Saturday, September 27, 2014

Felix Salmon Reviews Martin Wolf's "The Shifts and Shocks"

Tart, bordering on acidic. 
From the New York Times:
Martin Wolf is as grand and important as an economic journalist can ever become. A respected economist in his own right, Wolf has had top-level access to economic policy makers for decades now, seeing generations of finance ministers and central bank governors come and go. All of them care, deeply, about what he thinks and what he writes, and they tend to spend as much time as they can trying to persuade him of their point of view. The result is a classic virtuous cycle: He’s well informed because he’s extremely influential, and he’s influential because he’s extremely well informed.

In the wake of the financial crisis, Wolf has become an even rarer beast: the highly influential radical. His is the loudest and foremost voice saying that the global policy response to the crisis was far too timid; that it all but ensures we will have an even worse crisis down the road; and that unless we start implementing extreme measures today, we will be running headlong into catastrophe.

For his change of stance alone, Wolf, the chief economics commentator for The Financial Times, deserves a great deal of credit. Public intellectuals too often feel their views need to remain consistent over time; Wolf is honest and brave enough to say that his pre-crisis views were wrong. Even though he wholeheartedly embraced the financial-liberalization policies of the Thatcher years, and subsequently wrote a book entitled “Why Globalization Works,” he now concludes that “the interaction between liberalization and globalization has destabilized the financial system.” The crisis, Wolf says, “was no ordinary economic event”: “To pretend that one can return to the intellectual and policy-making status quo ante is profoundly mistaken.”

Wolf splits his new book, “The Shifts and the Shocks,” into three sections. The first is an economist’s history of the financial crisis (“the shocks”); the second is a broader view of the global economic conditions that helped cause the crisis (“the shifts”); the third is a series of prescriptions for how we might prevent such a calamity from ever happening again (“the solutions”). In all three sections, expect a lot of econo-­wonkery and almost no narrative: You’ll find precious few human protagonists here.

Wolf doesn’t tell a story so much as rattle off lists of economic phenomena, and the result is not easy to read. Here, for instance, is a typical sentence:

“With the eurozone in internal and external balance and creditor eurozone seeking internal balance via ever-­larger external imbalances in the form of current-­account surpluses, debtor eurozone could only attain internal balance with ever-­larger external imbalances in the form of current-account deficits.”

Wolf is very fond of such wonkish econo-­tautologies: “If domestic output is to be sufficient to generate full utilization of capacity, aggregate demand must exceed domestic output by the size of the current-­account deficit, at full employment,” he explains at one point....MORE