, or maintain our mental agility (think Sudoku, or those Nintendo puzzles designed for old codgers).  Neuroscience is an evolving discipline, and research has shown that we can take this intuition much further.  
 
It goes something like this.  
 
Our personality can be described by six Dimensions of a person’s “Emotional Style” – we sit at some point on line between two extremes for each of those Dimensions, and the combination of all those points, in essence sums up to form our personality.  Now, here’s the interesting bit.  Which part of the line we sit on with respect to each Dimension depends on either the activity in, or physical properties of, a particular part of the brain. 

So what, I hear you ask.  We are born with particular brain characteristics, and therefore our “personality” is determined by genetics and that’s it. End of  story.
 
Not so, according to the authors, Richard Davidson (a neuroscientist) and Sharon Begley, a science writer.  

Davidson has spent over four decades researching this, and reckons that the size, shape and activity of the various parts of the brain can be changed by  “exercise” in the same way that we might change our body shape and fitness by
going to the gym. In other words the brain exhibits neuroplasticity.
 
The implication ?  We can reconfigure our own brain in order to change our location within each Dimension of Emotional Style, and hence alter our own personality over time.  Nurture can override nature, in other words.

The book concludes with practical actions we can take in order to reconfigure the brain, ranging from different styles of meditation, to targeted social training “drills”. It also provides possible ways to treat “disorders” such as depression or autism.
 
What are the six Dimensions of Emotional Style ? They are: (1) Resilience Style (how quickly or slowly do you shake off a setback ?); (2) Outlook Style (broadly, are you an optimist or a pessimist ?) (3) Social Intuition Style (are you good, or bad, at reading visual, aural and oral clues from other people and hence gauging other people’s emotional state ?) (4) Self-Awareness Style (are you intensely self-aware of physical cycle and states of your own body, and are able to relate them to changes in your own mood and behaviour, or alternatively do have difficulty in understanding why you behave the way you do ?); (5) Sensitivity to Context Style (how often, or not do you adapt your actions or behaviour to current social situation ?); (6) Attention Style (how easy or difficult do you find it to focus on a particular task, rather than letting your thoughts or attention wander ?).  
 
An example.  Social Intuition. Guess who this is:
 
“I ushered him to a quiet table [to] get waiters to bring him lunch, [but] he would have none of it.  Maroon robe swirling, he walked up to the buffet table, took a plate, and waited in line to serve himself like everyone else – attracting no small number of stares, but even more smiles of appreciation that this Nobel laureate, head of the Tibetan government in exile, best-selling author, and spiritual leader was waiting his turn for poached salmon, rice pilaf, and a Weight-Watchers nightmare of desserts like everyone else.  Social Intuition, indeed.”
 
Note, the Dimensions of Emotional Style are a continuum and each person sits at some point on the continuum for each Dimension.  Note also that for each Dimension there is not one “good” extreme and one “bad” extreme.  Take Self  Awareness.  At first blush you may think it is good to be highly Self-Aware.  It means you can quickly recognise when you are angry, sad, jealous or afraid, and can relate this to emotional cues within your body. But, taken to the extreme, “someone with very sensitive emotional antennae for his own feelings who observes the pain of another will feel that person’s anxiety or sadness in both mind and body –experiencing a surge of the stress hormone cortisol, for instance, as well as elevated heart rate and blood pressure.”

So how does neuroplasticity work in practice ? Well, for example, scientific research and experimentation conducted by Davidson demonstrates that a more Positive Outlook Style is caused by a stronger physical link between the Pre-Frontal Cortex and the ventrial Striatum (see the Diagram, apologies for the hand-drawing, probably the first time I have drawn a human body part since ‘O’ Level Biology).  So to give yourself a more positive Outlook if indeed that is what you want (Remember: pessimism can be good as well, as it may make you a better manager of your personal risk), you need to do exercises which strengthen that link. The authors suggest repeatedly putting yourself in situations which require forethought and planning. Slightly counter-intuitively, this means you actually repeatedly place yourself in front of temptations for instant gratification (e.g. junk food, shopping for luxury goods), and practice refusing, because you convince yourself this would be better for you in the long term.
 
As a supplement, they advocate techniques originally developed by Giovanni Fava (University of Bologna, Italy), called “well-being therapy”, which also strengthens the Pre-Frontal Cortex to ventrial Striatum link. Broadly, each day, write down positive characteristics of one or two you know, express gratitude regularly (and look into people’s eyes when you say “thank you”), and compliment other people on a regular basis (again, looking into their eyes when you do so). 
 
What I like about this book is that it leads you through the link from the scientific to the practical (as Davidson says: “I am admittedly biased, but I believe that any program that purports to alter something as fundamental as Emotional Style simply has greater credibility if it is grounded in neuroscience). And it leads us through the evolution of the research, from its slightly rickety days in the early 1970s (electrodes strapped to the head monitoring dream activity in volunteer students, with results recorded on polygraphs) to 21st century fMRI analysis in highly controlled environments.  
 
We learn how early science and philosophy contributed. Charles Darwin’s 1872 book “The Expressions of Emotions in Man and Animals”, emphasised the instinctive signs of emotions, particularly facial expressions, hence providing an indication that different emotions must be linked with distinct physiological profiles.  Or Carl Jung’s autobiography, entitled Memories, Dreams, Reflections, containing the first observations about introversion and extraversion as traits, and speculating about psychological and physiological differences among people of each type.
 
And there is alot about Buddhist Monks.  Richard Davidson tells of his meetings with, and subsequent co-operation from, the Dalai Lama in collaring monks (the “meditation Olympians”) to participate in medical trials on the effects on the brain of different styles of meditation.  Initial attempts to get older mountain-dwelling monks in Dharamsala to participate “on-location” were, as hilariously recounted, a complete disaster.  But persistence paid off, and younger, more outward-looking monks did eventually collaborate in studies in the USA, leading to findings that prolonged meditation did increase levels of “neural synchrony”, a phenomenon whereby neurons from different parts of the brain fire off at exactly the same time, a process which research apparently demonstrates will typically make cognitive and emotional processes become more integrated and coherent.

This is a difficult area of science, and has been tackled well.  Should you adopt the conclusions and recommendations in order to develop your personality in the ways that are proposed ? Well, the approaches suggested are hard work. And it would be difficult for a layman to verify the scientific research that underpins the conclusions, so you would have to take it all at face value, and hence it would be somewhat of a leap of faith. But then, we don’t read scientific research papers before joining a gym and doing physical exercise.  So perhaps this is no different.

There is no Wikipedia link for this book. The link to the author's website is here.

My one liner: A thorough and informative historical analysis of the whole supply chain, from production to transport to processing to marketing to distribution. From a seasoned investigative journalist.

“Except for those few stones that have been destroyed, every diamond that has been found and cut into a jewel still exists today and is literally in the public's hands. Some hundred million women wear diamonds, while millions of others keep them in safe-deposit boxes or strongboxes as family heirlooms. It is conservatively estimated that the public holds more than 500 million carats of gem diamonds, which is more than fifty times the number of gem diamonds produced by the diamond cartel in any given year. Since the quantity of diamonds needed for engagement rings and other jewellery each year is satisfied by the production from the world's mines, this half-billion-carat supply of diamonds must be prevented from ever being put on the market.”
 
Edward Jay Epstein is an investigative journalist who has studied the history of
commercially-produced diamonds, and presents in this book a collection of his research, which he has been publishing in newspapers and journals since the 1980s.  Indeed you can read the early chapters on Mr Epstein’s website here.
 
Likewise therefore, some of the supporting data and anecdotes are old, but the more recent chapters bring the reader right up to the state of play as of 2011. The central thesis of Epstein’s analysis is that diamond dealers, or wholesalers, charge extraordinary markups to retail buyers of diamonds.  This markup, known as the “keystone”, can be between 100% and 200%. Hence, when you go back to a dealer to try and sell back a diamond, he may well have a slightly embarrassed look on his face, and will probably decline to quote a price, so as to preserve your dignity.

To give an example (my analysis, not from the book).

Anyone who has been involved in trading any item or asset or commodity will be familiar with this concept: the 13k is the dealer’s “bid-offer”, or “spread”, between what he is prepared to buy the asset for (bid) and his offer price to sell it (offer).  In the diamond market these spreads are, apparently, extremely wide.

So, take the following chart, which I pulled from a website called wealthymatters here (by the way, it’s a nice little blog written by a lady based in India). The price shown is the Average One Carat D Loupe Clean wholesale diamond prices in Antwerp. Current “price” $25,000.

What it doesn’t tell you is that if indeed that 65% bid-offer spread is correct then the price you would receive to sell your diamond would be $8,750, a level seen during the 1970s.  Now, I’m sure the reality is not that bad, and that sophisticated investors with market knowledge can make money as an investment, but its certainly food for thought.
 
Epstein takes us nicely through the modern history of diamonds going back to 1870, to show how the market has been controlled.  Until the late 19th century diamonds were found mostly in a few river beds in India, and in the jungles of Brazil. In 1870 however, a huge deposit was found in South Africa, near to the Orange River.  In order to protect their investment the British financiers of those mines had to prevent a glut hitting the market.  
 
Thus was created, in 1888, De Beers Consolidated Mines Ltd, incorporated in South Africa.  Epstein traces the history of De Beers through the decades.  
  
How it gained control of the whole supply chain, from production to transport to processing to marketing to distribution.

How networks were established in Europe (particularly the UK, Portugal, Belgium, Holland and Switzerland) and Israel.
 
Epstein provides us with vivid description of what he calls the “Diamond
Invention”:
 
“The diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting tiny crystals of carbon into universally recognised tokens of wealth, power and romance. To achieve this goal De Beers had to control demand as well as supply.  Both men and women had to be made to perceive diamonds not as marketable precious stones, but as an inseparable part of courtship and marital life.”
 
As the American market grew to become the largest consumer market for diamonds, it was inevitably a New York-based advertising agency, N.W. Ayer, which helped De Beers create this illusion.  A huge marketing campaign was orchestrated in the post-war era to make diamonds be perceived as the only acceptable way for a man to court – and win – a woman’s affections.  Movie stars, celebrities, magazine editors, and even the British Royal Family were co-opted into the campaign. 
 
A campaign which still runs to this day.
 
From N.W. Ayer at the end of the 1950s:

“Since 1939, an entirely new generation of young people has grown to marriageable age.  To this new generation a diamond ring is considered a necessity to engagements by virtually everyone.”
 
And after the Second  World War new markets would open up, particularly Germany, Japan and Brazil.  Epstein leads us through the new productive players in the market: Australia (brought into the fold through the creation of the Rio Tinto Corporation), and the Soviet Union (with whom a cartel deal was done).  
 
We learn that the “blood diamonds” are, apparently, a construct to prevent the supply of “uncertified” diamonds from civil war-ridden countries like Angola and Sierra Leone.  The UN Security Council, no less, has pronounced on the illegality, thus institutionalising the absence from the mainstream markets of these “blood diamonds”.
 
Finally, the US Anti-Trust action which culminated in the break up of the De Beers cartel in 2001, and the eventual exit of the Oppenheimer family (the owners of De Beers since 1927) from the group a few years later.
 
All in all a fascinating read, and enough to give humble men-folk some pause for thought next time we traipse in to acquire the sparkling “diamond invention”.  
  
That said, try telling the story to the object of your affections, and see what she
says…

There is no Wikipedia link to the book.  However, as stated much of the content appears here. 

My one liner: Viewed through the lens of the mutual back-stabbing between Britain and France in the first half of the 20th Century, the origins of the current strife in the Middle East become clearer.  An "infographic review".
 
Take the following quotes referring to a political debate in Britain about her presence in Mesopotamia (now Iraq), and you come to realise how historical cycles repeat themselves:

"However, by now the terms of the oil-sharing arrangement that Britain had reached with France...had become public and were attracting controversy, particularly in the United States which had been excluded from the deal...During the 23 June debate...[Prime Minister] Asquith systematically tore into Churchill's figures to demonstrate that the costs of Britain's presence were still unclear, and questioned the assumption that Britain would ultimately reap a divided from its mandate.  He attacked Lloyd George's root interest in the country, for its oil, as a 'fundamental violation' of the League of Nations covenant signed by Britain."

"At the beginning of July the small British garrison in the town of Rumaythah on the railway 150 miles south of Baghdad was attacked by thousands of well-armed and disciplined insurgents...Led by the nationalists and backed by the Shia's powerful religious leaders, the rebellion quickly spread among the tribes of the fertile Euphrates flood plain...The tribesmen cut the railway in several places, and within days much of the areas between Rumaythah and Diwaniyah...was in revolt."

Author James Barr has forensically analysed government and diplomatic papers up to the immediate post-war period to present a well-narrated account of how the two declining colonial powers Britain and France managed to undermine each other's interest in the region.  

An alternative style adopted for this review. 

I have taken inspiration from the book "Information is Beautiful" by David McCandless (highly recommended) to create a few charts (nowadays known as "infographics", I believe) that show the interplay between the two powers in the region, and the timelines by which some of the modern states were created. 

The charts are my own creation based on my interpretation of the book, and of course do not capture much nuance.  But hopefully they give a flavour of the extensive ground and material covered by the author.  Apologies to the author (and, no doubt, others more knowledgeable than me) for inaccuracies.

Syria. 9 September 1919. David Lloyd-George, British Prime Minister: "We could keep faith both with the French and the Arabs, if we were to clear out of Syria, handing our military posts there to the French, and at the same time, clear out of Damascus, Homs, Hama and Aleppo, handing them over to Feisal [for a short period King of independent Greater Syria].  If the French then got into trouble with Feisal it would not be our fault."

"On 27 May [1943], fighting erupted in Homs and Hama, the two main cities between Damascus and Aleppo.  In Hama a dispute between the French and the Syrian gendarmes about who controlled the railway station escalated.  After the Syrians ambushed a French relief column outside the town, capturing artillery and armoured cars, the French retaliated by mortaring, machine-gunning the town.  Eighty people died."

Lebanon. "In June 1941 British and Free French forces invaded Syria and Lebanon to stop the Vichy administration providing Germany with a springboard for an offensive against Suez.  After the Vichy French surrendered a month later the British government entrusted the government of Lebanon and Syria to the Free French.  When that move caused Arab anger British officials decided that the best way to divert attention from Palestine was to help both Syria and Lebanon gain their independence at French expense.  With significant British assistance the Lebanese did so in 1943."

Mesopotamia (Iraq). "Once the British government had decided that control of Northern Iraq mattered more than the question of who was allowed to join the Turkish Petroleum Company, [Chief Executive, John] Cadman went to the United States later in 1922 to hammer out a provisional agreement that offered the Americans participation in the company. That done American criticism magically evaporated, the Mosul dispute was eventually resolved in 1926 and the deal was signed in 1928. By its terms, four companies - Anglo Persian, Royal Dutch Shell, the French state-owned Compagnie Française des Pétroles and the Near East Development Corporation which represented the various US companies' intrests) each had an equal stake of 23.75 per cent in the TPC. 'Mr Five Percent', Calouste Gulbenkian, who had set up the company, retained the remainder."

Palestine (Israel). The Balfour Declaration 1917 (Arthur Balfour, British Foreign Secretary): "His Majesty's Government view with favour the establishment of a national home for the Jewish people, and will use their best endeavours to facilitate the achievement of this object, it being clearly understood that nothing shall prejudice the civil and religious rights of existing non-Jewish communities in Palestine, or the rights and political status enjoyed by Jews in any other country."

From the author: "On 10 November [1945], [Georges] Bidault [French Foreign Minister] quietly told David Ben-Gurion [Zionist leader and subsequently first Prime Minister of Israel] that France would support the Zionist cause. Eighteen months earlier Ben-Gurion had  offered up the hope in public that, after the war, the Jews would find that a rejuvenated France would 'have an understanding attitude towards us'. That prayer had now been answered.  It was not long before France's grand policy of covert support for the Zionists would emerge. "

There is no wikipedia page for this book.  The author's homepage is here

My one liner: A commonsense overview of post-crisis world economic trends. A global macro handbook for an international investor, and a basic primer for a non-specialist looking to understand what the future holds for the world economy.

I am surprised this book has not received more attention. This was another of the books I bought during the summer at the closing-down sale of England’s Lane books that I have referred to in various previous postings.  A reminder of the rightful place that local  independent bookstores should be playing but no longer can in this age of e-books (yes, I do own a Kindle)  and online shopping.  We are being fed content through our electronic networks, and perhaps we are forgetting how to seek out nice things in the physical world. But that is a topic for another posting.

When the global financial crisis began in 2008, we all started to (re-??) learn some fundamental truths, most of which were of the nature of “not everything can keep going up forever”. In the Impoverishment of Nations, author Leigh Skene introduces us to some further fundamental truths, which are also fairly obvious, but which still don’t seem to be grasped by many policy-makers. This is what can give this book wide appeal.  To the layman it can provide a roadmap of where our economies are likely to head over the next few years, and we can draw our own conclusions about what that might mean for us personally.   

There is also, I believe, much to digest in this book for the professional investor, since if some of Skene’s global macro predictions are true, then one could use them to construct an international investment portfolio.

Take for example, Skene’s Fifth Basic Truth (he has 10, which appear in a nice
one-page list at the end): We can’t borrow our way out of debt. Blindingly obvious if you put it like that, and yet, governments (or their Central Banks) are engaging in what is referred to as Quantitative Easing (QE).  Basically, this involves a Central Bank printing money which it then uses to purchase financial assets (typically government bonds) from banks. QE is supposed to stimulate economic activity because it increases the excess reserves of banks, so that they can lend this cash out to individuals and companies (particularly small companies). The problem is that this won’t work according to Skene.  That is because there is too much private debt already in the economy.  The man in the street already has a mortgage and other loans and credit card debt.  Hence, a polite “Thanks, but no thanks,” to the offer of additional credit. The chart below which I have hand-copied from Skene’s book illustrates this quite nicely. And if you want to follow up on what has happened in the last three years (more of the same, basically), then take a look at the latest NY Fed Household Debt and Credit Report Q2 2012.

An additional effect, only peripherally addressed by Skene, is the move towards capital  tightening via the new Basel III Capital Adequacy rules.  In a nutshell, these are requiring banks to hold more “Tier 1” (allegedly  high quality) capital against their liabilities.  Which means that the supply of credit from banks is possibly tightening also. And with bond yields at all time lows, the“velocity” of money, or speed with which money goes round the economy may well have slowed down significantly as people hoard cash. May I be so bold as to suggest (as Skene indeed does) that now is in fact time to break the world’s habit of pro-cyclicality. Surely now is the time to be loosening regulations, capital requirements and barriers to business, and tightening them when economic activity eventually starts to pick up.  Yes, some allegedly “systemically important”institutions will then topple, but I would suggest that after 2008, this possibility is already “priced in” anyway.
 
I digress.  Back to the book.  Where are the upcoming battlegrounds for natural resources ? Well, some interesting perspectives from Skene. First, the world will not run out of oil.  Reserves from tar sands and shale gas will provide our energy needs for decades if not centuries to come. That said, this doesn’t mean energy prices fall. Indeed, quite the opposite, geo-political forces are the prime driver of energy prices and are pushing them upwards.  Developed-world consumers will adjust by consuming less energy, and hence will have lower living standards.  My own view, for what its worth, is that the newly accessible shale gas and tar sands reserves and fracking etc will constitute an in-built stabiliser on the oil price, both upwards and downwards.  It is hard to see $200
per barrel without a concomitant large infrastructure investment in new types of extraction.  Likewise, you wouldn’t think that much of this new investment would be sanctioned (unless by  a government with deep pockets) at $50/barrel-oil.  Sounds like a collar on the oil price to me.

Skene thinks, and I  sort of agree, that the elephant in the room is Water. Which is a little bit of a mixed metaphor. May I quote from the book, because I can’t express this any better:

“The world’s population has doubled since 1950, but global demand for water is doubling every 21 years.  Only 2.5% of the world’s water is fit for human consumption, and two-thirds of that is locked away in icecaps and glaciers. Unlike other commodities, no new water reserves will suddenly be discovered, there is no substitute for water and just about everything and everyone relies on it....Big reserves of fresh potable water lie in underground aquifers that provide more than half of the water in America, up to 80% in Europe and Russia and 25% worldwide.  They contain 30 times more water than all the world’s lakes, and hundreds of times more than all the world’s reservoirs...[T]he vast aquifers took millions of years to form and replace themselves extremely slowly...Depletion of global groundwater supplies by an estimated 4% annually...One in ten of the world’s major rivers fail to reach the sea for part of the year, including the Colorado, Yellow, Indus and Ganges...Agriculture uses 70% of the world’s water.”

Consequence: water shortages, food shortages and a much more potent brake on rising living standards than rising energy prices.  Desalination and other infrastructure improvement help a little, particularly for the 30% of demand that is industrial and residential. But it won’t impact on the 70% needed for agriculture.  And irrigation is becoming more difficult because of lack of access to water.

A couple of slightly negative comments. First, the author then gets all Malthusian on us. He starts by referring to Malthus, and saying that in 1798 Malthus predicted that population growth would outstrip food growth, but didn’t factor in the arrival of the industrial revolution. But then Skene falls into the same trap of suggesting that Malthus’prediction will now come to pass as the world’s population grows to 9 billion.  

But who is to say that we are not in the midst of a second, or third or whatever, industrial revolution already ? And anyway population is according to data cited by the author, predicted to peak at 9 – 9.5 billion by 2070. Or maybe we will eat less meat, which is the largest consumer of water.  Self correcting mechanisms again ? Second, I wish this item had been included in the list of Ten Basic Truths, as it is an extremely important issue.

The essence of the book is that advanced developed nations have a long period of adjustment to go through which will likely lead to lower living standards after six decades of rising ones. Having borrowed largely for consumption over the last century or so, rather than investing savings into productive assets (Basic Truth 8), advanced nations now find that they cannot borrow more, either at a personal or a national level.  

These fiscal burdens will only increase as populations get older in advanced
countries.  The number of people of working age available to support each pensioner is dwindling, so either the shoulders of each worker will have to support more burden, or pensioners will need to receive less state assistance. Interestingly, China has a similar problem, whereas India remains in fairly good shape for the rest of the century (see my reproduced chart below).

Essentially, the forces could have pulled us out of the deflationary trap, such as Keynesian fiscal deficits, or monetarist QE are either unavailable or ineffective (Basic Truths 3-5). Rising energy prices and food and water shortages lower real standards of living.  Wage rises are unlikely to rescue people in advanced countries because globalisation is unleashing cheap labour onto the markets (Basic Truth 7).  And commodities and real estate are still overvalued and have further to fall, hence eroding personal wealth and balance sheets (Basic Truth 2).  A similar argument is also put forward for stock markets, although they have risen since the book was written.  Query however how much further they can go unless you believe predicted earnings growth (the “E” in P/E) will actually transpire. Assets will eventually have to be re-priced at fair value removes the effect of decades of leverage. Fiat money systems have been largely to blame for this.

I would broadly agree with the above analysis, with two exceptions.  Advanced economies have one huge “balance-sheet” item which is mostly ignored by economists’ appraisals. That is the Rule of Law.  Western legal systems have evolved over many centuries to the point where comprehensive property and legal rights exist with confidence. They are far from perfect (as this previous blog post of mine illustrates), but they do provide a basic foundation for widespread economic and social activity. This gives these  countries safe-haven status and will make them a favoured FDI destination.  
 
Which brings me on to why I think this book is of practical relevance.  If (as I do) you agree broadly with the conclusions, then it can also inform an appropriate  investment thesis.  There are many  possible investment conclusions one can draw. Here are  mine:

1. We are no longer in a period where financial engineering and in particular leveraged finance are the primary source of investment returns. Where bonds are low yielding and equities are volatile, don’t be afraid of unlevered equity-only investments in high-quality projects. Be happy with a yield of 4-6%.  You always have an option to raise debt in the future to leverage your returns. So what counts as a “high quality project”? Depends on many factors including time horizon and liquidity preference, but an example could be commercial real estate with high quality long-term tenants such as governments or highly rated corporates.


2. Infrastructure projects, particularly in the food and water sectors.  But pick countries where the off-taker is likely to pay up for duration of the project. For example renewable energy projects in southern Europe came a cropper, because many relied on government subsidies for the duration of the project, and these subsidies were pulled when deficits needed to be cut. So, a good test would be “does the government or other off-taker really  need the relevant infrastructure to be operational for its whole life ?”.  Less important in advanced countries, where contracts tend by and large to be honoured.

3. And this leads us nicely to geographical considerations. Falling living standards in advanced economies does not translate into  “don’t invest there”. Remember that big asset: the Rule of Law.  And following Skene’s thesis, with banks pulling out of corporate  lending, the opportunities for cash investors could be interesting. SMEs, perhaps listed on the smaller stock markets, may have a high amount of leverage on the books, find it hard to access primary equity capital, but have fundamentally strong operational cashflows. The opportunity for a cash buyer would be to take the company private, take the debt of the books and hopefully increase the efficiency and scale of the business with expansion capital. Exit by re-floating.  Many such opportunities abound, particularly in Europe. Private Equity investing will mean what it used to, ie, taking over companies and managing or operating them better.

4. In terms of emerging economies, BRICs have been in and out of vogue over the past ten years. Continuing with the theme of fiscal strength driving economic strength, I would be looking at countries which growing populations from an already large based, strong fiscal positions and are capable of being a “self-sustained eco-system”, and some semblance of an industrial base. Within advanced economies, Australia looks interesting.  The Gulf countries, (including, in the future, Iraq) are natural-resource backed economies with existing infrastructure and very little need to access international debt markets. There are some other examples in Africa, Latin America and Central Europe. A good starting point is the projected Debt/GDP ratios, which can be
found here.

I shall be developing these themes in future posts, but I would be very happy to engage in discussion, either via the comments section here, via email in private or through the various social media, Twitter and LinkedIn. 

There is no Wikipedia link for this book.  The Google Books link for the book is
here.

My one liner: Linguistics for the layman.  Families, lineages, and some syntax and grammar deconstruction to show us how the principal language groups have evolved.  And some crystal-ball gazing on the future of world languages. Readable and Browsable.

I have always thought that learning a language, writing a good computer programme, and drafting a good contract involve essentially the same discipline (I suspect writing a musical score requires some of the same skills but I don’t know – can anyone enlighten me ?). Steven Roger Fischer takes the evolving and increasingly technical discipline of linguistics and language evolution, and gives us a quick tour in the History of Language. 

First off, a small gripe. Split infinitives may or may not annoy people: linguistic conservatives want to preserve the “grammatical rule” that one should not put an adverb in between the two parts of an English infinitive.  They would turn Star Trek’s “To Boldly Go” into “Boldly To Go.”  And that, Mr Fischer, is the standard refutation that British children are taught in schools regarding the split infinitive rule.  Churchill’s famous hypercorrective quip (“This is the sort of English up with which I will not put”), to which you refer (or should that be: “which you refer to” ? J ) is a clever refutation of another so-called grammar rule, but it’s not the split infinitive one, OK ?  Right, rant over (though it does make one wonder whether there are any other errors in this book).  The book is otherwise fascinating.

It has only been in the twentieth century that Western linguists were able to elucidate the principles of phonemics.  But we find out in the History of Language that India’s earliest Sanskrit scholars had already developed the dvhani-sphota relationship in the first half of the millenium.  Utterance was the dhvani; permanent linguistic substance, unuttered, was the sphota.  Teaching us that language rules are inextricably linked to the philosophy, culture and religion of a society (the Hindu Vedas distinguish between word forms that are written, unwritten, and incapable of being written).

And just as amazingly these scholars adopted a highly efficient and systematic approach to documenting their grammatical forms that any proponent today of efficient computer coding would be proud of:

“Ancient Indian scholars appear to have been obsessed with grammar, seeking to state all rules in the most economical prioritized set: one commentator noted that saving half the length of a short vowel while positing a rule of grammar was ‘equal in importance to the birth of a son’.  Word formation rules, applied in a strict set in aphoristic sutras, take precedence; in contrast, Sanskrit’s phonetic and grammatical description is almost wholly assumed.”

Through the study of linguistics valuable insights can be gained into the relationships between people of different regions that disciplines such as genetics are only today discovering.  Take for example the recent genetic “discovery” that Y polymorphisms (extremely rare male genetic mutations), are relatively common both in Asian and Finnish populations.  This would not be surprising to a scholar of the Finnish language.  Since he will tell you that speakers of the Uralic languages in North-Eastern Asia becamce divided into two language families: Samoyed and Finno-Ugric (as an aside, Finno-Ugric is the source language for both Finnish (Finland) and Magyar (Hungary)).

We learn how the discipline of modern linguistics was developed, particularly by scholars in the 19th Century.  Franz Bopp (1791-1867) conducted a comparative study of the verbal forms in Sanskrit, Latin, Greek and the Germanic languages, and in particular the inflection (ie the systems of word endings which denote grammar).  His principal work Vergleichende Grammatik extended this for all inflected forms, and he also carried out investigations into the relationships of the above with other languages such as Litauen, Armenian, Albanian, and the Celtic and Slavic languages.  Hence all falling into the Indo-European family of languages.  Bopp is today considered the founding father of the comparative study of the various Indo-European languages.  The family tree below shows the principal ones and their groupings.

Fischer also walks us through the process of linguistic change.  There are four types of linguistic change: (1) Phonological change (Chaucer’s “hūs” to modern “house” or “haus”), which is a systematic change of sound.  Phonological change is the most easily accepted type of change amongst the users of a language; (2) Morphological change (Shakespeare’s “goeth” to modern “goes”), is a systematic change in the form of words, which is not as frequent as phonological change; (3) Syntactic change (“Attorney-General”, the Norman French form, should really be “General Attorney”, under Old English grammar rules), where there is a systematic reordering of words; (4) Semantic change (“cniht” meaning “youth” in Old English, with the “c” pronounced, to “kniht” meaning “military servant” in Middle English with the “k” pronounced, to “knight” meaning person elevated to honourable rank today, without the “k” pronounced”).  Semantic change systematically alters the meaning of a word.  And of course with the advent of the internet, globalisation and the spread of the English language as the medium of choice, this pace of change accelerates, at least with respect to the English language.

But what of other languages ? Fischer is unambiguously clear that the number of languages in the world will continue to reduce, of around  5,000 languages extant over the last 50,000 years, probably only 4,000 are spoken today, and Fischer thinks that only 1,000 will be spoken at the start of the 21st Century.  Fischer postulates (not surprisingly) that English will be the dominant language in centuries to come (although doesn’t rule out some unforeseen occurrence which brings another rich-country language to the fore such as German or Japanese).  The other two languages which will be globally prevalent are of course Mandarin Chinese and Spanish. And fast forwarding even further to days when we colonise Mars, we will no doubt see differences evolve between “Earthen English” and “Martian English”.

The benefits of standardisation of language are clear, as they reduce “transaction costs” of interacting across the globe. But of course, as Fischer points out:

“Despite the immediate gains language replacement brings, those who voluntarily give up their language invariably sense a loss of ethnic identity, a defeat by a colonial or metropolitan power (with concomitant sensations of inferiority) and a distressing defection from one’s sacred ancestors.  This also entails the loss of oral histories, chants, myths, religion and technical vocabulary, as well as customs and prescribed behaviour.”

This is a short book, and hence very readable, or indeed one that you can dip in and out of at leisure.  The section on animal communication is particularly fascinating for example, and it can be read entirely in isolation.  Did you know that the blue whale emits probably the most powerful sustained sounds known on Earth ?  Its 188-decibel “song” is detectable for hundreds of kilometres, and the perfectly timed notes are emitted at intervals of 128 seconds, or if there is a pause, at exactly 256 seconds. Likewise humpback whales emit “long love songs” used for mating.  These are regular sequences of sounds varying widely in pitch and lasting between six and thirty minutes. But when you record these songs and speed them up around 14 times, they apparently sound remarkably like birdsong ! 

If I had a criticism of the book it would be that it is longer on Proto-Indo European and shorter on Semitic and Asiatic languages, and hence arguably reflects a linguistic-cultural bias of its own. 

But that is a minor quibble as it is full of pointers for anyone who wants to study more in this area. 

There is no Wikipedia entry for this book.  The Google Books link is here.

My one liner: Simplicity. Austerity and the subtraction of the non-essential. Quietude and stillness. Asymmetry and Seductive Imperfection. Naturalness without artifice. Subtlety and Suggestion.  Incremental improvement produces immense change in the long run.  Told as a fable, this book provides a nice template for self-review.

Ok, so maybe you have or haven’t read Shibumi, the 1979 fictional thriller by Trevenian, reviewed in my previous posting, here. 

Nevertheless, The Shibumi Strategy by Matthew May is a very easy read.  You can easily get through it in a day, and get the main message. And it is one of the better books aimed at the business executive self-help market. 

A reminder: What is Shibumi ? It is one of a number of Japanese words, denoting the aesthetic of simple, subtle, and unobtrusive beauty.  Yet, although Shibumi objects appear to be simple overall but they include subtle details, such as textures, that balance simplicity with complexity.  The same can be applied to our personal development, as strive bit by bit for self improvement and awareness of the world around us.

Andy is a tele-sales executive for an electronics company in a small town in Middle America.  He gets fired. 

On his way home he decides that he needs to do something, anything, so that he can soften the blow for his family when he tells them that evening.  So he goes off to the car dealership run by his friend, Grady Carver, and manages to land a commission-only job selling cars, starting immediately, and with some pretty tough targets.  Not ideal, as Andy has never sold a car in his life.  Doesn’t know the first thing about cars.  But, it is a starting point.

This is a fable about Andy, as he goes from no-hoper to (yes, you guessed it) star salesman at Mainstreet Motors.  Follow him through his ostensibly disastrous first few weeks at the showroom, as he crafts a sales strategy rather than waiting for customers to randomly walk through the door, as was happening before.

The book is peppered with inspirational quotations from people you may or may not know.  A bit tacky, but there is a thread:

“It is when things go hardest, when life becomes most trying, that there is greatest need for having a fixed goal.  When few comforts come from without, it is all the more necessary to have a fount to draw on from within.”  BC Forbes

“He who every morning plans the transactions of the day, and follows out the plan, carries on a thread which will guide him through the labyrinth of the most busy life.  The orderly arrangement of his time is like a ray of light which darts itself through all the affairs.  But where no plan is laid, where the disposal of time is surrendered merely to the chance of incidents, all things lie huddled together in one chaos.” Hugh Blair.

One of Andy’s mentors in Mainstreet Motors is Axel (who, yes you guessed correctly again, works in the service area, repairing cars).  Axel is married to Mariko, who is of Japanese origin, and runs a martial arts and yoga classes attended by Andy’s family.  Andy is persuaded to attend, and his corporate journey runs parallel to his Zen journey, in which he learns some of the Eastern philosophies that he puts  into practice in his daily life.

Axel teaches Andy about the “After-Action-Review” (AAR) developed by the US Army.  It is now used as a verb, e.g. after a particular deployment, the military will make sure they “AAR-ed” it.  It boils down to three questions:

-         What was supposed to happen ?

-         What actually happened ?

-         Why are there differences ?

After I stopped sniggering about Iraq, I realised this is quite an effective self-analysis tool, because it is very easy to do on a small scale.  You can apply it to small incidents which didn’t go according to plan.

Remember, the whole philosophy of Shibumi is incremental improvement.  Indeed, in the book, Axel persuades Andy to keep a “Performance Journal” – “You keep monitoring and reviewing your performance and satisfaction, feeding back from actual outcomes to expectations.  Over time trends and patterns show up that point out strengths and weaknesses.”

The trick is to spot opportunity when others see adversity. 

“Two shoe salesmen were sent to Africa in the early 1900s to scout the territory.  One telegraphed back: “Situation hopeless. Stop. No one wears shoes.”  The other telegraphed: “Business Opportunity. Stop. They have no shoes.”” Anonymous.

And this one, by Pablo Picasso:

“Guess how I made that head of a bull.  One day, in a rubbish heap, I found an old bicycle seat, lying beside a rusted handlebar... and my mind instantly linked them together.  The idea came to me even before I realised it.  I just soldered them together.”

Right, that’s enough quotes.  You will learn about Kanso, Koko, Seijaku, Fukinsei, Datsuzoku, Shizen, and Yugen, which are the principles set out in the one-liner at the top. 

And the good thing: it is like an à la carte menu – you can pick and choose the dishes.

There is no Wikipedia link to this book.  The link to the author’s homepage is here.

My one liner: Subtitled "Why the Right and Left are Both Wrong - Commonsense 101 Solutions to the Economic Crises." Although it has some flaws, this book is a rarity in the post-financial crisis literature, as it heavily emphasises first principles rather than over-analysing with macro data. Highly accessible to the layman.

The Oprah Winfrey Book Club Lottery: 

“Suppose you and I are both accomplished writers of exactly the same age and reputation. We have both sold about the same number of books, yet we both only make $75,000 per year because we write “serious” books.  Now, suppose a random event occurs: Oprah Winfrey opens up her book club. We both now face an equal chance that she might notice one of our next two books when they are published, read the book, and recommend it strongly to her audience.  If I am the lucky one, then my income will soar from $75,000 to $5,000,000, and likewise for you if you are the lucky one.”  

Well, let’s just do a deal.  Let’s just enter into a contract whereby we agree to split the earnings 50/50, whoever gets the book deal. That way we both lock in a profit of $2,500,000. Pure free market economics right ? 
 
At the end of this review, you can find how the author H. Woody Brock, (Harvard then Princeton PhD, uses this example to show us why progressive income taxes are
fair.
 
Elsewhere, the part I like most in this book is the analysis entitled “Must there be a Lost Decade ?”, largely I suppose because it is the part that has most relevance internationally in terms of ameliorating fiscal deficits. Brock demonstrates how we can have our cake and eat it, by increasing GDP growth and at the same time reduce long term fiscal deficits, hence preventing a Lost Decade 2010-2020. The answer lies in ensuring Government Spending is redirected towards “productive spending” on profitable investments (human capital and infrastructure). A new Marshall Plan.  
 
Under conventional thinking it is most unlikely that these two goals can be achieved.  First principles tell us:
 
Government Deficit = Net Private Savings + Net Foreign Capital Inflows. 
 
Or, for the  non-equation-minded, a government deficit must be funded either by (1) the domestic private sector, or (2) by foreign capital.  That’s it. The late Wynne Godley of Cambridge University and the late Professor James Tobin of Yale were both proponents of this approach. So, if a government wants, say, to increase GDP growth by 2% (from the current 2% to 4%) and simultaneously reduce the government deficit by 7% (from an unsustainable 10% of GDP to a more sustainable 3%), then Net Private Savings must fall by 9%, as per the above equation.  Simple. 
 
Except that this is more or less impossible in current circumstances.  Households are overly indebted, business investment confidence is low, and unemployment is rising, so the chances of a boom in overall investment spending from the private sector are...b**ger-all.
 
But, the insight from Brock is to focus on what we mean exactly by Government Deficit”.  He engages in a Socratic Dialogue with President Obama, in order to propose a massive increase in Productive Spending.  
 
So, out of a $4 trillion budget, $1 trillion should be invested in investments which generate positive returns, and the remaining $3 trillion (matched by tax receipts of $3 trillion) on “unproductive” spending (defence, interest payments, administrative costs, social and medical care etc).  

Bond markets like this because this because the country is not running up
a structural deficit which must be serviced by future generations. 
 
What does  “productive”investment mean ? It means that an independent body would certify whether an investment is forecast to earn a positive return. It would take into account positive externalities, so that for example an interstate rail link would qualify because it generates employment opportunities in the areas which it services.  

Brock draws the analogy with private accounting, where investment expenditure is not expensed, but is capitalised on the balance sheet and only the amortised portion is expensed.  
 
There are a number of problems with Brock’s proposal. How you measure returns to take into account all those positive side effects ? Would, as proposed, international sovereign funds such as Norway or Abu Dhabi really come to the investment party, based on earning “social returns”? How do you prevent “Vested Interest Capture” of the Agency which is certifying new investments ? 
And the potential for trampling over private property rights would be
worrying.  
 
But, overall the proposal deserves serious consideration, (a) because it is of global relevance for those G20 countries (most of them) running enormous deficits and (b) because the reality is that those governments are going to spend the money anyway.
 
Brock’s book addresses four other Big Challenges facing the USA. Two of them are very US-centric, and in my opinion not addressed rigorously enough.  One is the Entitlements Crisis as exemplified by Medicare and Medicaid. Brock’s use of first principles is again to be admired, e.g. driving down the price of provision by shifting outwards the supply-curve of medical services (essentially, train more doctors and nurses).  Practical ? Hmm.  Of relevance to an international readership ? Limited.  And even worse on China-bashing.  Or, as Brock puts it: “The Need to Learn How to Bargain Effectively with Thugocracies”, in reference to China’s repeated outsmarting of the USA in
international policy matters.  Yes, but China is on a much much longer time-cycle of strategic decision-making, with which 4-5 year Western electoral cycles can never hope to compete.  Live with it. Democracy has some upsides too.  And global geo-politics is a bit more complex than USA v China, I’m
afraid. I'd suggest non-Americans skip these chapters.
 
Another issue which Brock addresses is “The Risk of Future Financial Market Meltdowns”.  On identifying the causes, his analysis is exceptional. Excess leverage in all sectors. An overreliance on classical economic theory over the last few decades had led decision-makers (public and private) to assume that there is no such thing as “excess” leverage, since investors will optimally leverage their positions in accordance with their own risk tolerances.  Mordecai Kurz of Stanford University has developed a theory of “Endogenous Risk” which shows that when some members of society indulge in leverage over and above what is optimal, this increases the volatility of the business cycle for the entire economy, hence making everybody worse off in terms of increased risk, for little or no gain as to how much society as a whole ends up with.  The policy prescriptions therefore, not surprisingly, reflect this.  
 
A “Leverage Czar” would be appointed to monitor leverage in different asset markets, with strict penalties for contravention.  I am very sceptical of the ability of a top-down agency to cope with this.  And he should address the question of what the effects would be today of a one-off deleveraging within Eurozone banks in order to bring their equity into line with US banks.  Brock is on surer ground in calling for bank break ups. In particular, the speculative parts of banks should not benefit from government guarantees.  And I would have liked to see something on the merits of counter-cyclical fiscal policy, as sending a strong signal to the market.
 
Finally, Brock addresses notions of Distributive Justice. This is useful as it reminds us that the discipline of Economics is essentially driven by Politics, whether we like it or not.  And whether you agree or not, Brock presents some compelling theory from the classical school (Leonid Hurwicz, Kenneth Arrow, Harvard) to demonstrate that redistribution through progressive taxes is indeed fair from a free-market perspective also. For the Economists, remember those theoretical “Arrow Securities” which allow you to hedge all risks in your life.  Now, recall the Oprah Winfrey example at the beginning.  Well, the  insurance contract we entered into would be an example of an “Arrow Security”.  But given that markets don’t operate fully efficiently to allow us to have enough information for these contracts, redistributive taxes do the job.  They re-transfer wealth back to less wealthy individuals, and therefore play the role of the payout of the insurance contracts.

Overall I like this book, despite some flaws. The reason being that it is always clear and consistent, and is accessible to the layman, as the complicated theory is, rightly, shoved into appendices.  And it is good at identifying much of what is wrong with today’s society. 

The absence of Socratic dialogues (à la Plato) in which people debate logically in order reach mutually beneficial conclusions rather than bandying around soundbites and tweeting (“The Dialogue of the Deaf”).  The overreliance on number crunching and data mining (“Students today believe that if they are equipped with a powerful database and the  appropriate spreadsheet program, the truth will reveal itself”).  And the mendacity of politicians (aided and abetted by a scandal-driven press) who are not subject to “irrationality scrutiny”when they introduce policies that are clearly against public benefit.

There is no Wikipedia link for this book.  The facebook link is here.