Category: Books

Robert Wenzel reviews *Big Business: A Love Letter to an American Anti-Hero*

Anecdotally, he provides us with this gem:

“How is this tweet, from “Dina,” for showing lack of gratitude toward business? “If you think about it. People with glasses are literally paying to use their eyes. Capitalism is a bitch.” Shortly after it was posted, it had accumulated 257,000 likes, surely with more to come.”

What to do?

What Cowen has done is write this very important book, taking on the charges against capitalism/big business.

There is more at the link.

My Conversation with Margaret Atwood

She requires no introduction, this conversation involved a bit of slapstick, so unlike many of the others it is better heard than read.  Here is the audio and transcript.  Here is the opening:

COWEN: Just to start with some basic questions about Canada, which you’ve written on for decades — what defines the Canadian sense of humor?

MARGARET ATWOOD: Wow. [laughs] What defines the Canadian sense of humor? I think it’s a bit Scottish.

COWEN: How so?

ATWOOD: Well, it’s kind of ironic. It depends on what part of Canada you’re in. I think the further west you go, the less of a sense of humor they have.

[laughter]

ATWOOD: But that’s just my own personal opinion. My family’s from Nova Scotia, so that’s as far east as you can get. And they go in for deadpan lying.

[laughter]

COWEN: In 1974, you wrote, “The Canadian sense of humor was often obsessed with the issue of being provincial versus being cosmopolitan.”

ATWOOD: Yeah.

COWEN: You think that’s still true?

ATWOOD: Depends again. You know, Canada’s really big. In fact, there’s a song called “Canada’s Really Big.” You can find it on the internet. It’s by a group called the Arrogant Worms. That kind of sums up Canada right there for you.

The burden of the song is that all of these other countries have got all of these other things, but what Canada has is, it’s really big. It is, in fact, very big. Therefore, it’s very hard to say what is particularly Canadian. It’s a bit like the US. Which part of the US is the US? What is the most US thing —

COWEN: Maybe it’s Knoxville, Tennessee, right now. Right? The Southeast.

ATWOOD: You think?

COWEN: But it used to be Cleveland, Ohio.

ATWOOD: Did it?

COWEN: Center of manufacturing.

ATWOOD: When was that? [laughs] When was that?

COWEN: If you look at where the baseball teams are, you see what the US —

And from her:

ATWOOD: Yeah, so what is the most Canadian thing about Canada? The most Canadian thing about Canada is that when they ran a contest that went “Finish this sentence. As American as apple pie. As Canadian as blank,” the winning answer was “As Canadian as plausible under the circumstances.”

And a question from me:

COWEN: But you’ve spoken out in favor of the cultural exception being part of the NAFTA treaty that protects Canadian cultural industries. Is it strange to think that having more than half the [Toronto] population being foreign born is not a threat to Canadian culture, but that being able to buy a copy of the New York Times in Canada is a threat?

In addition to Canada, we talk about the Bible, Shakespeare, ghosts, her work habits, Afghanistan, academia, Peter the Great, writing for the future, H.G. Wells, her heretical feminism, and much much more.

Firefighting: A Plea for Discretion

Firefighting, the new primer on the financial crisis by the all-star team of Ben Bernanke, Timothy Geithner and Henry Paulson (BGP), is a well written, short overview of the consensus position on the U.S. financial crisis. The book has a number of good lines:

…financial institutions, unlike other businesses whose success depends primarily on the cost and quality of their goods and services, are dependent on confidence. That’s why the word “credit” comes from the Latin for “belief,” why we say we can “bank” on things we know to be true, why some financial institutions are called “trusts.”

…the most damaging problem with America’s capital rules was not that they were too weak, but that they were applied too narrowly.

Risk, like love, will find a way.

Firefighting offers a summary, consensus view of the causes of the crisis:

…the basic problems were too much risky leverage, too much runnable short-term financing, and the migration of too much risk to shadow banks where regulation was negligible and the Fed’s emergency safety net was too inaccessible. There were also too many major firms that were too big and interconnected to fail without threatening the stability of the system, and the explosion of opaque mortgage-backed derivatives had turned the health of the housing market into a potential vector for panic. Meanwhile, America’s regulatory bureaucracy was fragmented and outdated, with no one responsible for monitoring and addressing systemic risks.

Consult Adam Tooze’s magisterial Crashed for a more European and global view of the crisis,  Hetzel’s The Great Recession for an explanation of the crisis based on monetary rather than financial disorder and Larry Ball’s The Fed and Lehman Brothers: Setting the Record Straight on a Financial Disaster for an exhaustive and different accounting of the politics especially around the decision not to bail out Lehman.

Given that the book takes a consensus view and given that all three authors have written previous books on the crisis, one might wonder why BGP wrote Firefighting. The answer is in two parts. Most importantly, Firefighting is a plea for discretion. At one point BGP write surprisingly directly if euphemistically:

The Fed also reinterpreted its emergency lending authority in creative ways to avert catastrophic collapses of Bear Stearns and AIG…

In other words, the Fed broke the law. That, at least, is how many in Congress saw it after the fact which is why Congress asserted its authority over banking by rewriting the rules but also removed a lot of discretionary authority from the Federal Reserve and the Treasury.

Overall, while the United States has much stronger safeguards against the occurrence of panic than it had before the crisis, it has weaker emergency authorities for responding when a panic occurs. Its crisis managers lack the power to inject capital, guarantee liabilities, or purchase assets without going to Congress…the Fed has lost its power to rescue individual firms and faces new constraints on its lending powers, while the Treasury has lost its ability to use the Exchange Stabilization Fund for guarantees.

What Congress takes it can also give but BGP are not sanguine about the effectiveness of American democracy:

…when an epic crisis does arrive, Congress would have the power to undo the preemptive limitations it has placed on crisis managers. But that is easier said than done in a nonparliamentary democracy where legislative changes require support from the president, the House of Representatives, and a filibuster proof majority in the Senate…it’s hard to look at the bitterly polarized politics of modern America and feel confident that a bipartisan consensus for unpopular but necessary actions would emerge when it mattered most.

Thus, BGP come down solidly on the side of technocracy and discretion rather than democracy and rules.

I believe the second reason that Bernanke, Geithner and Paulson wrote Firefighting is that they want their account of the crisis to be the history taught to the next generation. To that end, Firefighting is indeed a useful guide for teaching the crisis and is particularly good on timelines, major events and policy actions. About a third of Firefighting is a series of standalone charts (which aren’t even referenced within the text). Oddly, however, the book never tells you that the charts are available online, neither does the book’s homepage, but a little Google sleuthing uncovers that the charts were produced in cooperation with the Brookings Institution and can be found here. Anyone wanting to teach the crisis will find what they need in the charts supplemented of course with the discussion of financial intermediation in Modern Principles and the MRU videos on the Great Recession and the various Business Cycle Theories.

Compensating differentials

And even though [David] Crosby underwent a liver transplant in 1994, all four are active today. Does this mean we’ll see them together onstage again? [Graham] Nash stated in an interview not long ago that the band was offered $100 million to go on tour. But that’s not going to happen, he said, for one simple reason: “We don’t like each other.”

That is from David Kirby’s review of the other CSNY biography to have come out this month, also a good book.

*An Economist Walks into a Brothel*

That is the new Allison Schraeger book, the subtitle is And Other Unexpected Places to Understand Risk, and here is one excerpt:

In many ways, the brothel is like any other workplace.  There are weekly staff meetings (in a departure from the tradition at most companies, the women often wear outlandish hats and drink tea), access to financial advisers, performance bonuses, and even corporate housing…

But where Hof [the owner-manager] provided value was by reducing risk for both buyers and sellers of sex.

The top-earning woman at that brothel pulls in about $600,000 a year, and about half of that goes to Hof.  And to audition for the brothel, women have to invest about $1500 in upfront costs (travel, clothing), with no guarantee of a job at the end of the process.

Here is an NPR interview with Allison.

Kevin Williamson reviews *Big Business*

Here is part of the review:

Professor Cowen has a reputation as a contrarian, but that is not exactly right. He has a great talent for revealing truths that are right under our noses but oddly overlooked — or willfully obscured. His latest book, Big Business: A Love Letter to an American Anti-Hero, is an excellent, easily digestible exercise in exactly that. Why is it, he asks, that Big Business is not more widely admired and appreciated? Large-scale corporate enterprises provide a great many jobs; relative to smaller firms, they typically pay their workers more and treat them better, invest more in research and development, are more productive and more innovative, and conduct their business at least as ethically. He knocks down a series of myths about excessive executive compensation, “quarterly capitalism” obsessed with short-term profits, monopolistic temptations, and the purportedly outsize role of finance in our economy.

On the last of those, Professor Cowen offers one of his extraordinarily useful, obvious-if-you-think-about-it insights: The argument that finance has grown too large as a share of U.S. economic activity is based in part on the fact that in the 1960s finance accounted for about 4 percent of GDP whereas it recently has been above 8 percent. That’s the wrong comparison, he argues: Finance is engaged in the business of managing wealth, not in the business of managing current income flows exclusively; it makes more sense, then, to examine the share of assets that the financial sector controls, which, as is turns out, has not changed very much over the years, floating around 2 percent. While other social critics have written great volumes about “financialization” — where it comes from, what it means, whether it is desirable — Professor Cowen first stops to ask whether the thing that everybody knows is happening is in fact happening.

There is much more at the link.

What I’ve been reading

1. Peter Doggett, CSNY: Crosby, Stills, Nash & Young.  A good management study of a creative foursome doomed to split and splinter pretty much from the beginning.  Oddly, their best work still sounds good to me, even though I never hear much new in it with repeated listenings.  That is a rare combination.

2. David Brooks, The Second Mountain: The Quest for a Moral Life.  David’s best book this century, it has many subtle points.  It is a “wisdom book,” noting that not everyone likes wisdom books.

3. Harold Bloom, Possessed by Memory: The Inward Light of Criticism.  Bloom is now 89 I believe, but unlike in some of his recent shorter books this one seems as thoughtful as much of his best later work.  Yes, it is a bunch of largely separate, short, multi-page essays on topics of Bloom’s choosing, but at this point that is optimal.  It won’t convince the skeptic, but if you are on the fence I say yes, though try The Western Canon first.

4. Fuchsia Dunlop, The Food of Sichuan.  A much-expanded version of her earlier Land of Plenty.  No, I haven’t touched this one yet, but if the word self-recommending ever applied, it is here.  If you don’t already know it, here is my earlier CWT with Fuchsia Dunlop.

5. John Barton, A History of the Bible: The Book and its Faiths.  Anglican, British, highly reasonable, full of useful information, I read it all the way through.  Barton teaches you the Bible is not always easy to understand and why that is.  Already out for ordering on UK Amazon.

Daniel S. Milo, Good Enough: The Tolerance for Mediocrity in Nature and Society, on a quick browse seemed to have interesting points.

UK fact of the day

Unless Labour and the Conservatives can cobble together a Brexit deal that is supported by parliament, then Britain’s election-weary voters will have their fifth nationwide election in only six years.

That is from Matthew Goodwin in The Times, there is also Matthew’s book National Populism: The Revolt Against Liberal Democracy.  Remember how we used to praise parliamentary systems for their decisiveness?

Coasean kidnappings and the bargaining range

One of the highest ransoms ever paid — US $60 million for the two Born brothers in Argentina in 1975 — was negotiated by one of the captives himself: Jorge Born.  As a company insider, he knew how much money could be raised, but it still took seven months before his captors were convinced that they had truly squeezed him dry.  When it finally arrived, the father felt he had no option but to accede to the memorandum signed by his son and his kidnappers.  So negotiators work extremely hard to avoid parallel negotiations and bat away unhelpful interventions from the hostage.  It is not surprising that some victims despair.

That is from the new and interesting Kidnap: Inside the Ransom Business, by Anja Shortland.

Is work fun?

Ladders runs an excerpt from my book Big Business: A Love Letter to an American Anti-Hero, here is one part:

Another way to think about the non-pay-related benefits of having a job is to consider the well-known and indeed sky-high personal costs of unemployment. Not having a job when you want to be working damages happiness and health well beyond what the lost income alone would account for. For instance, the unemployed are more likely to have mental health problems, are more likely to commit suicide, and are significantly less happy. Sometimes there is a causality problem behind any inference—for instance, do people kill themselves because they are unemployed, or are they unemployed because possible suicidal tendencies make them less well suited to do well in a job interview? Still, as best we can tell, unemployment makes a lot of individual lives much, much worse. In the well-known study by economists Andrew E. Clark and Andrew J. Oswald, involuntary unemployment is worse for individual happiness than divorce or separation. Often it is more valuable to watch what people do rather than what they say or how they report their momentary moods.

There is much more at the link.

Wall Street Journal reviews *Big Business*

By George Melloan, here is one bit:

So Mr. Cowen’s book is timely, and his writing style is a refreshing contrast to the strident left-wing declamations that are so common today. He is calm and conversational, splashing cool water on the firebrands. He writes: “All of the criticisms one might mount against the corporate form—some of which are valid—pale in contrast to two straightforward and indeed essential virtues. First, business makes most of the stuff we enjoy and consume. Second, business is what gives most of us jobs. The two words that follow most immediately from the world of business are ‘prosperity’ and ‘opportunity.’”

Here is the full review, very well done in my admittedly biased view.

Bryan Caplan *Open Borders* launch day

From Bryan:

Dear friends: Monday, April 8 isn’t just my birthday.  It’s also the official launch date for *Open Borders*!

URL for ordering the book: https://www.amazon.com/gp/product/1250316960/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1250316960&linkCode=as2&tag=bryacaplwebp-20&linkId=1ed2cdfe4a1c0cd2a62e942a39f87b9d

URL for an introductory post on the book: https://www.econlib.org/pre-order-open-borders-the-science-and-ethics-of-immigration/

U.S.A. fact of the day, *Jump-Starting America*

The United States, as of 2014, spends 160 times as much exploring space as it does exploring the oceans.

That is from the new and interesting Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream, by Jonathan Gruber and Simon Johnson, two very eminent economists.  And if you are wondering, I believe those numbers are referring to government efforts, not the private sector.  I am myself much more optimistic about the economic prospects for the oceans than for outer space.

Most of all this book is a plea for radically expanded government research and development, and a return to “big science” projects.

Overall, books on this topic tend to be cliche-ridden paperweights, but I found enough substance in this one to keep me interested.  I do, however, have two complaints.  First, the book promotes a “side tune” of a naive regionalism: “here are all the areas that could be brought back by science subsidies.”  Well, maybe, but it isn’t demonstrated that such areas could be brought back in general, as opposed to reshuffling funds and resources, and besides isn’t that a separate book topic anyway?  Second, too often the book accepts the conventional wisdom about too many topics.  Was the decline of science funding really just a matter of will?  Is it not at least possible that federal funding of science fell because the return to science fell?  Curing cancer seems to be really hard.  Furthermore, some of the underlying problems are institutional: how do we undo the bureaucratization of society so that the social returns to science can rise higher again?  Will a big government money-throwing program achieve that end?  Maybe, but the answers on that one are far from obvious.  This is too much a book of levers — money levers at that — rather than a book on complex systems.  I would prefer a real discussion of how today science has somehow become culturally weird, compared say to Mr. Spock and The Professor on Gilligan’s Island.  The grants keep on going to older and older people, and we are throwing more and more inputs at problems to get at best diminishing returns.  Help!

Still, I read the whole thing through with great interest, and it covers some of the very most important topics.