Some holiday reading

You will no doubt have your own preferred choices of vacation reading matter but just in case you don't, here are some recent economics books I have waded through so you don't. Four books have been sampled and a mixed bunch they are. They include:

1. Follow The Money by Paul Johnson, published by Abacus Books (£25)

2. The Economic Government of the World 1933-2023 by Martin Daunton, published by Allen Lane (£45)

3. The Great Crashes by Linda Yueh, published by Penguin (£22)

4. We Need to Talk About Inflation by Stephen D. King, published by Yale University Press (£20)

   

   First praise. Anyone who has ever written a book knows the blood, sweat and tears that the task demands. The four authors are all recognized authorities. Johnson is director of the British Institute for Fiscal Studies (IFS), the independent economics research entity. Daunton is emeritus professor of economic history at Cambridge University. Yueh is the former economics editor at Bloomberg TV. King is an economics adviser to HSBC bank. They all know what they are talking about. Their sentences make sense and are well written.

But there the similarities end. Why do we read? I suggest there are two main reasons - to learn things of which we were previously ignorant, or to be entertained. One of these books meets both requirements and Stephen D. King should be congratulated for writing a timely book about a subject - inflation - that inescapably top of our minds right now. The other three fail, in different ways. The Economic Government of the World is a staggeringly heavy brick of almost 1,000 pages (including more than 100 pages of small-print notes) and weighing more than 1.3 kilos. This labor of devoted love might break your wrist. Like all texts written by academics, it's too long, too detailed, too disappointingly conventional.

Follow The Money is much more sharply written. No-one could accuse Johnson of dullness. Judgments scatter his text and many of them hit the mark. He takes a hatchet to the absurdly complex and inequitable tax system in the UK. It's refreshing to read a book that doesn't pull its punches, especially when those punches hit the spot. But in the end his book concludes weakly, rather like those editorial columns in the Financial Times which tell us what to do without recognizing that we are largely impotent. "We can, and must, do better" is Johnson's final sentence. To which the only sensible response is "yes of course." But Johnson doesn't address the central problem - the managerial incompetence and morally corrupt political class. Voters in the UK will have a chance to elect a new government in 2024 and current polls put the opposition Labour Party far in the lead. Johnson identifies more serious problems in UK society than perhaps any government can tackle.

Crashes and inflation

Behind every good financial markets' crash there lurks immorality, whether defined as crime, greed or ineptitude. Linda Yueh brings that home to use in her book The Great Crashes. The 1980s Savings and Loan crisis, which cost the US federal government $124 billion, had Charles Keating, who had bribed five senators before his Lincoln S&L collapsed in 1989. Yet the crisis was long-brewing. As Yueh points out by 1983 "nearly one in ten S&Ls was bankrupt"; as in 2008, bad bets scuppered banks, such as Continental Illinois, then seventh-largest US bank, whose mistake was to bet on the oil price going up, when it went the opposite way. "The S&L debacle shares the traits of financial crises throughout history." Well said. Regulators failed the taxpayer. Governments turned blind eyes to absurd developments, such as Japan's hyper-inflated land prices towards the end of the 1980s. By 1989 if the Japanese sold off metropolitan Tokyo they could have bought all of America. In that decade Japanese banks went from 4% of international lending markets to 40%. It was, says Yueh, "a classic example of a mind-boggling boom followed by a spectacular bust." Yueh considers the dotcom crash, the 2008 collapse, the 2010 euro crisis, the Covid crisis...one them all she isn't wrong. Is there any link between them? Yes, as Yueh suggests, "an enduring insight from financial crises is the importance of recognizing the risk posed by rising levels of debt fueled by euphoria...all financial crises are due to too much debt in some shape or form..." Amen to that.

Which brings us to what is for me the best of the bunch. Maybe it's because the subject is so topical, but I found We Need to Talk About Inflation by Stephen D. King the easiest and best read; it's also the cheapest of the four. Some cultures regard wasted words as immoral, a view I find persuasive. King wastes no words; his prose is the verbal equivalent of Muhammed Ali. He dismisses what has become a knee-jerk explanation of our current inflation burst: "The roots of the post-pandemic rise in inflation lie in this world of monetary complacency, not in Russia's invasion of Ukraine in 2022 or China's ongoing Covid lockdowns." Old disciplines - such as allowing zombie companies to go to the wall - have been lost. Governments today prioritize 'fairness' over economic stability. All must have prizes - or at least must not be allowed to fail. This sentimentalization of our society is ultimately destructive of that society. The growth in US monetary supply (M2, a broad measure of money supply) rose from an annual 6.8% at the start of 2020 to "an astonishing 26.8% peak in February 2022." King's book should be at every central banker's bedside.