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This is how we got to where we are; so, how do we get out of here?
on 28 December 2008
Niall Ferguson again here brings us a history that is informative, entertaining and sobering. Being published in the midst of a global economic meltdown, for a book such as this, is a mixed blessing, as a step too far on the bearish side may make the author look like a doommonger, whilst being even slightly bullish might look blinkered. Ferguson, though, seems to manage to pull it off, though that equally is a spot evaluation. However, though it's clear where his loyalties lie in the pro/anti capitalism debate, the balance of the narrative tends nevertheless towards the various shocks delivered to the system rather than towards the prosperity delivered, albeit still strictly speaking to a relative minority of humanity, by markets and their lubricant, money.
As it turned out, some of the ground covered was familiar territory to me, bringing together strands of other books I've read recently, including Findlay and O'Rourke's Power And Plenty, Bentley's A Book Of Numbers, Schama's The American Future and even Lonely Planet Andalucia.
But some of it was new. He gives the origins of ghetto (a geto was a casting, and the original ghetto was in Venice's foundry district); explains that a consol gets its name from "consolidated fund"; and confirms that "dollar" comes from the German "thaler", on which the Spanish based the piece of eight, the world's first truly global currency.
Ferguson is also adept at telling stories: his account of the First Opium War, for example, is probably the clearest I've come across, and in the chapter on housing there is an excellent explanation of how the development of securitisation by Salomons ultimately led to the sub-prime meltdown.
He's not always right. In a description of segregation in Detroit and the 1967 riots he describes Aretha Franklin as a Motown star, which she almost, but never quite, was. And the final chapter begins with speculation that the rest of the world has decoupled from the United States economically. Unfortunately time has not been kind to this notion, with only Brazil, it appears, unaffected so far (December 2008), oil down by over $100 a barrel from its mid-08 peak, and even China's growth looking very shaky. But if there are any signs that "His pages are hot with proof-stage tyremarks", as one newspaper review alleged, then Ferguson is not alone in his revisionism: after all, even the German finance minister got it wrong. And in mitigation, this is the man who ended a previous television series (Colossus) warning that the United States was "heading for a credit crunch".
This is not, to be sure, a technical book. Readers seeking more detail of some of the principles described should go to the likes of Brealey and Myers's Principles of Corporate Finance. However, Ferguson more than succeeds in achieving his objective of providing a foundation of financial awareness for the general reader, providing plenty of food for thought. Amongst the morsels on offer: in better days for Argentina, the other Harrods was in Buenos Aires; the birth of stock markets was in 17th Century Netherlands, a country now often reduced to two letters in "Benelux"; and he ultimately really hits the button marked Panic by reminding us of the consequences of al-Qaeda's effecting a nuclear strike, of a further Katrina-like event, or of inundation courtesy of global warming.
So, great book, and so much for the past, but what of the future? Ferguson describes himself as a "liberal fundamentalist", and certainly descriptions of him as "rightwing" look overdone. Nevertheless, there seems to be a faith implicit that capitalism can cure itself, counter to the standard Marxist analysis of a bankrupt and inevitably doomed system. So where, as Larry Elliott has asked, is the intellectually endorsed social democratic alternative? It is implicit, ironically, in the response of the US government, but the measures being taken by that and several other governments has the appearance of a huge geoeconomic experiment unsupported by any clear theory other than it is the opposite of what was done in the 1930s. What is needed is a Keynes for the noughties. I'm looking forward to reading Krugman's new work to see if that is where the gap is filled.