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FiveBooks Interviews
Will Hopper is the co-author of The Puritan Gift. Founder chairman of the Institute for Fiscal Studies in London, he also chaired the investment bank, W J Hopper & Co Limited, until he closed it down last year. He has represented Greater Manchester West as a Conservative member in the European Parliament. For many years both Will and his elder brother and co-author Ken have watched what they perceive to be a decline in America’s traditional managerial culture from the peak of excellence which it attained in the last century – ‘financial engineering has replaced mechanical engineering’.
John Lanchester wrote an account of the 2008 global financial meltdown and he tells FiveBooks that nothing has been done since the crisis. If Barclays tomorrow were to announce, ‘Really sorry, we’ve just lost a trillion dollars betting on whether the Chinese renminbi would appreciate, and it hasn’t, and can we have our bailout now?’, the state would have no choice but to say, OK, they’re too big, and too systemically important. The implosion was more than a year and a half ago, and it’s all completely unfixed. It’s as if they’d performed some heroic feat of steering and then immediately fell asleep at the wheel.
The former banker and author of 12 books on economics says that over the last 30 years economics has been colonising every science. ‘Even something like education all comes down to incentives, and that mind-set has become pervasive. One of the good things about this recent crash is that it might counter that because it’s clearly wrong.’
The Professor of Management and Finance at Yale University, accused of creating the model that contributed to the current crisis, says today’s turmoil seems unique, but in the US and UK crises have always been common events. ‘The idea is to show people that we have a history of these things and a history of similar responses. There is a structural reason for crises – banks create very useful liabilities (like checks and repo), but they are vulnerable to runs.’
The head of Enlightenment Economics, specialising in technology and globalisation, talks about recession as a collective failure of confidence in what the future is going to bring. It’s almost a kind of contagious disease, where a recession becomes a self-fulfilling phenomenon.
Pranab Bardhan is Professor of Economics at the University of California, Berkeley. He specialises in development economics and thinks, along with Amartya Sen, that the socialist legacy of emphasising education and health is an important tool in helping countries out of poverty while remaining productive. He sees China as a good example, but challenges the received wisdom that its success has been solely built on globalisation. Land redistribution is key.
The 2006 Nobel Peace Prize-winner says the idea behind the bank he founded, Bangladesh’s Grameen Bank, is simple: extend credit to poor people and they will help themselves. Human beings are not selfish, he says – they are both selfish and selfless. Economic theory needs to accommodate both sides of human nature if it wants to help us avoid disaster.
LSE’s Kent Deng says there are no grounds for Eurocentricism in explaining the world history of economic growth. Intensive growth of the modern type – ie, growth with better technology and high per capita income – was first recorded in China under the Sung (Song) Period of the 10th to 13th centuries. Then there was a similar growth in Tokugawa Japan of the 17th to 19th centuries. These were the forerunners of the British Industrial Revolution.
Jonah Lehrer writes The Frontal Cortex blog. He is a contributing editor at Wired and has also written for The New Yorker, Seed, Nature, the New York Times and is a contributor to Radio Lab. He is the author of two books, Proust was a Neuroscientist, and, most recently, How We Decide. There are historical moments when financial markets basically look like Ponzi schemes, he says. Tulipmania was a good example. They work great, until they no longer work, and then they just collapse like a house of cards. So they work well for all the people who are selling tulips for 20 florins or 30 florins, but all of sudden, for whatever reason, when they reach 101, the market disappears. And you realise you’re paying insane amounts of money for a flower. And there’s always the moment, when you read these stories, where looking back on it, it seems so absurd.
Graciela Chichilnisky is the author of the carbon market of the Kyoto Protocol and of a new framework for evaluating catastrophic risks. She is a professor and director of Columbia Consortium for Risk Management at Columbia University, New York and a Managing Director of Global Thermostat Inc. She asks why we dismiss catastrophic risks in the conventional statistical analysis that is widely used today, even in US Congress. ‘I was able to trace it to one axiom which has no real reason for its existence, but we accept it because it makes mathematics simpler. Low and behold this axiom is the cause of our dismissal of catastrophic risks and the enormous losses that we could have avoided if we didn’t rely on it. It is called SP4. For example if we had not used this approach prior to the financial crisis, if instead of weighing down the results of the crisis and dividing by a hundred…things could have been better. We could have taken action.’