Universities do not like to study people who live in places anymore. Instead, they emphasize the importance of theory and method. There are many good reasons for doing so, particularly as you consider the wide range of skills involved in analyzing the enormous amounts of data that the internet makes available. But there are also costs. Theory is a relatively poor guide for understanding why Russia invaded Ukraine, for example. You can make arguments from theory after the fact, but a close examination of developments in the country offered a better chance for anticipating what Russia did and where we are likely to go from here. The first book in this collection is a good illustration of what I mean with that statement. That book was published just weeks before the Russian invasion. The insights it offers on the war as it is unfolding are compelling.Continue reading →
Category / Book Reviews
Three Perspectives on Money, Finance, and Central Banking
Last autumn I reviewed three books that highlighted different perspectives on money, finance, and central banking that deserve closer attention.
In the first book, Gottfried Leibbrandt and Natasha de Teran point out that the main reason to have money is to make payments – which means that when you start to change the payments system, you wind up changing just about everything connected to money. That ‘wallet’ on your cell phone is only the tip of the iceberg.
In the second book, Fabio Mattioli explains that when we talk about finance, we are primarily talking about forward looking contracts – and those contracts are only as good as their enforcement. By implication, a financialized economy looks very different when politicians start deciding which contracts will be honoured and which will not. Any debate about ‘rule of law’ goes to the heart of the financial economy.
In the third book, Willem Buiter reminds us that the central bank is a public asset owned by the national state. If national governments accounted for that asset in their balance sheets, they would uncover important revenue streams that could stimulate the economy and reduced burdens on taxpayers. The ‘helicopter money’ that policymakers talked about both during the global economic and financial crisis and at the start of the pandemic is not as strange or uncommon as you might think.
***Continue reading →
From Narrative to Crisis: The Future of Economic Thought
Three recent books explore important changes in the way we understand the economy. Robert Shiller focuses on the need to bring in ‘narratives’ that circulate within the economy or that can be borrowed from other disciplines; Thomas Philippon asks why America gave up on free markets and looks again the importance of regulation in relation to market competition; and James Gerber examines the influence of financial crises and the lessons we learn in their aftermath. Together these books tell us a lot about where economic thinking is headed. The novel coronavirus pandemic has done little to change the direction of travel and much to accelerate the pace.Continue reading →
Refugees Make History
Nationalism is only one of many exclusive identities; it is also only one of many powerful forces in Europe and elsewhere that shape political events. Religion and ideology also matter, both in bringing people together and in driving them apart. The energy they create is potentially lethal, particularly for those who find themselves holding onto the wrong (sort of) identity. Identity conflict inevitably creates refugees – people who do not belong to the ‘in-group’ and so find themselves cast out of society. The challenge for governments and societies is to manage the consequences with the least possible dislocation and to their greatest advantage.
The Secrets of Bucharest’s ‘Old Town’
Bucharest is not an historic city, but it is rich in history. The distinction turns out to be important both for our understanding of Romania, politics, and historiography more generally. Emanuela Grama uses the politics that surrounded the Old Town of Bucharest over the past century to force us to reconsider the constitution of the state, the relationship between identity and ideology, and the balance in historical development between grand narratives and incremental change. Moreover, she does all this by demonstrating that the study of history and the stuff of history are rarely if ever the same.
An East-West Divide in Europe?
There is a big conversation brewing about the deepening East-West divide in the European Union. Much of this conversation started long before the pandemic. Social scientists like R. Daniel Kelemen have been worried for a long time now about the diverging trajectories in democratic institutions and about the possible roles that European Union (EU) institutions may have played in supporting that evolution. More recent scholarship shows how the onset of the COVID-19 pandemic has exacerbated that tension. This raises questions about whether such developments were always likely to happen, and about how we can better understand East-West relations in Europe. Fortunately, three brilliant new books promise to help in that understanding. The first, by Larry Wolff, examines the role of Woodrow Wilson in help shaping the politics of Central and Eastern Europe. The second, by John Connelly, explores the evolution of East European nationalism. The third, by Lenka Bustikova, examines the problem of extreme right mobilization. The conclusion I take away from these books is that there are important political dynamics at work in Eastern Europe that need deeper understanding; it is not that East and West are fundamentally different. We can learn a lot from the study of Eastern Europe as we struggle to interpret developments elsewhere as well – Western Europe very much included.
Modern Dilemmas of Central Banking
Central banks have been in the news a lot lately, with Mario Draghi’s dramatic decision to redeploy the full range of unconventional policies alongside Jerome Powell’s more obvious ambivalence about loosening the monetary spigots. In part this is a function of timing. The business cycle is turning and yet central banks have not quite managed to reset their instruments after the last crisis. Part is also due to overload. Central banks have been ‘the only game in town’ for a long time, they have expanded responsibility for prudential oversight, and politicians seem none too eager to assume responsibility for macroeconomic performance. It would be a mistake, however, to focus too much on short term explanations. Three recent books explore some of the deeper forces that have pushed central bankers into the spotlight.
Size and Politics
Small is beautiful, but also dangerous. That is the central insight in Darius Ornston’s 2018 book. Even good governance can go bad. Consensus makes it easier for a society to work together in facing the challenges presented by world markets. Backed by powerful social groups, political leaders can fend off adversity, compensate losers, agree on how to organize or reorganize machines and labor, and invest in the physical and human capital necessary for future prosperity. This insight will be obvious to anyone familiar with Peter Katzenstein’s classic works. What Ornston adds to Katzenstein’s argument is a cautionary note. The same consensus Katzenstein celebrated in his analysis of small states and world markets also makes it easier for political leaders to misallocate scarce resources and delude themselves and their followers into feeling safe when they are not. Finland’s embrace of Nokia and Iceland’s addiction to banking are good illustrations. Unfortunately, in both cases, the social requirement for conformism can drown out even the most constructive criticism or warning. Success and failure arise from the same dense networks that facilitate deliberation and reinforce trust.
Europe’s Complicated Democracy
Europeans are heading to the polls now in one of the world’s largest and most complicated democratic experiments. Moreover, these European elections are probably the most consequential we have seen since Europeans started voting directly for members of the European Parliament in 1979. This is a good opportunity to think hard about how Europeans are represented, how they make their decisions about voting, and what kind of Europe is on offer. Three recent books suggest new and important lines of argument. Christina Schneider shows that much of the responsiveness of Europe to the voters actually takes place through the Council of the European Union; Jennifer Fitzgerald reveals how votes on the extremes are more likely to be local than national, even if they have an anti-European tinge to them; and Sergio Fabbrini argues that many of the tensions we see surrounding the European project could be resolved if we just changed the way we think about constitutional federalism. These arguments are challenging and sophisticated in ways that much of the commentary that surrounds the European elections tends not to be; they are also counterintuitive. Now that everyone is focused on Europe, it is a good time for some well-grounded, lateral thinking.
Trouble at the Fed (and Elsewhere)
As U.S. President Donald Trump starts asking about whether he can fire the Chairman of the Federal Reserve, it is time to start asking how strong the protections are for politically independent central banks. The answers are alarming: Trump is not the only one challenging central bank independence; he is also not the most successful. Indeed, the challeges are widespread and they have been growing for some time. That is reason enough to pick up Paul Tucker’s book Unelected Power — which was recently named by Foreign Affairs as one of the top books published in 2018. If you want a taster, my review of Tucker’s book from Survival is below. The punchline is that while people are right to be concerned that Trump would violate the independence of the Fed, that does not mean either the Fed or any central bank should be left entirely to its own devices.