Review of Force of Finance: Triumph of the Capital Markets (Hardcover)

Money, capital markets, brain drains, direct democracy, corruption, crime and gold are woven together with skill to produce a stunningly original picture of the world. The argument that society is shaped by the imperative of access to capital, and that when one channel is blocked another opens, is used to explain a wide variety of historical and current events. You can dam the force of finance to change the direction of the river, but sooner or later, one way or another, the water will get to the sea.



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Review of Flying on One Engine: The Bloomberg Book of Master Market Economists (Hardcover)

A brief excerpt from the Afterword offers an appropriate introduction to my review. According to Peter L. Bernstein, "At its roots, economics is about how and why our society has changed and developed over time. Even deeper, economics is about risk and return. These are the themes that infuse the contributions to this book. Although the keen insights, original diagnoses, and the rare lucidity of the contributors to this volume inform us about the serious problems we face in today's world, that is by no means all they have to tell us. They have shaped their presentations around the primary elements of economic analysis: supply, demand, expectations, the critical role of real investment, foreign trade and finance, monetary theory and policy, and the interplay between the private and the public sectors. The result is economics at its best -- rich in description, searching in analysis, provocative in argument, profound in generalization, and always focused on the key issues. I am much the wiser for having read it."

This is high praise indeed, given the fact that Bernstein is founder and president of a firm which, since 1973, has served as an economic consultant to institutional investors and corporations around the world. He is also the author of a book Iadmire very much, Against the Gods: The Remarkable Story of Risk, which has sold more than 500,000 copiers since it was published by John Wiley & Sons in 1996.

Brilliantly edited by Thomas R. Keene who also wrote the Introduction, what we have here in this volume are indeed "fourteen views on the world economy" but each provides more, far more than a hit-and-run briefing on its given subject. The authors (or in two instances, the co-authors) of the essays also establish a frame-of-reference within which to present their ideas and do so with meticulous care. Make no mistake about it, however: This book is not an easy read. All of the essays offer important insights and are well-written but some are more challenging than others. For example, David Goldman's "Capital Markets and the Economy." Keene wisely recommends that readers review the subjects and then his short introductions to select those articles of greatest interest, perhaps read in combination.

With regard to the title, Keene credits Kenneth S. Rogoff who does not use the phrase in his Introduction to this book. About two years ago in an issue of The Economist (September 18, 2003), there is an article called "Flying on One Engine" in which the phrase is attributed to Lawrence Summers, Treasury secretary under Bill Clinton, who once observed that "The world economy is flying on one engine." The article concludes, "For the past few years, politicians have done little more than hope that the American engine carries on working. But this is no longer good enough. Policy makers need to act to make a crash less likely and avert protectionist threats. A good first step would be to acknowledge the size of the problem." In an essay in this volume, "The Global Labor Arbitrage," Stephen S. Roach assesses the productivity and the information-technology-enabled efficiency of a (not the) future world economy, "impatient with our inability to confront, consider, and to finally come to terms with what lies ahead."

With regard to some of the other essays, John P. Lipsky and James E. Glassman address "the topic of the day, unemployment." Tim O'Neill "destroys" pop-globalization myths and rebuilds a foundation of interdependent trade realitiesof nations and people who are "grounded in a world's timeless need to trade and, perhaps, trade freely." Richard B. Berner "sheds light on American business and its inextricable linkage to the larger economics of the United States and the world." I agree with Keene that David P. Goldman's discussion of "Capital Markets and the Economy" is the most challenging article among the fourteen. It is also among the most rewarding, especially after a second or third reading. In "Europe's Political and Economic Future," Thomas Mayer addresses a limited set of combined fiscal and monetary now made available to an aging Europe. "No rose-colored glasses for this former International Monetary Fund economist."

In the Introduction, Rogoff suggests that "This book may be the first of its kind. Let's hope it is not the last." I agree while commending Keene on having achieved his goals: to allow the contributors to expand in areas of their special expertise, to create a book which "forms a reliable bridge from the dryness of textbook theory to the real-world excitement of applied capital-at-risk economics," and to provide in this single volume "the best in thought-provoking writing on market economics [which will] lead to answers and also to deeper questioning and further study."

Bravo!




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Review of The Economics of Innocent Fraud: Truth For Our Time (Hardcover)

This book is a 62-page essay on fraudulent aspects of the current economic and political reality in the United States as seen by an illustrious economist and one of the most influential men of our time.Noteworthy is the fact that John Kenneth Galbraith was 95-years old when he wrote this a year ago.Judging from the wisdom and clarity of his expression, I can only say (to recall a line from a Meg Ryan movie, if you will): "I'll have what he's having."

I identified ten "frauds" as I was reading, but I think I may have missed one or two.Before I list them and comment, let me quote the last line in the book because I think it is important: "War remains the decisive failure."

Why Galbraith chose the word "decisive" is something of a puzzle.Decisive for what or for whom?Is he implying some sort of "decision" as regards humankind?Does he think we are going the way of the dodos?For myself it is clear that unless the war system is ended, most human beings will never progress beyond a tribal mentality, and will continue to suffer what Galbraith calls "death and random cruelty, [and the] suspension of civilized values..." (p. 62)

The "innocent" frauds that Galbraith calls to our attention are actually not all that innocent. What he means by "innocent" is that for the perpetrators, there is "no sense of guilt or responsibility" as though the fraudulent were children.Indeed from the perspective of Professor Galbraith's extensive experience and learning, many of the people who run our economies and our political systems are children.At any rate, there is a somewhat lofty and even grandfatherly tone to this treatise.

The first "fraud" is the use of the euphemistic "market economy" instead of the slightly stained "capitalism" to describe the present economic system.(By the way, Galbraith does not number his frauds.I do it for the sake of keeping them straight in my mind.)

The second is the fact that in the modern corporation, ownership--that is, the stockholders--have little to no authority while the professional managers call all the shots including setting their own compensation (fraud #7).Galbraith attributes this to the fact that corporations have become so vast and complex that the relatively unsophisticated ownership cannot really understand how to run the enterprise and so must yield to management.

Fraud number three is one that interests me a lot.Galbraith writes, "Reference to the market system as a benign alternative to capitalism is a bland, meaningless disguise of the deeper corporate reality--of producer power extending to influence over, even control of, consumer demand." (p. 7)This really is one of the most pressing problems of our time because the corporate power, through its ability to influence and control its legions of employees and the media, also has "influence over, even control of" who runs for office and who is elected in national and state governments.Indeed, in fraud #8 Galbraith notes that "A large, vital and expanding part of what is called the public sector is for all practical effect in the private sector." (p. 34)He specifically identifies the "defense" industry as being largely controlled by defense contractors in the private sector.Elsewhere in the essay, Galbraith refers to "the control of consumer choice and sovereignty" indicating that he understands that the control extends to the electorate. (p. 13)

Fraud number four is the way we hypocritically value "work."For some it is toil and for others it is a pleasure and indeed largely the reason for living, and yet how differently we are compensated, with those who need it least often getting the most in financial reward.

Fraud five refers to the corporate bureaucracy.While corporate people sneer at government agencies as being bureaucratic, large corporations have become just as bloated or even more so.(Chapter V: "The Corporation as Bureaucracy.")

Fraud #6 is the phony celebration of small businesses and family farms in the political rhetoric.Galbraith comments, "For the small retailer, Wal-Mart awaits.For the family farm, there are the massive grain and fruit enterprise and the modern large-scale meat producer." (p. 25)

Fraud #9 (I've mentioned numbers 7 and 8 above) is the fraud of economic predictions.Galbraith observes: "The financial world sustains a large, active, well-rewarded community based on compelled but seemingly sophisticated ignorance" (i.e., stockbrokers, stock analysts and other financial prognosticators). Headds, "...those...who tell of the future financial performance of an industry or firm, given the unpredictable but controlling influence of the larger economy, do not know and normally do not know that they do not know." (p. 40)

Finally there is the quaint fraud of the actions of the Federal Reserve Board, which Galbraith claims have no real effect on the economy.

For an interesting book on the corporation as a psychopathic entity (yes, psychopathic) see, The Corporation: The Pathological Pursuit of Profit and Power by Joel Bakan.In fact Galbraith should read this book.It would further part of his thesis.

In part this modest book is a succinct warning about how corporations are becoming more and more powerful as they gain greater and greater control over our lives.Perhaps what Galbraith is saying in his laconic way is that there is a very real danger that bit by bit we are on the way to a nation controlled not by a democratic electorate or even by republican checks and balances, but by an oligarchy of corporate power.




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Review of The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future (Hardcover)

Wouldn't you love to read a concise, entertaining explanation of the recent financial melt-down? Robert J. Barbera has written just such a book, an economic seminar that everyone will "get."

Finance usually comes across as Dull (that's dull with a capital D), but The Cost of Capitalism is not boring. For example, Barbera uses hypothetical home-buying twins, Hanna and Hal, to explain why the mortgage bubble burst after a relatively small drop in property values and how the resulting pop disabled the banking industry--the case of "a small set back delivering cataclysmic consequences."

Barbera believes that capitalism is the best economic system (no surprise there, he makes his living analyzing capitalism). He is also a disciple of Hyman Minsky. If you don't know who Minsky is, that's fine, because the book does a masterful job of placing Minsky in today's context, which lays the groundwork for a major theme of The Cost of Capitalism: Central financial planners must admit that players in the free market (from Main Street to Wall Street) make decisions based more on human nature than rational theory. The resulting behavior leads to booms and busts. The busts require government intervention--the cost of capitalism.

The book uses historical analysis to focus on cause-and-effect relationships that have somehow been missed by the Federal Reserve. Barbera writes, "From 1945 to 1985 there was no recession caused by the instability of investment prompted by financial speculation--and since 1985 there has been no recession that has not been caused by these factors." Yet, as Barbera shows, the Fed behaved as if inflation were the economy's only enemy. He argues persuasively that American capitalism needs "a new paradigm," one that recognizes the wisdom of Minsky and extracts our proverbial head from the sand.

The Cost of Capitalism is full of instructive charts and graphs, which simplify complex ideas as well as providing welcome visual breaks between analytical prose. My only complaint (any reviewer worth his/her salt has to have at least one) is that the notes and abbreviations with the graphs could have been better defined.

(R.O. Palmer is the author of three novels, including his newest release, "Darress Theatre.")





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