By Frank Ahrens
Washington Post Staff Writer
Sunday, August 31, 2008
The credit crisis. The lurching stock market. The housing bust. The diving dollar. The Freddie and Fannie turmoil. How to make sense of it all?
Our advice: Go read a book.
We asked a number of smart people -- inside and outside economics and finance -- to scan their bookshelves for answers. Though there is no single book that can sum up and explain the current conditions, we asked each of our contributors for one book they would recommend to their neighbor, their daughter, their aunt, their barber, priest, rabbi or best friend to help them gain some perspective on these volatile times.
We imposed only one rule: You cannot recommend a book you wrote or edited. After that, no rules. It could be a macro-economics text, a popular history or a novel.
Our guests ran with the assignment, offering a range of books eclectic enough to defy categorization by the Dewey Decimal System.
If there is one unifying theme that runs through these selections, it is this: Bubbles come and go, economic theories rise and fall, fortunes are made and lost. But human nature remains unchanged, from the time of Herodotus to Homer Simpson.
* * *
PETER R. ORSZAG
Director, Congressional Budget Office
"The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do About It," by Robert J. Shiller (2008)
What it's about: The "Irrational Exuberance" author tackles the current bubble.
Orszag says:"Bob Shiller has been leading the effort to recognize the powerful role of herd behavior, psychological framing and other irrational but potent influences on financial markets -- all factors that traditional theories ignore, to their peril.
"In this most recent book, he brings his combination of rigorous economic analysis and psychological insight to our current economic predicament, not only analyzing its causes but also offering possible solutions that could help to inhibit bubbles in the future. More important than the specific suggestions is his willingness to move beyond the Panglossian constraints of conventional economics. We need a bit less 'Economics 101' thinking in public policy and much more 'Psychology 101,' and Bob Shiller shows us how in this book."
ROBERT E. RUBIN
former U.S. Treasury secretary (1995-99)
"Travels with Herodotus," by Ryszard Kapuscinski (2007)
What it's about:"Travels" is the memoir of Kapuscinski, a Polish foreign correspondent who wrote in his native language, specializing in Africa. When he began his career, he was given a copy of Herodotus's 5th-century B.C. work, "Histories," which Kapuscinski carried through his life and quotes from in his book.
Rubin says:"I read a lot, but I don't read a lot of financial books. I wander into a bookstore and pick up what looks interesting.
"This book is actually two books in one: The descriptions and reflections of Herodotus about his times and travels within the descriptions and reflections of Kapuscinski about his times and travels. The sense you gain is that while the circumstances of mankind have changed dramatically over the millennia, human nature is relatively constant.
"And that takes us to the financial crisis. The pushes and pulls of human nature are key to the behavior of markets. Thus, understanding what led to the Persian-Greek Wars can help understand the reaching for yield that helped cause the credit crisis and the virtual certainty that periodic financial crises will occur as long as we have markets."
Professor of economics and law,
Council on Foreign Relations
"India: The Emerging Giant," by Arvind Panagariya (2008)
What it's about: Considered by some to be the definitive book on an economy growing at 8 percent per year -- partly on jobs being outsourced from the United States and other Western countries.
Bhagwati says:"India's rise as a major economic player has captured everyone's imagination and also the fears of U.S. workers who feel that they cannot compete with India and China. Panagariya's book uniquely chronicles and analyzes India's rapid emergence from three decades of stagnation under bad policies after reforms began in earnest in 1991. The book offers the best guide to all Americans who want to understand where India is coming from and also why she provides opportunities for U.S. investment and trade rather than the depressing competitive prospects offered by the pessimists."
Federal Deposit Insurance Corporation
"So Big," by Edna Ferber (1924)
What it's about: Winner of the Pulitzer Prize for fiction, "So Big" tells the story of a hardworking woman and her materialistic son.
Bair says:" 'So Big' is a fascinating story that contrasts the aspirations and values of a mother -- who grew up in economic hardship -- with that of her son who, through his mother's hard work, was given a secure, happy childhood and a quality education.
"After struggling to give her son opportunities to pursue his dreams, Selina must watch as he sets them aside in the empty pursuit of wealth. While Selina builds a thriving vegetable farm and derives contentment through her 'beautiful cabbages' and other produce, her son finds only frustration and lack of fulfillment when he forgoes a career as an architect for the pursuit of money and a sumptuous lifestyle.
"The shift in values from mother to son can also be viewed as allegory for our own nation's continuing cultural shift. We have moved away from the values of thrift and financial security held by our Depression-era parents to that of overuse of credit to fund lifestyles we cannot afford, that have not always brought happiness, and -- in the case of the foreclosure crisis -- that have caused dislocation and despair."
DOUGLAS J. DONATELLI
Chairman and chief executive,
based in Bethesda
"Extraordinary Popular Delusions and the Madness of Crowds," by Charles Mackay (1841)
What it's about: An antebellum title whose lessons remain unheeded by many.
Donatelli says:"The book is a classic, which is always good to go back to. It describes financial bubbles in the 1600s to 1800s, most of which look ridiculous in retrospect but were very serious at the time. Today's markets are fraught with speculation; we seem to create bubbles for ourselves every few years, the two most recent being the Internet stock bubble and the residential real estate bubble. The book reminds us that these aren't new phenomena, that we need to recognize bubbles as they are occurring and that we always need to keep an eye on underlying fundamental values."
N. GREGORY MANKIW
Robert M. Beren professor of economics, Harvard University
"Capitalism and Freedom," by Milton Friedman (1962)
What it's about: The renowned economist argues for the necessity of capitalism in creating free societies in a book hailed by some as one of the 100 most influential of the second half of the 20th century
Mankiw says:"I read this book first as a student at Princeton 30 years ago and again more recently when I assigned it for a freshman seminar at Harvard. Friedman's insights into how the economy works and his classically liberal perspective on the role of government are timeless. In this difficult economic time, it is important to keep first principles firmly in mind."
Chairman of Revolution LLC and the
Case Foundation, co-founder of
America Online, former chairman
of AOL Time Warner
"The Post-American World," by Fareed Zakaria (2008)
What it's about: Globalization and how it affects the United States.
Case says:"Americans tend to be insular and focused on the here and now (rising gas prices, declining home values, etc); as a result, all too often we miss the bigger picture. This book helps refocus us on the broader context in which we as a nation operate and compete.
"The past decade has resulted in a sea change in many countries that is often misunderstood (or just invisible). Zakaria refers to this as the 'rise of the rest' and notes that this is largely the result of successful U.S. policy. We have long sought a more stable, prosperous, integrated world, and now we have one, but the consequence is -- America's relative importance is starting to decline, both in terms of economic power and political influence.
"As a result, we need to retool and redouble our efforts so we can retain our leadership position in a rapidly changing, hyper-competitive world. That means a lot of things but in particular doing everything we can to encourage the entrepreneurial spirit that represents the 'secret sauce' that has driven the U.S. to such heights over the past century -- and is the ingredient that is hardest for other nations to replicate."
FRANKLIN D. RAINES
Revolution Health Group;
retired chairman and chief executive,
"Dead Certain: ThePresidency of George W. Bush," by Robert Draper (2007)
What it's about: A probe inside the mind of the president and his gut-instinct decision-making process.
Raines says:"The myriad serious issues to be inherited by the next president prompted this question: What difference does the style of presidential leadership make in finding solutions to national problems? I read the book because I wanted to compare the Bush approach to leadership with that of Abraham Lincoln chronicled in Doris Kearns Goodwin's book 'Team of Rivals: The Political Genius of Abraham Lincoln.' (2005)
"I would recommend reading both books, back to back, which should clearly illuminate the benefits of Lincoln's collegial, even bipartisan, style of political leadership when attempting to rally the nation to deal with complex problems in a challenging global context."
JOHN ALLEN PAULOS
author of "A Mathematician Plays the Stock Market" (2003)
"Naked Economics: Undressing the Dismal Science," by Charles Wheelan (2002)
What it's about: Before you know what a credit crisis is, you need to know what the Federal Reserve does, which "Naked" explains in chatty, informal language.
Paulos says:"The book delivers. It won't explain the ins and outs of derivatives trading, subprime mortgages and oil futures (what does?), but by means of little vignettes and stories it nicely elucidates the function of organizations like the World Bank and the Federal Reserve, the meaning of notions like GDP, inflation and productivity, as well as a host of other topics. It is a primer on modern economics and one of a number of recent books suitable for those with little or no background in the subject (or, Godel forbid) in mathematics."
Editor, the Corporate Library,
provider of corporate governance research and analysis
"David Copperfield," by Charles Dickens (1850)
What it's about: An impoverished ragamuffin becomes a successful novelist.
Minow says:"I don't want to inflict on nonbusiness readers a book with graphs, equations or acronyms. And everything you need to know to understand finance and economics you can get from 'David Copperfield' while you are enjoying the story and the language.
"Just think of that unctuous Uriah Heep oozing his odious way into control of the law office of hapless Mr. Wickfield by pretending to be humble and helpful. He's kind of like the people who changed the name of 'high risk' mortgages to 'subprime.' Think of David himself, so captivated by the easy charm of his school friend Steerforth that he never expects his devastating betrayal. Steerforth, who never cared about the damage he inflicted on others, is a lot like the ultra-smooth Wall Street guys who chopped up the subprime loans into little pieces and assured buyers they were a good investment while they took their payment off the top.
"And think most of all of Mr. Micawber and his advice to David: 'Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.' Following that advice will protect you from the worst of economic upheavals."
HENRY LOUIS "SKIP" GATES JR.
Director of the W.E.B. Du Bois Institute
for African and African American
Research at Harvard University,
author and co-founder of TheRoot.com, owned by The Washington Post Co.
"David Copperfield," by Charles Dickens (1850)
Gates says:"This quote [the Mr. Micawber quote referred to by Nell Minow] should be nailed above the door of the Oval Office and the doors leading to both chambers of [Congress]."
DOUGLAS A. IRWIN
Professor of economics,
author of "Free Trade Under Fire" (2002)
"The Great Contraction, 1929-1933," Milton Friedman and Anna Jacobson Schwartz (1965)
What it's about: The authors argue that the Federal Reserve fueled the Great Depression by failing to take control of monetary policy.
What Irwin says:" 'The Great Contraction' is a short book taken from a chapter in Friedman and Schwartz's monumental 'A Monetary History of the United States' (1963). As an academic, the current Fed chairman, Ben Bernanke, studied the Depression and this book in depth. If one is trying to understand why the Fed has acted so aggressively in the recent subprime crisis, this book provides the background -- Bernanke's Fed is simply trying to avoid a catastrophic meltdown similar to the early 1930s that was so brilliantly analyzed by Friedman and Schwartz."
JAIR K. LYNCH
President and chief executive, Jair Lynch Development Partners, based in
Washington; former Olympic gymnast
"Supercapitalism: The Transformation of Business, Democracy, and Everyday Life," by Robert B. Reich (2007)
What it's about: Citizens have become consumers, the former U.S. labor secretary warns, and capitalism has become a substitute for democracy. Reforms and new regulations are necessary, he writes.
What Lynch says:"Citizens have the power to take the reins when it comes to decision-making; this book provides a great foundation to help people understand the ways in which they can put that power to work."
Dallas Mavericks owner;
chairman of HDNet;
founder of Broadcast.com,
sold to Yahoo for $6 billion in 1999
Cuban says:"I don't think there is such a book. In my humble opinion, people who actually believe they can understand all the issues are the ones that got us to where we are today. In reality, there are so many variables and so little data, it's all a guess. I don't think a book exists that can explain it. Is there a book out there called 'No One Has a Clue What Is Going On and the Whole World Is Guessing'?"