Crisis Economics: A Crash Course in the Future of Finance

Quick Thoughts:
  1. This was a tough book for me to get through.  I'm not sure if the subject is getting stale, the book was stale, or if I was just too sleepy for reading this book on the train in the morning (Tough week).  I think the latter may have had much to do with my sentiments, because my reading in the afternoon was much more fun.
  2. The authors do a great job of going step-by-step through the recent crisis.  They show how large the unregulated shadow banking system had become.  They combine this with their deep knowledge of economic history and the steps which occur during any financial meltdown.  It is notable that Nouriel Roubini, one of the authors, is widely known for sounding warnings of the potential crisis well before the meltdown.
  3. I really enjoyed the section in the book when they go through what different major economists believe needs to happen during a crisis.  They do a good job of showing the problems that both liberal and conservative economists run into if their theories are carried through to their conclusions.  In the crisis that just occurred, our government played rescue and threw lifelines to all banks in order to save the financial system and the economy.  This has created huge problems in terms of moral hazard.  Banks now know they can take on extremely large and irresponsible risks and get a bailout from the government.  On the other hand, the middle of an economic meltdown isn't exactly a great time to allow entities to fail due to all the linkages in the financial system.  Letting AIG fail would have damaged far more than just AIG.
  4. After reading this book, I'm very interested in how the authors feel about the financial reform bill that just passed.  They had a number of suggestions for how to reform our system, and from my reading some of these ideas were taken on by congress.  My instinct is that the authors will feel that the reforms did not go far enough and will result in another crisis.  These guys are regarded as pessimists, so I can't imagine that they will be very encouraged by a political settlement.
  5. I enjoyed the outlook section of the book at the end where they go region-by-region and issue-by-issue and discuss potential threat and opportunities.  They are extremely concerned with the US current account deficit.  They are certain that it is unsustainable and will end badly even if we take their suggested mitigating steps. 
  6. I will say that the book is very clear.  The authors make economic concepts intuitive for the reader.  Given my level of exhaustion last week, I should picked a different book for the morning.  However, I will say that the authors have me thinking about reading some of the more conservative economists (Like Hayek), so I can better understand the moral hazard issue.

The Red Queen: Sex and the Evolution of Human Nature

Quick Thoughts:
  1. I really enjoyed this book.  Matt Ridley is an entertaining author.
  2. The book starts by getting into evolution from a pretty hard-core biological perspective.  I have to admit, many of the concepts and terminology were outside of my everyday understand (It's been a long time since I took a Biology class - close to 25 years).  But, he makes it pretty easy to keep pace and at least walk-away with the main points of what he is talking about.
  3. One of his fundamental questions is why people (animals) use sex to reproduce.  This sounds like a simple question.  He shows that it's not.  He starts back in history and gets into the thinking of people trying to answer the question.  He shows plenty of evidence which backs up their answer to the question (often to the point where you think he's presenting THE answer).  Then he blasts their thinking with evidence that runs directly counter to their theories.  He slowly moves forward in time and does it again to other scientific thinkers.  By the time he reaches today, you have a real understanding as to why the answer to this basic question is so difficult to answer.  And in working his way through this scientific history, you get a sense for how people have gone about using experimentation and evidence to answer a very basic scientific question.
  4. Eventually he gets to his theories on human nature, which are basically those of an Evolutionary Psychologist.  Put basically, he sees men and women as having fundamentally different reproductive strategies.  Males have the capacity to spread their genetic code widely with many sexual partners.  Often in history, we have seen that remarkable wealthy, powerful men will take on many, many wives and have many, many children.  Females, on the other hand, are more limited in their total potential number of off-spring, and generally require male help in order to successfully raise her children.  A female can attract a husband, but reproduce with a different, higher status male without her husband noticing.  There are times that pursuing such a strategy gives her offspring the best chances for success.  Despite these differing strategies and conflicting interests, most of the time human society is monogamous.
  5. The previous paragraph isn't doing full justice to his ideas.  The author uses plenty of examples which show how unusual our particular mating habits are.  Then he goes to great lengths to show how we might have evolved the way we did.  It's pretty cool when he shows how aspects of our mating patterns are pretty similar to a specific bird or primate.  Finally, he takes these ideas and explains how you can see them playing out in current day society.  It's a fun ride. 
  6. What's great is that the author is convincing and does a great job of using specific evidence to back-up and challenge his points.  If you like non-fiction, sex, and evolution, then this is hard book to put down.


    Simply Complexity: A Clear Guide to Complexity Theory

    Quick Thoughts
    1. I didn't really care for this book.  The good moments were outweighed by several, "So what?" moments.
    2. That said, the author did a good job of getting me to understand that there is a mathematical framework for understand complexity.  When you think complexity, he wants you to think stock markets, traffic jams, biological processes, and other areas of life where many 'particles' act in a self interested manner and are greatly influenced by the structure of their surroundings and their interaction with other 'particles'.  A complex system can have outcomes that appear random but can be modeled.
    3. I felt like the mathematical tools and models he was describing were probably outstanding for video game simulations.  Like controlling the way that traffic appears in games like SimCity.  But, I wasn't sure that they ever could be more than just one of many tools in predicting real life outcomes.  My impression was that the author believed studying complexity was the most important way to predict real life outcomes.
    4. I was reminded of the idea that you shouldn't trust your models too much (See The Black Swan).  Just because you can develop a framework that can imitate certain incidences, doesn't mean that the framework is entirely accurate.  If you are driving and the map says to take a left to get on the highway, but the road is closed, you don't take a left.  Real life intrudes on models all the time and makes their predictive value less than expected.  I think that the author was in love with his mathematical models.  I got the impression that if real life started acting in way that was inconsistent with the model, then this author might instinctual say that real life was wrong and we should keep using the model because life will get back to normal.  I think that he'd get over these instincts, as he is a man of science.  But, once again, you shouldn't trust your models too much.
    5. I was particularly annoyed by a chapter on the stock market where he claimed that by using complexity theory, a person could develop a system that would make a lot of money on the market.  I call this kind of thinking using a system.  Often using a system works for long time, until it doesn't anymore.  And then the people who used the system end up way, way, way behind (See LTCM).
    6. I was also fairly annoyed at his decision to spend the final pages of the book going through quantum mechanics.  I could very well be missing the point of this section of the book, but I had no idea how this fit into his ideas on complexity.  It seemed like an attempt to link his ideas on complexity to still another area of research.  I didn't buy it.
    7. I will say that I found his discussion on treating cancer interesting.  I'm not sure if the medical profession is using his ideas, which basically consist of diverting resources away from cancerous cells, but if they are and it works then it's good to see that these models can and do have real world applications.