Martin Wolf (1)

In The shifts and Shocks: How the Financial Crisis Has Changed Our Future Martin Wolf, Chief Economics commentator at the Financial Times, expands on his FT commentaries in book form. He divided the book into three parts: Shocks, Shifts, and Solutions. The first part looks at how the financial crises that hit the world after 2007 made the world what it is today. The second part looks at the changes to the world economy and financial systems that led to the crises and their aftermath. The third part looks at how to achieve a better financial system and economy.

Each section addresses the "high income" countries, emerging countries and Eurozone countries. Wolf's view is that the underlying cause of the the interlinked global and Eurozone crises was what he calls a "global savings glut" driven by global trade and capital imbalances. China and the other emerging Asian countries, the oil exporting countries, Japan and Germany built up huge trade surpluses at the expense of the US and "peripheral Europe." In the US, this was partially a result of a dollar that was stronger than it ought to have been due to currency interventions against it by the exporters, and partially the result of Federal Reserve actions meant to equalize the imbalances and still maintain maximum employment. In "peripheral Europe" it was the result of being able to finance large current-account deficits at very low interest rates made possible by having the Euro as a common currency with the current-account surplus country of Germany. These imbalances were the result of long-term trends of increasing liberalization (freer markets), globalization,innovation, leverage and incentives toward greater risk taking within companies.

Wolf is skeptical that the voluminous reams of of newly adopted and proposed regulation will prevent another financial crisis. He points out the the most important legislation in response to the Great Depression was the Glass-Stegall Act of 1933 which ran 37 pages in it's entirety. The response to the 2007 crisis was the Dodd-Frank Act of 2010 which ran 848 pages BUT which requires nearly 400 pieces of detailed regulatory rules which have added an additional 8,843 pages to date and it's only 1/3 finished! He also points to thousands of pages of regulations currently being written in Europe and points out the inconceivability that something so complex can be understood and actually work. He instead calls for larger capital reserves and "macroprudential supervision" which means attempting to regulate the stability of the financial system as a whole. He acknowledges that this will not be easy and might not even be work, but thinks it needs to be tried.

He is also rather pessimistic about the survival of the Euro which he likens to a bad marriage. He proposes a banking union in which eurobonds would represent some percentage of the GDP of all the member countries with each individual country responsible for financing their debt above that level. Those eurobonds would then be very liquid and provide "safe" assets to back the system instead of relying on the bonds of Germany. He holds Germany culpable for the way they've handled the Eurozone and acknowledges that they are not willing today to accept the reforms that he proposes, but he thinks something must be done for the Euro to survive.

Wolf also doesn't believe that the current move toward government austerity was wise. He thinks there should have been more fiscal stimulus in order to keep the world's economy growing while the healing takes place.

The book is not an easy read since it deals with heavy subject matter and a lot of inter-related economic concepts. I have had to re-read some sections of it and feel I gained a better understanding of the material the second time around. The book is a take on the financial crises of the past few years that is different from anything else I've read. I think anyone with a strong interest in economics and markets will enjoy it.

Full disclosure: I received a free ARC of an uncorrected proof via a Goodreads First Reads giveaway.… (altro)

This book addresses globalization almost exclusively from an economic standpoint. Viewed within those bounds, it seems pretty good, though I had a hard time telling how much to take at face value since I didn’t feel like I had enough of a grasp of macroeconomics, trade, and finance to really engage and argue with it. He seemed to be making every effort to be even-handed, in that sober British-empiricist sort of way, but it’s hard to tell if that’s genuine or just a rhetorical strategy.

But, I’ve also not had much doubt that globalization has been an economic boon, if a somewhat fraught and unstable one, for most people and countries involved, or that the lack of integration with global markets is what’s really killing the poorest of the poor countries, which is the best and most compelling argument he makes. The problem is that he refuses to engage the argument that there might be other values that aren’t strictly economic but are nonetheless requirements for human health and happiness. Economic growth is of course incredibly important, but it’s necessary-but-not-sufficient, and economists can never seem to grasp that simple fact.

He also blatantly caricatures those who would make arguments against a solely economic valuation of human happiness, almost always picking his putative opponents from the dumbest and most flamboyant 5% of people who question the costs of globalization, etc. The old “dirty hippies” kneejerk thing, which I would have thought he was above based on the soberness of much of his argument. Whenever he argues against fellow economists, he’s always evenhanded and fair, but anytime a non-economic concern comes up, he quickly gets dismissive and petulant.

So, if you want a look at globalization as an economic phenomenon from a market fundamentalist who at least seems fairly even-handed and willing to acknowledge and critique the errors and injustices that have happened in a strictly economic context, this is your book. If you want a broad-based argument for or critical examination of globalization that really addresses environmental, social, cultural, and the myriad other associated concerns, you’ll have to look elsewhere. Definitely worth reading as part of a broad survey, which is sort of what I’m gradually doing on the topic, but I wouldn’t read it as a sole source.… (altro)

Just before I started with Why Globalization Works, I read The World's Banker, a biography of James Wolfensohn, interlaced with a history of the World Bank in the last twenty years. That book, written by Sebastian Mallaby of The Economist, talked about some of the challenges faced development organizations like the World Bank from the "vast NGO conspiracy".

In Why Globalization Works, Martin Wolf, chief economics commentator of The Financial Times and a one time economist for the World Bank brings a scholarly defense of economic liberalization, along with a scathing reprimand for its critics. Mr. Wolf tends to be overtly analytical in style, the book is neatly organized in five parts and most of the chapters have numbered lists of issues that the author plans to tackle. This tool is both, the book's strength as well as its weakness. The cold hard data is hard to argue against but at the same time, I found myself lost in the numbers many a time.

I would like to discuss two (out of several) interesting observations from the book. The first is the comparison of the market to American football, an "ordered brawl" as opposed to say a street fight with no rules (the book mentions "folk football" instead of street fight). This comparison is attributed to the book Reinventing the Bazaar by John McMillan of UC Berkeley. That's the best metaphor of free market capitalism I have ever heard and something I will be repeating to associates in the future.

The second observation that I found interesting was Mr. Wolf's response to the allegation that wages, in China for example are so overwhelmingly low that they will invariably drive down wages for developed countries as well. An average Chinese worker engaged in manufacturing makes about $730 annually (or did according to the book, published in 2004), while similar German, American and British workers earned $35,000, $29,000 and $24,000 respectively. Mr. Wolf's response is that the Chinese worker is also that much less productive than his/her Western counterpart. He then follows up his claim with enough statistics, footnotes and references to satisfy the most discerning reader.

Finally, I really enjoyed the utter disdain Mr. Wolf shows for critics like Naomi Klein. He holds no punches in his criticism of the Canadian anti-globalization activist on her absurd positions on world trade and her diatribe against "corporations"

In spite of the excessive reliance on numbers and the extreme organization, this is an important and necessary book. Recommended.… (altro)