Inside the Longlist: Finance & Economics
December 02, 2015
We conclude our series of looks "inside the longlist" with a look inside this year's Finance and Economics category.
We’ve come to the end of the line… the last category left. And it is the always exciting Finance and Economics category.
The three narratives in the category, America’s Bank, Shaky Ground, and The Full Catastrophe are some of the most riveting I’ve read in recent years. Misbehaving is a fascinating deep dive into what drives us all as human beings. And Six Capitals is one of the most surprising, and surprisingly hopeful, books I’ve read on a simple tweak to finance that could change the world just as much, if not more, than major shocks to the system.
Misbehaving doesn’t just fall into the behavioral economics category—which has played a huge role in bringing economics some pop status in recent years in books like Freakonomics and Predictably Irrational—it documents the history of the field. It’s a field author and economist Richard Thaler has spent his entire, illustrious career at the forefront of, bucking dogma and pointing out what in retrospect seems so obvious—that human beings are just as flawed in the marketplace as they are in every other aspect of our lives. We are not always rational actors maximizing our own self interest (why rationality was ever equated primarily with selfishness in economics is a question for another time) as traditional economics would have us believe. Ironically, giving up that myth and learning more about the human psychology and incentives behind our decision making can make us a bit more rational, and less prone to “misbehaving” or acting against our own interests. Thaler’s entertaining and often hilarious account of it all is really a great accomplishment, and a fascinating read.
Speaking of misbehaving, let’s turn once again to the Great Recession, as we have every year since we started our business book awards. (Even before the Great Recession, we chose Richard Bookstaber’s A Demon of Our Own Design to win this category, which we wrote then revealed “how some of the risk-management practices he helped create, such as hedging investments with portfolio insurance, have actually added instability to the markets.” The talking heads on television that all said the collapse came out of nowhere and that no one could have predicted it clearly weren’t paying attention to our inaugural awards season or Bookstaber’s warning.)
Shaky Ground is by far the most thorough, yet also the most concise (coming in at just 159 pages) account of the role of mortgage giants Fannie Mae and Freddie Mac in the economic collapse that reverberated around the world and caused the Great Recession. Bethany McLean gives us the full, fascinating history of those institutions going back to their founding (after the Great Depression for Fannie and during the Great Society years for Freddie), a full account of their true role in the collapse of the economy (with some corrections on the many exaggerations and falsehoods we heard from politicians at the time) as well as an update of where things stand now (predictably and sadly, no better, and in some ways perhaps worse than they were before the collapse). McLean offers up a small and intriguing critique of the oversized role of homeownership in the American Dream near the end of the book, but mostly she simply delivers the well-researched and impeccably written facts, as you would expect any reporter, and Mclean is one of the best, to do.
More than any other nation, Greece has borne the full catastrophe of the Great Recession. This was, of course, a result largely their own creation, or the result of a lack of creation… of the proper institutions, reforms, and accountability in its economic system to become a responsible part of the Eurozone and world economy—both of which are now continually affected by the instability there. James Angelos’ The Full Catastrophe is a riveting account of the recent history of Greece, both cultural and economic. And while it pulls no punches in exposing the dysfunctional bureaucracy and rampant corruption of the country, it also exposes the hypocrisy of its creditors, and in the popular narrative in the press of Greece as a deadbeat nation defaulting on its debts out of disregard or laziness. What Angelos does brilliantly is bring the story out of the air and get on-the-ground, firsthand, real reports from individuals (ranging from public figures to immigrants, many economic refugees from other parts of the world) to give a glimpse of the life and mood of the nation now, and how that may affect where the grand experiment of the European Union may be headed. Greece is once again at the center of world upheavals, as a primary landing spot (particularly the island of Lesbos) for many in a new wave of refugees that is once again testing the European experiment. So it seems Angelos reporting may help document one part of what may end up being a sea change for that part of the world. What The Full Catastrophe demonstrates most clearly is the result of ineffective institutions and lack of practical politics on all sides, and the real effect that has on the lives of very real people (people Angelos gives a voice to) on the ground.
America’s Bank, on the other hand, demonstrates practical politics at its best. The drama throughout the book is as high as in The Full Catastrophe, but it has a happier ending in the formation of the Federal Reserve. Of course, the fact that about half the people reading this will scoff at the idea of the Federal Reserve as a positive result shows exactly how contentious the issues dissected in the book are still today, and why this book is so informative to the present moment even as a work of history. And what a brilliant work of history it is. The Federal Reserve is not America’s first national bank, and Roger Lowenstein documents the first few hiccups, the backwards politics, monetary dysfunction, and uneven financial prospects of America as a young nation. As a rising industrial power in the early twentieth century, at a time when monetary ideas and policy swayed national elections, there was a growing consensus that something needed to be done, that a new national bank must be formed. This leads us to the high drama of bankers and politicians secretly eloping to hammer out the details of such a federal bank that could be acceptable, and the even higher drama of getting those ideas put hammered into legislation and that legislation hammered through the United Stated Congress. It is, as I wrote in an earlier review of the book, drama worthy of an original HBO series.
Six Capitals was perhaps the most surprising book on the list—perhaps the most surprising book I picked up the entire year. I mean, how often does a book about the minutiae of accounting procedure truly inspire you or give you a renewed sense of hope for a better future? Never, right? But hold on a second… hold up, slow your (money) roll. Just as Jane Gleeson-White’s first book, Double Entry, documented how the modern world and our specific form of financial capitalism would never have existed without the Merchants of Venice and their invention of the double entry accounting system, Six Capitals makes a compelling case that we will not evolve toward truly sustainable economics without a new revolution in accounting, one that is thankfully already underway. Gleeson-White documents that revolution, one that takes the two kinds of wealth we currently account for, financial and industrial, and adds four others to the balance sheet: “intellectual such as intellectual property), human (skills, productivity, and health), social and relational (shared norms and values), and natural (environment).” These are all already real sources of value and wealth, but they are unaccounted for and therefore hidden, undervalued, and taken advantage of. The very real costs of this are hidden from the balance sheet of companies, but not from the eyes or reality of humanity, and it is time to put them on the ledgers of companies and make them accountable—for the future benefit of all, including those companies.
All of these books demonstrate just how finance and economics help shape the history of man, but they also demonstrate just how close these seemingly lofty and removed categories are (literally, in the case of the mortgage giants in Bethany McLean’s Shaky Ground) to home, and how they shape our everyday lives.