Editorial Review

In this stunning new book, Malcolm Gladwell takes us on an intellectual journey through the world of "outliers"--the best and the brightest, the most famous and the most successful. He asks the question: what makes high-achievers different? His answer is that we pay too much attention to what successful people are like, and too little attention to where they are from: that is, their culture, their family, their generation, and the idiosyncratic experiences of their upbringing. Along the way he explains the secrets of software billionaires, what it takes to be a great soccer player, why Asians are good at math, and what made the Beatles the greatest rock band.

Brilliant and entertaining, OUTLIERS is a landmark work that will simultaneously delight and illuminate. ... Read more

Reviews

Where do you lie?
The main tenet of Outliers is that there is a logic behind why some people become successful, and it has more to do with legacy and opportunity than high IQ. In his latest book, New Yorker contributor Gladwell casts his inquisitive eye on those who have risen meteorically to the top of their fields, analyzing developmental patterns and searching for a common thread. The author asserts that there is no such thing as a self-made man, that "the true origins of high achievement" lie instead in the circumstances and influences of one's upbringing, combined with excellent timing. The Beatles had Hamburg in 1960-62; Bill Gates had access to an ASR-33 Teletype in 1968. Both put in thousands of hours-Gladwell posits that 10,000 is the magic number-on their craft at a young age, resulting in an above-average head start.

Gladwell makes sure to note that to begin with, these individuals possessed once-in-a-generation talent in their fields. He simply makes the point that both encountered the kind of "right place at the right time" opportunity that allowed them to capitalize on their talent, a delineation that often separates moderate from extraordinary success. This is also why Asians excel at mathematics-their culture demands it. If other countries schooled their children as rigorously, the author argues, scores would even out.

Gladwell also looks at "demographic luck," the effect of one's birth date. He demonstrates how being born in the decades of the 1830s or 1930s proved an enormous advantage for any future entrepreneur, as both saw economic booms and demographic troughs, meaning that class sizes were small, teachers were overqualified, universities were looking to enroll and companies were looking for employees.

In short, possibility comes "from the particular opportunities that our particular place in history presents us with." This theme appears throughout the varied anecdotes, but is it groundbreaking information? At times it seems an exercise in repackaged carpe diem, especially from a mind as attuned as Gladwell's. Nonetheless, the author's lively storytelling and infectious enthusiasm make it an engaging, perhaps even inspiring, read.

Emotional Intelligence 2.0 is another of my favorites in this genre. I recommend it strongly because, unlike Gladwell's book, Emotional Intelligence 2.0 shows you how to become an outlier...

Another Amazing Gladwell Journey
Spoiler alert! This book contains about a dozen "whoa, amazing" nuggets that could change your life, or at least tell you why you never changed your life, and I'm going to include all of them here just to have them listed somewhere convenient online for my benefit (and yours). But as any Gladwell fan knows, you don't read his writings just for the "holy cow" moments, you read them for the journey he takes you on in delivering those moments. This work provides several amazing journeys, even as they stray progressively farther from what seems to be the advertised purpose of the book: to illustrate how certain people become phenomenal successes. We learn early on the secret to being a great Canadian hockey player, assuming you are already spectacularly talented and work hard. But eventually we wind up learning not how to become a spectacularly successful airline pilot, but rather a spectacularly bad one. No bother, the book is providing entertaining information that can transform your professional life. So as for those dozen points, here goes, and you've already been warned:

1. There was a town in Pennsylvania called Roseto where people lived far longer and suffered far less from heart disease than people of similar genetic stock, eating similar diets, and living in similar nearby towns. The only explanation researchers could find was that Roseto had a uniquely strong sense of community: family and faith were both strong, and the wealthy did not flaunt their success.

2. In the Canadian "all star" junior hockey league - the surest ticket to the NHL - the majority of the players on the winning team were born in January, February, or March. The league was for players between 17 and 20 years old. Why the month anomaly? Because in Canada, elite hockey teams have try-outs at the age of 10, and the age cut-off is January 1. In essence, the oldest 10 year olds are far better at hockey than the youngest 10 year olds, so the youngest (those born in December) have no chance to make the select teams, which are the only ones with excellent coaching. The pattern continues all the way through high school. Similar birthday patterns are seen in places such as the Czech junior national soccer team. Makes you wonder about what "good for your age" means in academics too.

3. Many researchers believe in the "10,000 hour rule," namely that you need to spend about 10,000 hours on a skill - anything, including music, computer programming, business dealings in the expanding American West, or mergers and acquisitions - in order to become great at it. This is something Bill Gates and the Beatles have in common, thanks largely due to circumstances beyond their control.

4. At least 15 of the wealthiest 75 people in world history (in modern dollars) were born in the 9 years from 1831 to 1840. They were old enough to have learned how to profit in the rapidly industrializing United States (via 10,000 hours of experience) but not so old as to have already settled down and been inflexible with their life options or concepts of business. Similar birthdate "coincidences" are seen among the wealthiest tech entrepreneurs including Bill Gates, and among some of the most successful lawyers in New York.

5. In long-term studies, IQ is found to predict professional success - but only up to a score of about 120, past which additional points don't help. Nobel prize winners are equally likely to have IQs of 130 or 180. When minority students are admitted through affirmative action, their achievement scores may be lower, but as long as they are above the threshold, it does not affect the likelihood of professional success.

6. Anecdotes from the "world's smartest man," (according to IQ tests) Chris Langan, and the children of middle class families, suggest that "practical intelligence" about when, how, and with what words to speak up are a huge factor in success - specifically when speaking up can save you from losing a scholarship. Longitudinal studies of high-IQ children showed that a family's high socioeconomic background was more important to predicting success than very high IQ.

7. Many people put in their 10,000 hours in something like computer programming, but then never find themselves in the midst of a revolution where people with 10,000 hours of experience are desperately needed. Bill Gates did. The connections he formed as an early highly-sought programmer helped him rise and found Microsoft. Joe Flom, one of the most successful lawyers in New York, became a specialist in mergers and acquisitions before such transactions were considered "acceptable" business by mainstream lawyers. When the culture changed in the 1980s to accept such dealings, Joe Flom was the best of the best who had put in his 10,000 hours in a now-mainstream business. He became an historic success almost overnight.

8. When economically tough times hit, people stop having children for fear of being unable to provide for them. However, this may be the best time to have children, because there are few other children competing for things such as classroom attention, spots on school sports teams, professors' attention, and jobs upon high school or college graduation. There are also more children a decade behind them who will provide the demand for the goods and services the older children will provide.

9. The typical airline crash involves seven consecutive human errors, and crashes are significantly more likely to occur when the more-experienced captain is flying the plane, as opposed to the subordinate first officer. The likely reason is that the first officer is much less likely to speak up when he or she notices something wrong or a human error, and the captain is flying the plane. Flights in countries with a large "power distance index," which characterizes cultures where subordinates are generally afraid of expressing disagreement with superiors, are the most likely to crash. This included Korean air, which had the worst safety record among major airlines until it instituted a program requiring subordinates to speak up when there were problems. There are benefits to deferential, polite, and subtle conversation, but they are unlikely to be beneficial in stressful cockpit environments.

10. There are at least two non-genetic reasons Asian people excel at math (and some tests have suggested that Asians may have genetic _disadvantages_ in math). First, most commonly used Asian languages use a monosyllablic, ordered, regular system to describe numbers, unlike English and European languages. This gives young children up to a year's head start in math. Second, math often requires persistence and trial and error, characteristics also needed for successful rice farming, the dominant form of agriculture (and employment) in Asia even in the 20th century. Hilarious evidence of correlation of persistence with high math scores is found in results on the TIMSS, an international math exam. The beginning of the exam includes a tedious 120-question section that asks students about their parents' education, their friends, and their views on math, among other things. It is exhausting, requiring great _persistence_, and some students leave it partially blank. If you rank countries by how many of the survey questions their students completed, and by the TIMMS score, the lists are "exactly the same." Holy cow! At the tops of both lists were Singapore, South Korea, China (Taiwan), Hong Kong, and Japan.

11. Students from middle class and poor neighborhoods show an achievement gap in reading that widens over the years of elementary school. However, the financially poorer students progress (in terms of grades on standardized tests) the _same_ amount during the _academic_ year as the wealthier students. It is during the _summer_ break that better-off students with better-educated families continue to read and learn, while the less well-off students likely do not, and show major declines in autumn test scores compared to the previous spring. Students in "KIPP" (Knowledge Is Power Program) schools showed major success despite coming from low income neighborhoods, because of a much longer school day and academic year.

12. The author, Malcolm Gladwell, tells a story in the final chapter about how his family, and thus he, benefitted from light skin tones and changing racial attitudes in Jamaica. It's a stretch compared to the rest of the book, but gets you thinking and is an awkwardly charming read. ... Read more

Editorial Review

Which is more dangerous, a gun or a swimming pool?

What do schoolteachers and sumo wrestlers have in common?

How much do parents really matter?

These may not sound like typical questions for an economist to ask. But Steven D. Levitt is not a typical economist. He studies the riddles of everyday life—from cheating and crime to parenting and sports—and reaches conclusions that turn conventional wisdom on its head. Freakonomics is a groundbreaking collaboration between Levitt and Stephen J. Dubner, an award-winning author and journalist. They set out to explore the inner workings of a crack gang, the truth about real estate agents, the secrets of the Ku Klux Klan, and much more. Through forceful storytelling and wry insight, they show that economics is, at root, the study of incentives—how people get what they want or need, especially when other people want or need the same thing.

Reviews

An Entertaining Lesson on Breaking Out of the Mold
This book succeeds at analyzing sociological developments in a way that is entertaining because Steven Levitt, an economist who strays from convention, has a knack for unpeeling layers and layers of assumptions and myth and showing the real causes behind trends. He shows, to name some examples, how our names affect our career paths; how abortion and the crime rate are related; how a man used his cunning to humiliate the Klu Klux Klan rather than rely on conventional methods; how easy it is to identify the role of public school teachers when they help their students cheat on standardized tests; why drug dealing is only lucrative for the dealers at the top of the pyramid; the myth that real estate agents are looking for our best interests.

The book, co-authored by Stephen J. Dubner, is breezy and anecdotal, which is an effective format for presenting a lot of sociological trends without being dry or losing the scintillating reportage in dense prose.

The lesson of this book is that we should be leery of trusting society's common assumptions or common wisdom. In other words, the book encourages us to keep our mind alert and break out of the mold in the way we see things. By looking at social trends with a fresh eye, the book succeeds at making economic trends a fun, adventurous endeavor.

If I were to criticize the book, it would be that it is too short. It's barely 200 pages and if you take out the blank chapter pages, the charts, the lists, and so on, it's really closer to 150 pages. Because the material is so current and topical, the method of "freakonomics" presented here would make a good format for a monthly magazine. My guess is that there will be many sequels.

The Power of Data in a Master Economist's Hands
Having myself survived the economics program at the University of Chicago as a young graduate student twenty years ago, I know how decidedly eccentric their laurelled scholars can be. One of the most prestigious of the current crop there, Steven D. Levitt, along with journalist Stephen J. Dubner, has written a most intriguing and mind-bending book that uses Chicago-style econometric approaches and applies those to social and political issues that otherwise seem mundane and have no apparent basis in coherent theory which would support the behavior under study. In fact, this book of compelling case studies bears similarities to the approach taken by author Malcolm Gladwell in his recent best-selling book, "The Tipping Point", where he takes primarily historical events and analyzes them almost anecdotally as exercises in human behavior, in his case, making connections and how ideas become trends not by gradual insinuation but by a singular dramatic moment.

But Levitt's canvas is broader, his theories and findings are far more diverse, and his approach is far more quantitative in nature. For example, he challenges the perception that campaign spending determines elections. Levitt's analysis takes a fresh look by contrasting races in which the same two congressional candidates run repeatedly against each other. What he concludes is that a winning candidate can spend half as much as before and lose only one percent of the vote, while a losing candidate who doubles campaign spending picks up only one percent more. Basically they prove that no matter how much candidates spend on their campaigns, the results would not be marginally affected. In another example, the authors describe a seller's real estate agent, who lives on commission and has an incentive to sell a listed home for maximum dollar. Again, this is a misconception since the authors contend the small financial reward to an agent who sells a home for a few thousand more dollars is dwarfed by the greater money to be made by selling properties for less but quicker. Levitt's research into the sale of one hundred thousand Chicago homes found that agents keep their own homes on the market an average of ten days longer and sell them for more than three percent more than the homes they list and sell for clients.

The penetrating analyses provided by Levitt appear to have no bounds as he identifies Chicago teachers, who were proven to be changing their students' test answers and ultimately fired for their actions; sumo wrestlers who were found to be cheating as well; and even the alternative and more lucrative career options that crack dealers may have at McDonald's versus making sales. He even questions the impact of a good first name in a person's later life and if children become more literate if their parents read to them. The conclusions surprised me as they will you. But the most compelling study he presents is related to the impact of Roe vs. Wade. In a study he conducted with Stanford law Professor John Donohue, Levitt makes a seemingly broad-stroked conclusion in attributing much of the drop in the U.S. crime rate to legalized abortion. Their argument was based on the theory that abortion prevented the births of unwanted children who otherwise would have been statistically more likely to mature into criminals. The crime rate drop coincided with the time those aborted pregnancies would otherwise have hit their teen years, and the trend showed up earlier in states such as California that were the first to enact more liberal access to abortions. Through the data they gather, the correlation is startling, and the conclusion is hard to refute despite the naysayers who felt the stuffy to be politically motivated. But to Levitt's academically inclined credit, he never seems like he has an ideological agenda as he lets the numbers do the talking for him. His genius is to take those seemingly meaningless sets of numbers, ferret out the telltale pattern and recognize what it all means. A brilliant mind is at work, as he takes the most mundane open-ended questions and actually answers them. Strongly recommended.

Thoroughly engrossing!
Disclaimer: given the number of reviews already available, this one is not going to describe the contents of the book, cite specific examples, or go into any great level of detail. My objective here is just to share my point that irrespective of the quality or accuracy of the content of the book (although personally I have no complaints on that front), this is a book definitely worth spending time on. A good testimony to that is the high frequency of reviews of this book, even though all of them are not favourable.

So on to the quick summary: Freakonomics is less of a novel and more of a collection of quasi-scientific articles linked by the unconventional methods, or rather explorations, of a brilliant thinker - Levitt. Levitt's ideas, experiments and conclusions have been deservedly converted into a lucid and gripping narrative by Dubner. Levitt's answers to unconventional questions are genuinely eye-opening; forcing one to think long after the book has been put down.

In short, a very good read. ... Read more

Editorial Review

Reviews

Definitive Indeed!
This new edition of the RTS is worth buying even if you already own an earlier edition. The editor has included important material on how this book was developed and interpreted.

As for the book itself, the Road to Serfdom explains the rise of totalitarianism in twentieth century Europe. Yet it also made a more general argument concerning the incompatibility of democracy and comprehensive central planning. Hayek argues that the pursuit of socialist ideals leads to totalitarianism. While socialist ideals seem noble to many, those who persist in realizing these ideals will find it necessary to adopt coercive methods that are incompatible with freedom. Thus socialists must choose between their egalitarian goals and the preservation of individual liberty.

Hayek describes how Europeans came to expect progress, and became impatient for faster progress. The liberal reforms of the 19th century delivered unprecedented economic progress. Much of this was directly due to scientific discovery. The role of free competition in promoting scientific discovery was less obvious. Europeans increasingly came to believe that scientific planning of society itself could accelerate greater progress.

Europeans also changed how they thought about equality and freedom. Insistence upon freedom from want displaced the yearning for freedom from coercion. Democracy came to be seen as a means of realizing an increasing number of social goals, rather than as a means of preserving freedom. To Hayek, these were dangerous errors. Democracy could only work effectively in areas where agreement upon ultimate ends could be attained with little difficulty. A democratic government could enforce general rules of conduct that applied to all equally (i.e. free speech and free association). Democracy can never produce agreement over policies that affect specific economic results. One always gains at the expense of others in such matters. Such Economic planning places impossible demands upon democracy. This is because pursuit of specific ends requires timely and decisive action. Democracies move too slowly to attain specific ends, so arbitrary powers of government will grow. A planned economy will ultimately require acceptance of dictatorship. This is a dire consequence, as it is the worst sort of tyrants who are most adept at wielding dictatorial powers.

Some might say that these arguments are unduly pessimistic. Hayek points to the examples of Hitler and Stalin to support his case. Of course, these are worst case scenarios. Have not England, Sweden, and the US adopted large welfare-regulatory states without such tyranny? This is a fair point, yet we should remember two things. First, Hayek claimed that centralized control of the economy would destroy freedom ultimately, but gradually. Second, Western nations have not yet gone as far in planning their economies as did Russia and Germany in the 1930's. The fact that we have yet realized the horrible results of Stalinism implies neither that were are safe from despotism in the future, nor that our present situation is entirely satisfactory. One can easily argue that we have already started on the wrong path. For instance, Hayek's chapter on `The End of Truth' applies to modern political correctness.

Hayek wrote this book not only to warn people about the limits of democracy and the incompatibility of planning and freedom. This was the start of his project concerning the abuse of reason. His warning is also about the tendency to overestimate the abilities of even the best and brightest individuals. Not even the best and brightest can comprehend modern societies. Socialists who favor comprehensive planning, and even modern liberals and conservatives who want to plan part of society, proceed on a false assumption concerning human reason. Ultimately, Hayek makes a strong case for limited constitutional government. To expect more of democracy than what Madison and Jefferson intended invites disaster.

The Road to Serfdom is a profound defense of commercial society and limited government. The RTS also is where Hayek started his 'abuse of reason' project. To fully appreciate Hayek's genius in the RTS, one should read his subsequent books in this project- The Constitution of Liberty and Law Liberty and Legislation V1-3.

The RTS has its critics, mainly on the left. Due to its insightful nature the Road to Serfdom has produced hysterical responses from the left. Leftists despise the RTS simply because it strikes at the core of both democratic-socialist or Marxist beliefs. Some serious scholars have attacked the RTS (i.e. Farrant and Levy) but their objections are misguided. The Road to Serfdom stands out as a true classic, as timeless as it is insightful. It offers insights that are relevant to our current problems with growing Federal spending and regulation. Read it completely and repeatedly.

Ahead of his time
Over 30 years ago, when I was in graduate school, this book was nowhere to be found on any Political Science or Political Theory reading list. I suppose part of the reason was that once the Nazis and Fascists had been defeated, their ideas were no longer seen as important. The question then was whether or not Communism would succeed. Furthermore, then and now, many people in academia had no complaint about government power as long as their side holds the power.

Hayek skillfully deflates that delusion by showing how the very economic powers of government created by the Social Democrats were the powers the Nazis used to consolidate their power.

This book was published 64 years ago but is as timely today as it was then.

Too bad we aren't taking this advice
Friedrich Hayek, the Nobel prize winning economist, wrote this brilliant classic as a critique of government intervention and manipulation in markets. I am neither an economist nor a political scientist, but I was led to this book after watching with horror the recent outrages that are consciously being inflicted on us by our elected officials, most recently the bailout and socialization of the two giant mortgage lenders, Freddie and Fannie. I couldn't remember that I ever received any share of the loot when those companies were making huge profits and their CEOs were earning tens of millions per year, but now I find that our elected officials have written a blank check in my name, the taxpayer, to bail out these companies' losses and stupidity, and then handed the check to a group of unelected officials (and, surprise, surprise, those two companies spend hundreds of millions on congressional lobbying). Privatize the gains, socialize the losses: sounds like a win-win situation for somebody.

This kind of disastrous socialism is exactly what Hayek critiques in devastating form in this book, specifically government control of the economy. Apparently, they say, this book has been very influential, but a layman could certainly never tell by looking around. Hayek was writing from the perspective of a central European who had recently witnessed first-hand the unfolding development of National Socialism (Nazism) in Germany, and he is warning that the exact same attitudes and policies that had been followed in Germany were uncritically being followed by the Allies, merely at a few years distance.

He begins by recollecting the ideals of old, classic liberalism, "the forgotten road". Of course, in Hayek's context, "liberal" means the true, historic liberalism of limited government, free markets, and private property, not "liberal" in the bastardized sense somehow hijacked by Leftists to mean unlimited government, socialized markets and massive forced wealth redistribution. He looks at the rise of collectivist thinking versus individual (it's all for the greater good); the problems of central planning in a democracy (someone in power makes the economic decisions for everybody else); the downfall of the Rule of Law (government is no longer bound by fixed rules announced beforehand but instead possesses arbitrary power limited only by its own discretion); the inextricable link between centralized economic planning and totalitarian regimes (if we're going to follow a plan, someone's got to force everyone to follow it); the problem of deciding how the society's production will be distributed; a chapter showing that "nothing is more fatal than the present fashion among intellectual leaders of extolling security at the expense of freedom" (Republicans apparently didn't get the memo); how in a socialized economy the worst individuals inevitably rise to the top (Really? Can it be? Obama and McCain?); the necessity of manipulating truth in a socialized society; and the fact that Nazism was a direct outgrowth of socialism and socialist ideology.

The relevance of the points enumerated above does not require comment. We are running madly down the road to serfdom, which is the road of socialism. Unfortunately for those of us who are being dragged along against our will, history is not neutral, and we will suffer the consequences of other peoples' decisions, just as the Jews in Germany did and the Russians in the Soviet Union did. Socialism has always led to poverty and oppression, and freedom, on the rare occasions it has been tried, has produced unparalleled prosperity. Hayek shows in detail why. We've decided to give socialism another try. God help us.

It will convert you into a libertarian
I read it at the University, here in Guatemala, where my University has a library that is called Ludwig Von Mises and the Auditorium's name is Friedrich Von Hayek.

Once you read this book, it is impossible not to believe in freedom and to know that freedom and big interventionist government are not compatible concepts.

The principles are so basic that you do not need to be an economist (I am not) to understand them. If people do not trust themselves to make decisions because "people are ignorant or greedy" then they will give someone else the power to decide for them (government) that is the road to serfdom. People will lose their freedom to decide which insurance, retirement plan or things to buy, which charity to help, these decisions will be made by powerful burocrats (that maybe who friends of someone in government) that will know what is best for you. Big taxes so government will decide better what do do with the money you earned.

I have seen my government follow all these steps that go to the road of serfdom and I have seen exactly the results Hayek points out, I have been seeing that happens for 20 years (since I read the book). The book is so logical that after reading, if you have common sense and do not have a burocratic position to defend, you will definitely become a libertarian.

True Liberty Is Not the Freedom to Take From Others...This Book Explains Why
This is a new version of "The Road To Serfdom." Although it is a classic, I had never read it until now. I appreciated the additional information about how it was developed and interpreted. I believe Hayek is brilliant in his perception of with is the big picture regarding the results of the various political philosophies. It is not any easy read, but it is worth reading.

Primarily this book explains the rise of totalitarianism in twentieth century Europe and extends it to an argument concerning the incompatibility of democracy and comprehensive central planning. Hayek argues that the pursuit of socialist ideals leads eventually leads from socialism to totalitarianism.

While many think that socialist ideals are noble, those who implement socialism will find it necessary to adopt coercive methods that are incompatible with freedom of the poeple. Thus socialists must eventually choose a big central form of government that sets aside their egalitarian goals as it destroys individual liberty.

Hayek describes how Europeans tried to accelerate greater progress and freedom from want by giving up individual freedom from coercion. Their form of democracy came to be seen as a means of realizing an increasing number of social goals, rather than as a means of preserving freedom.

Hayek believes these were dangerous errors, especially for those countries like Germany and Russia, which ultimately required the acceptance of dictatorship. This is a dire consequence, as it is the worst sort of tyrants who are most adept at wielding dictatorial powers. The fact that other European countries have yet realized the horrible results of Nazism or Stalinism does not mean that they are safe from despotism in the future. It only says they are just moving toward it more slowly.

Hayek wrote this book to warn people about the limits of democracy and the incompatibility of social planning and freedom. Socialists who favor big government and its comprehensive planning, and even modern liberals and conservatives who want to plan part of society, proceed on a false assumption concerning human reason. Ultimately, Hayek makes a strong case for limited constitutional government. To expect more of democracy than what Madison and Jefferson intended invites disaster.

I believe "The Road to Serfdom" is a profound defense of our U.S. Constitution and its form of limited government. Because of that I give it 5 stars. I can see why this book stands out as a true classic. It is both timeless and it offers insights that are relevant to our current problems with growing Federal spending and regulation.

I also beleive it wakes people up and will get them to join the new American Revolution that the Tea Party started in order to take back the Government and make it responsible again. If you love America and want to see it continue to be free for your children, then I highly recommend you read this book ASAP.

A WORD OF CAUTION: If you read this book and begin speaking out or taking action to defend Liberty, there is a very high chance that those who embrace social governmental control (and the removal of our U.S. Constitutional rights) will become offended. And, because they don't have a regard for following laws (because they equate liberty with the freedom from moral discipline), they might try to accuse you of false wrong doing (i.e. lie about you and perhaps call you a racist) and otherwise try to harm your reputation.

Therefore, I would highly recommend getting another book called, Wild West 2.0: How to Protect and Restore Your Reputation on the Untamed Social Frontier. As a Patriot, it is inevitable that you will run across people who will try to ruin your online reputation (like they do to other conservatives). This book tells you exactly where to look for the problems that Liberals might cause for you and then how to repair them.

A major SOURCE (not always credited) for many of today's trendy writers
The Road to Serfdom by F.A.Hayek


(Note: I own and have READ this book) (...)

Short review: strongly recommended. A timeless classic. An analytic exposition of the same old re-cycled, cancerous, glib, smug nonsense that we hear endlessly repeated so often today. Namely that (yawn) Capitalism and the Free Market are unjust, inequitable, and dying anyway. No good has ever (EVER) come from rich, corrupt businessmen. They are exploiters and parasites. They need to be replaced by a benevolent, kind, compassionate 'planned' society. Administered by an Elite body of Federal Planners in Washington, who are wise and kind, (a tear trickles down our cheek), and who consist heavily of academics, intellectuals and Supreme Court Judges. We need more Government bodies, because they are fair, balanced, and wise. We need more rules, regulations, taxes and government inspectors to help business and private investment. (All kneel....)

A heavy read, requires concentration and dedication, and be prepared to look up many references. Some long paragraphs, some convoluted sentences, some ponderous pronunciations, but a work, written roughly between 1938 to 1944, which can be used as a stunning blue print to understand today's misleading representations by left wing extremists and political agitators. .What we see today in America is nothing new. The poorly read, uninformed, short sighted, activists, eager as ever to mount the barricades, but quite unwilling to sit, read, listen... and think.
It's the Old Marxist Brigade, the dreamers and the malcontents, revamped, with changed colors, new rhetoric, and lots of Utopian promises of 'free lunch' for all. In fact, they are intent on their own personal gain and self aggrandisement. Power politics as usual. Hayek foresaw it all, and described it for us in this incredibly clear sighted and clairvoyant work. This book has been an important inspirational source for many of today's more popular trendy conservative writers, although, so it seems, most will not admit to it. (With the exception of Mark Levin in his interesting "Liberty and Tyranny")

Long review: I like an author who entitles a chapter "Why the worst get on top" (chapter 10). I've often wondered the same thing. On page 160 he says: "There are three main reasons why such a numerous and strong group with fairly homogeneous views is not likely to be formed by the best but rather by the worst elements of any society."
He then gives "three main reasons", which I suggest are well reasoned, well thought out, and ring remarkably true of today's self appointed saviours of the exploited masses. Check it out yourself.
I'll quote you part of his third reason:
"It seems almost a law of human nature that it is easier for people to agree on a negative program - on the hatred of the enemy, on the envy of those better off - than on any positive task."
P.162: "Collectivism has no room for the wide humanitarianism of liberalism but only for the narrow particularism of the totalitarian."
Chapter 2 is called "The Great Utopia", and if you're a bit of a weathered cynic like me, you'll enjoy it. Page 77 contains the classic quote from Tocqueville "Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude".
On p. 78, Hayek says: "There can be no doubt that the promise of freedom has become one of the most effective weapons of socialist propaganda and that the belief that socialism would bring freedom is genuine and sincere. But this would only heighten the tragedy if it should prove that what was promised to us as the Road to Freedom was in fact the High Road to Servitude..."
Chapter 11 is called "The End of Truth" and you have to smile. Maybe Hayek was a secret time traveler. Maybe he visited America in the year 2009. If he did, then he penned the opening paragraph of this chapter for Americans today. Read it, you might like it. He continues on page 172: "The moral consequences of totalitarian propaganda....are of an even more profound kind. They are destructive of all morals because they undermine one of the foundations of all morals: the sense of and the respect for truth."
Chapter 13 is called "The Totalitarians in our Midst", and must have been written yesterday. It contains so many quotable quotes, I shall limit myself to two: "...there is scarcely a leaf out of Hitler's book which somebody or other in England or America has not recommended us to take and use for our own purposes." (p.195)
Or how about this one, same page: "Individualism must come to an end absolutely. A system of regulations must be set up, the object of which is not the greater happiness of the individual.... but the strengthening of the organized unity of the state for the object of attaining the maximum degree of efficiency..."

This book is a classic. The introduction by Bruce Caldwell is detailed.
My two minor grumbles would be:
1) that some of the sentences are very long winded. Lots of clauses, juxtapositions, conditional statements. I read a lot, but I frequently found myself forced to re-read a sentence, and sometimes a whole paragraph. Hayek crams a lot into every word. Anybody who says this book is an 'easy read', with 'smooth prose' possesses a much higher IQ than I do.
I still can read any page in Hayek, and enjoy it. It's a rich offering.
2) So why in heck are there only 44 reviews so far of this masterpiece on Amazon? Many authors today, with over 1,000 reviews, widely feted with lots of rah-rah-rah and prime time hoopla-la-la, clearly show Hayek Road-to-Serfdom influence in their work. They don't always admit it.
For my money, THIS is a major source for many of today's writers. Yup, you have to work at Hayek. He's not easy. Roll up your sleeves. Take notes. You can't watch the 'Commie News network' (CNN) at the same time, do the crossword, and listen to your favorite rapper. But Hayek is overwhelmingly well worth every effort.
A truly great, gripping, far sighted classic.

The Road to Serfdom Revisited
This is Friedrich Hayek's magnum opus. It is so, however, not because it his most insightful, his most deep, or his most innovative book (his more specialized works in political philosophy and economics claim those titles), but because it is the opposite, that is, a general book, and because this is the kind of book that the world most needed then, and most desperately needs again now.

I say this because Professor Hayek's work is essentially a restatement of the age-old principles of classical liberalism, dating at least back to the Enlightenment, in light of the then seemingly insurmountable approach of socialism, which Hayek feared (rightly) would lead to a totalitarianism just as deadly as that of Nazi Germany. Hence Hayek's thesis is twofold: it is a warning against the path Great Britain was on at that time (which is a path well-trod by the twenty-first century), which Hayek believes leads to slavery, to misery, and to totalitarian control; at the same time, Hayek makes these critiques in light of the central tenets of old liberalism (to be clear to reviewers, this liberalism has nothing to do with modern day "liberalism") - free markets and individual liberty.

As for Hayek's analysis itself, it is nothing short of brilliant. Again, Hayek more meticulously works out the details of his political theory in works like the "Constitution of Liberty", but here he is at his best, providing the big picture of the threat of socialism, in all its guises, and what it represents to any country which values individual freedom. A number of chapters will seem prescient, such as "The End of Truth" (Orwell's 1984 clearly borrows from this), detailing how under a totalitarian regime, truth becomes a matter of utility for the ruler, a pliable tool rather than an objective goal to be sought and conformed to. Most scary, Hayek shows how this is partly accomplished by the manipulation of language.

There are two things, however, which make this book so accessible, and therefore serve as the quintessential introduction to classical liberal thought. First, it is remarkably conciliatory towards opponents. Hayek is not a firebrand or an ideologue, but an intellectual, who holds strong views, but knows and respects members of the opposite camp. Hence, he dedicates this book, "to socialists of all parties," and never lowers himself to the level of diatribe or rambling. His earnest goal is to open his readers' minds to ideals that are perishing, and he knows eristic does not accomplish that. This alone allows the book to stand in marked contrast to any contemporary book. Second, however, Hayek's book is still read because though the circumstances have changed, it is as relevant as though it were written yesterday. As Milton Friedman says in his introduction, during the first half of the twentieth century people praised socialism but practiced capitalism; today, we praise capitalism but practice socialism. We are moving, sluggishly it is true, but certainly nonetheless, down the same road that Hayek feared sixty-six years ago. We are traveling down the road to serfdom.

Do Not Stop Here!
This book has come across some recent popularity after Glenn Beck dedicated an entire show to this book.

I picked up this book a year and a half ago. It is truly a tremendous book, and one that provided me motivation to continue my studies at a fervent pace.

I suggest Glenn Beck fans should not stop here. The Austrian school is going to open your eyes. If you have not already, I highly suggest you begin to look into studying the many important works of Murray Rothbard and Ludwig Von Mises. Rothbard particularly had a tremendous ability to make complex subjects simple and actually pleasurable, so fear not if you are at all turned off by studying economics. It is much too important to push aside. If you do not wish to buy the books, you can download e-books absolutely free on the Mises Institute website. Also, the site offers free articles, lectures, and audio downloads on subjects including economics, history, and libertarian thought.

Especially relevant in today's world
This book contains the most notable works of F.A. Hayek, the famed, Nobel-prize winning economist who explained yet again why democracies are best based on free market capitalism, and that socialism tends to lead to tyranny.

Hayek demonstrates how socialist governments, motivated by political considerations, can't help but interfere with markets. But economic principles are like the law of gravity...they can't be altered at the whim of a state bureaucrat, so government tampering usually results in cycles of clumsy tampering, suboptimal economic performance, financial crisis, and greater intervention. Hayek would argue for solutions based on individual freedoms while limiting government's ability to intervene in markets, but socialists see it differently. Instead, they demand greater and greater powers, claiming that only greater intervention can fix the problems their actions have caused. To the extent that people buy into this thinking and vote to grant governments ever more power, economic and personal liberties are surrendered, eventually resulting in tyranny and totalitarianism.

One of the other interesting points Hayek makes is that socialism and it's characteristic centrally planned economies tends to concentrate power in a small band of political elites. In this type of system, only the most corrupt and politically ruthless tend to advance, and over time it gets to be increasingly difficult to oppose them. Leaders, unable to offer real growth and prosperity, turn to things like thought (media) control and other nefarious means to stay in power and advance their socialist agendas.

It's also important to understand that this book, while scholarly, has its roots in a far more pragmatic and patriotic place. Written in 1944, Hayek and some of his peers were afraid that the drastic government market intervention surrounding WWII would be carried forward after the war, and the entire world would settle into a Soviet-style socialism. At the time, the Soviets were seen as successfully managing their economy through central planning, and socialism was the darling of intellectuals around the globe. Hayek, fearing this outcome, organized numerous meetings among the world's leading economic minds, and eventually, his book would have a dramatic impact on economic thinking for people in general as well as economists. Milton Friedman writes on this topic and it makes a fascinating read.

Although Hayek used Nazi Germany and the Soviet Union for most of his examples, it's striking to see current events through the lens of this book, whether the mortgage lending crisis, AIG, GM, Cap and Trade, US health care system intervention and so on. Although few disagree with Hayek's principles, it is as though we need to relearn them every so often. Indeed, Hayek isn't the first (or last) to advocate these principles...Hobbes, Locke, Adam Smith, Milton Friedman and so on have been pointing the way for most of the last three centuries. Perhaps "Hope and Change" is just easier to believe in than sober, economic policies of individualism and personal freedom.

Very highly recommended and should be required reading for patriots and voters trying to make sense out of today's march towards socialism. ... Read more

Editorial Review

More than one million hardcovers sold
Now available for the first time in paperback!

The Classic Text Annotated to Update Graham's Timeless Wisdom for Today's Market Conditions

The greatest investment advisor of the twentieth century, Benjamin Graham taught and inspired people worldwide. Graham's philosophy of "value investing" -- which shields investors from substantial error and teaches them to develop long-term strategies -- has made The Intelligent Investor the stock market bible ever since its original publication in 1949.

Over the years, market developments have proven the wisdom of Graham's strategies. While preserving the integrity of Graham's original text, this revised edition includes updated commentary by noted financial journalist Jason Zweig, whose perspective incorporates the realities of today's market, draws parallels between Graham's examples and today's financial headlines, and gives readers a more thorough understanding of how to apply Graham's principles.

Vital and indispensable, this HarperBusiness Essentials edition of The Intelligent Investor is the most important book you will ever read on how to reach your financial goals.

Reviews

Classic Investment Book Enhanced for Todays Investors
When I first came across the first edition of this book in my local library in 1959, I was a teenager. Back in those days there were only a handful of books about the stock market. And I've read all of them during my junior high and high school years.

This latest updated 623-page paperback (the index alone is 33 pages) version updated by Jason Zweig is a welcome addition to this classic. The original chapters are intact, but with footnoted comments by Zweig. Moreover, he provides his own commentary on each chapter contents in a separate chapter following each original chapter. He provides extensive research, charts, tables and commentary that updates the book to the present years. He is not afraid to take on the big guns of Wall Street and show how wrong they were in some of their extremely bullish predictions during January-March 2000, when the market was at its peak.

The first nine chapters cover investing basics that all investors could benefit from. There are many truisms spouted on Wall Street that are not really true. These chapters provide the investor with a realistic picture of how Wall Street works and what investors need to do to come out ahead.

Chapters 10-20 focus strictly on fundamental analysis, stock selection, convertible issues and warrants, and other subjects. Investors who plan to invest directly in stocks should make sure to read these chapters. However, for readers more interested in investing in mutual funds, and in particular index funds, they need not concern themselves with all the detail in these chapters unless they have the time or interest in the subject matter presented.

In conclusion, the combination of pioneer Ben Graham?s original work coupled with Zweig?s meticulous and enjoyable update, make this a remarkable book about investments and investor behavior that every new and experienced investor should read. Of the 500 investing books that I?ve read, this one certainly is one of the greats of all time.

Shakespeare for the Investing Crowd
This book is light reading compared to Ben Graham's seminal tome, Security Analysis. It's easier to read, and shorter. It's also more up to date. Highly recommended for investors of any stripe, value or growth. The appendix, from Warren Buffett's speech at Columbia University is particularly entertaining, as he debunks academia's love affair with efficient market theory. Jason Zweig, an obvious Graham disciple, does a fantastic job bringing the book's principles to life through modern examples. The only grating thing is his constant derision of brokers or anyone that actually gets paid to manage money. (full disclosure: I'm an analyst now and was a broker for 10 years).

Ben Graham clearly invested in the stock market during a period of hustlers, crooks, crashes, and frauds. Brokers, investment bankers and analysts back then were not much more than fast-talking salesmen. Wait a minute, that sounds just like the way things are today on Wall Street! Things may not have changed as much as we would like to think. Due to his travails as an investor in difficult markets, Ben Graham's investment style evolved into a systematic, logical approach which became the basis for value investing. In "The Intelligent Investor", Graham lays out the foundation of value investing by three introducing key principles: the idea of "Mr. Market", a value-oriented disciplined approach to investing, and the "margin of safety" concept.

"Mr. Market."
The stock market on a daily basis resembles a casino, only without the comfort of free cocktails. Watching the stock ticker is like having a business partner that is totally schizophrenic; Graham calls him "Mr. Market." One day he loves the business and wants to pay a ridiculous price to buy out your half. The next day, all hope is lost, and he wants to sell you his portion for pennies on the dollar. Graham argues that this daily liquidity is an advantage that most investors turn against themselves: (p. 203) "But note this important fact: The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all; for he would then be spared the mental anguish caused him by other persons' mistakes of judgment." This is profound. It's not a question of whether our stocks will drop; they will: the trick is how we respond to that eventuality.

Ben Graham's Stock selection for the defensive investor.
Graham lays out some important characteristics of "value" stocks. (p. 348). Some of the metrics are dated, but the principles are still valid. Even deep value investing today would seem like GARP investing to Ben Graham. Investors are now more focused on future earnings than they were in his day, and valuations reflect that. Graham recommends:
a. Adequate size of the enterprise (>$100M revenue, old figure)
b. Sufficiently strong financial condition (2:1 current ratio)
c. Earnings stability (some earnings every year last 10 years)
d. Dividend record (uninterrupted payments for at least 20 years)
e. Earnings growth (1/3 increase in per share EPS past 10 years)
f. Moderate price/earnings ratio (P/E < 15x average last 3 years EPS)
g. Moderate ratio of price to assets (price/book < 1 1/2 times)
h. Overall stock portfolio, when acquired, should have an overall earnings /price ratio- the reverse of the P/E ratio - at least as high as the current high-grade bond rate. A P/E no higher than 13.3 against an AA bond yield of 7.5%

Margin of Safety as the central concept of value investing.
This is an investment rule that was written by a man who had been deeply bruised by bear markets. I believe he came up with this by learning from his losses. When the market turns into a storm of feces, like it inevitably will, if the stock has no earnings to rely on, you have nothing to grab onto. You can't make yourself stay in the stock when the price is down. Graham says: (p. 515) "The margin of safety is the difference between the percentage rate of the earnings on the stock at the price you pay for it and the rate of interest on bonds, and that is to absorb unsatisfactory developments". Furthermore he writes: (p. 518) "The buyer of bargain issues places particular emphasis on the ability of the investment to withstand adverse developments. " You can and will still lose money in the market with value-oriented investing, but according to Graham: (p. 518) "The margin guarantees only that he has a better chance of profit than for loss-not that loss is impossible."

Conclusion
So that's it, those are the three basic points of the book, but you should still buy it and read it, it's a very enjoyable experience, Shakespeare for the investing crowd. Despite being a realist, Ben Graham wasn't a total pessimist. Late in the book Graham makes a point that is one of my favorites: (p. 524) "A fourth business rule is more positive: "Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it- even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right. Similarly, in the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand. "

A worthwhile read, with relevant commentary
Graham's writing is clear, concise and level-headed. He warns against unreasonable financial expectations and proceeds to explain his theories in sufficient detail to be worthwhile, without being over the comprehension of the layman interested in investing.

The book is lengthy and "solid", as opposed to other finance books that hope to explain investment in 100-200 pages. Topics include stocks vs. bonds, inflation, security analysis, and margin of safety (Graham's analysis of the assets of a company in relation to its debt). Zweig's commentary is useful, with footnotes to clarify historical references and, occasionally, demonstrate instances where Graham's predictions proved untrue. At the end of each chapter, Zweig uses recent (up to early 2003) examples of Graham's concepts to make things clearer to modern readers. (Graham's text itself is his 1973 revision to the original 1949 edition.) Also helpful are numerous references to online articles at various sites (I cannot yet vouch for these links' present state.)

Based on my understanding, I highly recommend this edition to anyone interested in this book. I feel that I gleaned more from this annotated edition than I would have from the original, without having to conduct additional research.

Look in the Mirror First!
Since I am retired and trying to manage my own portfolio, I figured this would be the book to read. I know how to pick 4 or 5 star funds and diversify well enough, but I don't have enough theory or any formal financial background at all. I was looking for a classic book on the subject, one that a financial novice could understand, and decided to read this one.

Benjamin Graham is known as the Father of Value Investing and was the mentor of Warren Buffett, the most successful investor of all time. Warren Buffett called the Intelligent Investor `the best book about investing ever written.' He believed in defensive, value investing, and famously summarized his philosphy as follows: "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."

I found that `value investing' means that you buy only something that is being sold below its actual value, like buying dollar bills for 40 cents each, he said. One should take the quantitative (statistical) instead of the qualitative (predictive) approach, since no one can forecast the future anyway. Look at what a security is really worth in a business-like way, just like you would do for any purchase, ignoring what others might think. Do your homework is what he is saying!

According to Graham, almost everybody, me included, does investing wrong. You are supposed to buy low and sell high, but most folks buy when the price is going up and sell when it is coming down. `Mr. Market' is very emotional and encourages stampedes toward whatever looks good at the moment, and away from investments that seem spent. This very act of buying and selling creates updrafts and downdrafts in the market which causes disparity between what the price is and what the price should be for a given investment. Eventually the true value of an investment comes to fore when things settle down. The maxim he uses for this is: the market is a voting machine in the short run and a weighing machine in the long run. The investors `vote' for an investment which drives the price up; later, the investors find out what the investment is really worth, and the price settles into it's real value. He cited convincing examples in the tech-bubble era of the late 90's where stock prices ascended to ridiculously high levels and then came crashing down to almost nothing, and their stock shares became like Confederate money, worth only slightly more than the paper they were printed on.

In general, his theory runs counter to the speculative, get-richer-quick investing that seems standard for most of us. Stay away from gimmicks like market-timing and formula investing (chasing after perceived patterns in the market). Be boring, he says, and go for something steady and sure. Don't try to beat the market; just try to keep up with it. If you don't want to do the necessary homework, buy index funds. He touts ignored `secondary' or `unsexy' companies, the ones that don't have big names, or ones that produce boring products. It was interesting that when Graham was asked why he was unafraid of losing his edge by proclaiming value investing, he joked that his books are' the most over-read and under-used books on finances ever written'. If, indeed, everyone did value investing, there would be no bargains left out there. We are talking about something that works, but that no one wants to use!

A cornerstone of the defensive investing philosophy involves building in a good margin of safety by buying investments at as far below actual worth as possible. He also talks a lot about managing risk by patience and self-control; he says: `Don't just do something, stand there!' In some sense, this book is more about the person making the investments than the investments themselves. In essence, if you want to know what risk is, look in the mirror! In other words, it's not about how much risk you can tolerate; it is about how much investigation you are willing to do. He mentioned Pascal's Wager as a graphic example of how to think of the consequences when taking on risk - - - if one wagers as to whether God exists or not, he is better off betting He does; otherwise, though the rewards could be a little better, the consequences could be eternally worse! (This was, to me, a fairly heavy-handed but instructive parallel.)

Watch out for the shenanigans of the accountants when you read the financial reports. Words and phrases like pro-forma, nonrecurring charges, special charges, and good will could be euphemisms for a smoke screen. I also learned the phrase `kitchen sink accounting', which puts all possible losses into one year, which distorts the picture but gives good tax results for the company. The lesson is to not ignore the footnotes and to read the statements to the end.

Consistent with his philosophy, Graham does not believe in the prevalent Efficient Market Theory (or EMH), which says that investments have the correct prices because there is so much, widespread information readily available on every investment. He basically believes, and gives many good examples, that the public is not interested in digging into the nuts-and-bolts financial information, but is only interested in what is popular. In a word, an investor needs to make sure he understands what he is investing in, and make business decisions instead of emotional decisions about it. He says that the finances are really not very complicated, and it's more about character than brain.

The first edition of this book, written in 1950 and was revised several times before Graham died in 1976. Since it was a little dated as far as market history is concerned, Jason Zweig wrote commentaries on each chapter to bring it into the 21st century. Graham, as a product of his day, talked mostly about stocks and bonds, and less about funds, and he over-emphasized, in my opinion, the importance of dividends. Zweig says that diversity has replaced value today. Also, dividends are no big deal today for most investors since the total return (NAV + dividends) is what really matters. Another thing is that Graham lived through the Depression and saw that it took 25 years (to 1954) for the market to reach the levels of pre-Crash 1929; this might have made him defensive.

I'm glad I read the book. It gave me perspective on how the market works, though I'll still stick with diversity over value, especially since I invest almost entirely in funds. He did not have to scare me off on individual stocks, but he did convince me to do more homework and to try to be more business-like in my financial decisions, and - - - to look in the mirror first.

An Interesting Read
Graham is without doubt an intelligent man whose insights into investing are worth reading. This book, while dated in its examples, is not dated where it counts - intelligent investing philosiphies. The essay written by Mr. Buffet at the end of the book is also very informative and also enjoyable to read.

However, as always with such books there comes a caveat. Mr. Zweig's commentary through the book is not of the continuously high standard with which Graham writes. It disrupts the flow of the book and detracts from the overall experience of reading Graham's fine work. My suggestion is to ignore Zweig's commentary and footnotes until you find there is something that you don't understand or want further thoughts on. Zweig provides a few cutting insights, but only a few.

Dispite this the books value is not diminished - it's well worth your time and your money.

A must read for Fundamental Investors
First, I just want to say that many of you might find this book boring to read. If that turn out to be the case, you can read the commentary (which uses more relevant and recent examples) for each chapter by Jason Zweig, which is worth the price of the book alone. I got tempted to read the commentary only but I forced myself to read the entire book and I'm glad I did it. Warren Buffett is right, this is the best book on investing ever written, by far. This is one of the reasons in my opinion why Warren himself never write an investment book (plus the fact that it is not easy to explain Warren's intelligent on a paper. Instead just learn from what he does).

Now about the content of this book, it tells you everything you need to know about the investing field (not only stocks, but business in general, bonds, macro economy to some extent, psychological factor of the market, strategy for defensive and speculative investors etc).

Secondly, Warren Buffett highly recommend this book and his favorites are chapter 20 (Margin of safety) and chapter 8 (Investor and market fulctuation). Margin of safety should be the central concept of your investment, and understanding how the market works (and the mood and inconsistencies of Mr Market) should be the second thing that you need to know before jumping into the market.

I also find the chapter 11 (security analysis for lay investor) very educating as it teaches us to value the future of a business (breaking down into 3 area:
1. Long term prospect
2. Quality and conduct of management
3. Financial strength and capital structure

Additionally the comparison of eight companies (chapter 18) very practical and eye opening. I won't spill the content right here but when I read them, it feels like common sense to me, but back (during the tech bubble) then I was involved in several similar stocks that I shouldn't have touched with a ten feet pole.

The bonus chapter "The Superinvestors of Graham-and-Doddsville" by Warren Buffett is a classic reading. This article shows how inefficient the market can be, and argue that most of the time the market is not efficient. I have become a believer that the market is not efficient (after many years believing that the market is very efficient as the business school has taught me)

This book also cover several useful metrics that we can use to value a company in addition to just looking at EPS or PE ratio, such as the ROIC (Return on Invested Capital) etc.

In general, Ben Graham focuses a bit more on capital preservation (shown by focusing on margin of safety, dividend policy, and stocks priced below its tangible book value strategy.) which I think are really important, but one need to understand that there's more to investment than just those things (such as long term groth/the business itself and management) which are also covered in book.

This book would not serve as your investing philosophy, but it should help you create your own investing philosophies. It will help you find what your strength (defensive or enterprising) is and find/form your circle of competence. And as a minimum, this book will increase your confident when dealing with the stock market.

Last but not least, also read "Common Stocks and Uncommon Profits" by Philip A. Fisher and "One up on Wall Street" by Peter Lynch to complement this book.

Happy Investing!

Sidarta Tanu ... Read more

Editorial Review

The New York Times bestselling Freakonomics was a worldwide sensation, selling more than four million copies in thirty-five languages and changing the way we look at the world.

Steven D. Levitt and Stephen J. Dubner return with Superfreakonomics, and fans and newcomers alike will find that the freakquel is even bolder, funnier, and more surprising than the first.

SuperFreakonomics challenges the way we think all over again, exploring the hidden side of everything with such questions as:

• How is a street prostitute like a department-store Santa?
• What do hurricanes, heart attacks, and highway deaths have in common?
• Can eating kangaroo save the planet?

Levitt and Dubner mix smart thinking and great storytelling like no one else. By examining how people respond to incentives, they show the world for what it really is—good, bad, ugly, and, in the final analysis, super freaky. Freakonomics has been imitated many times over—but only now, with SuperFreakonomics, has it met its match.

Reviews

The idea is to make you THINK!
I had to laugh as I read some of the negative reviews. Listen people, it's not intended to be a TEXTBOOK, nor is it written like one, thankfully. I've read both books. Super Freakonomics is a good exercise in critical thinking (something that is becoming sorely lacking in the age of American Idol, thanks to our putrid public schools and Playstation parenting); it makes you think about a lot of "truths" that we take for granted. For example, this book actually made me change some of my thinking about global warming. The book is super-interesting, and full of information that you'd be hard-pressed to find in your typical daily reading; and, it "sexes-up" the fields of microeconomics and behavioral economics. One of the points (relentlessly made) is how we (especially our governments) seem to prefer complex, costly solutions to problems, when cheaper, simpler solutions often exist, and the book does a great job of providing many examples of this. Is it a definitive tome on the many topics it covers? No - again, it's not a textbook, but it was definitely worth the time I spent reading it - I hated putting it down.

Economics can be Fun
I thoroughly enjoyed this book. It sheds light on why I bothered studying for a degree in economics at university. Yes, economics can be fun. It's a pity it gets such a bum rap. Why should it be called the "dismal science"?

Steven Levitt and Stephen Dubner have written an amusing and readable book. It's full of anecdotes and whimsical stories without ever seriously veering from the science of microeconomics which is its basis. The two Steves have researched an array of topics from street prostitution, to hospital deaths in the 19the century before opining upon global warming and how it might be resolved if, indeed, it is a problem. It's this final point that I particularly loved. Global warming has become a modern religion. It has its own dogmas and turns a blind eye to anyone who questions the "rules". I am quite confident that, in due course, global warming will be solved but it won't be by the na�ve and cack handed solutions that greens put forward. It will be economics that comes to the rescue. This has always been the history of the world and I see no reason why this should change now.

Perhaps the most pleasant feature of "SuperFreakonomics" (and its predecessor "Freakonomics") is that it brings economics away from the realm of stuffy ivory towered professors and their arcane theories and formulas. Instead, economics is presented as something to enjoy. This is the book's real strength. I can only hope that this technique has introduced economics to a wider audience.

However, before finishing up, I find myself wondering which of the "case studies" amused me the most. I think it was the story about travel in New York City and how horses caused more deaths per capita than cars. It's ironic then that the car is seen as the work of the devil by some when, in fact, it has been a great liberator of the human race. Yes, "SuperFreakonomics" is a great read. Read it and enjoy.

An entertaining read
I really enjoyed reading this book. It was a quick and interesting read. I enjoyed the diverse topics, walking drunk, global warming/cooling, externalities, etc.

Reading the negative comments I admit I don't find them baseless. However, I don't take the book as the concrete authority on all things. I feel the books main purpose is to open the mind and allow a different perspective to swirl around for a while; which it does.

You just gotta think outside the box!
Economics may not be considered one of the sexier sciences. But, first with "Freakonomics" and now with "Super Freakonomics", rogue economists and best-selling authors, Steven D Levitt and Stephen J Dubner, have proven that economics can be fascinating, funny and out-of-the-blue surprising as well!

No cow is so sacred as to escape the scrutiny of Levitt and Dubner's micro- and macro-scopic analysis. For example, would any of us have thought to question the value of infant car seats in preventing child injury or deaths in car accidents? I certainly wouldn't have but Levitt and Dubner show that children's car seats are no more effective than regular seat belts at preventing injury. How many millions (or billions) of dollars are swirling into a voracious black hole in pursuit of this particular sacred cow?

I expect their tongues were planted firmly in their cheeks when they examined the economics of pimping and street prostitution, but I, for one, found the analysis of the precipitous decline in the cost of oral sex to be absolutely fascinating. Not only is Levitt and Dubner's analysis interesting economics but their conclusions say a great deal about the evolution of world culture.

Is global warming a reality? Who knows for sure but, whether it is or it isn't, Levitt and Dubner have presented a rather critical commentary on the economics of possible solutions to a problem that may well be considerably less daunting and costly to solve than the likes of Al Gore would have us believe. While "Super Freakonomics" may smack of libertarianism, it's hard to argue with Levitt and Dubner's broader conclusions that government policy frequently falls victim to the law of unintended consequences and that governments rarely, if ever, choose a small-scale inexpensive solution to a problem when a flashier, bigger and more expensive solution is available.

With no punches pulled, "Super Freakonomics" might be brash and cheeky and it certainly isn't textbook economics, but it is thoroughly entertaining and informative. If it causes any voter to raise an eyebrow and question government policy more critically or if it causes any consumer to be more wary of future purchases and less accepting of dogma, publicity or advertising on faith, then Levitt and Dubner will go to bed this evening pleased with the work they've done. And, along the way - what a bonus - it's a certainty that you'll experience a good laugh or two! Highly recommended.

Paul Weiss

There were many passages that actually got me shaking my head in wonderment.
If you liked FREAKONOMICS by Steven D. Levitt and Stephen J. Dubner,
you'll love this follow-up . . . it's similar in format, in that there are again a bunch
of stories that show the impact of incentives on our lives

But as the catchy subtitle implies, there's a lot of new stuff here, too:
GLOBAL COOLING, PATRIOTIC PROSTITUTES AND WHY SUICIDE BOMBERS
SHOULD BUY LIFE INSURANCE . . . the chapter headings and the descriptions
that follow also have you wanting to find out the answers to such provocative
questions as:

What really accounts for the male-female wage gap? How can you tell a good doctor
from a bad doctor? How much good do car seats do? And a whole lot more.

There were many passages that actually got me shaking my head in
wonderment; among them:

* The U. S. charity Smile Train, which performs cleft-repair surgery on poor children
around the world, recently spent some time in Chennai, India. When one local man
was asked how many children he had, he answered "one." The organization later learned
that the man did have a son--but he also had five daughters, who apparently didn't
warrant a mention. Smile Train also learned that midwives in Chennai were sometimes
paid $2.50 to smother a baby girl born with a cleft deformity--and so, putting the lure
of incentives to good use, the charity began offering midwives as much as $10 for each
baby girl they took to a hospital for cleft surgery.

* But Title IX also brought some bad news for women. When the law was passed, more
that 90 percent of college women's sports teams had female head coaches. Title IX boosted
the appeal of such jobs: salaries rose and there was more exposure and excitement. Like
the lowly pleasant food that is "discovered" by the culinary elite and promptly migrates
from roadside shacks into high-end restaurants, these jobs were soon snapped up
by a new set of customers: men. These days, barely 40 percent of college women's
sports teams are coached by women. Among the most visible coaching jobs in women's
sports are those in the Women's National Basketball Association (WNBA), founded thirteen
years ago as a corollary to the men's NBA. As of this writing, the WNBA has 13 teams and
just 6 of them-again, fewer than 50 percent- are coached by women. This is actually an
improvement from the league's tenth anniversary season, when only 3 of the 14 coaches
were women.

And then there was this tidbit that also got me rethinking some conventional
wisdom about something that seemingly sounded like such a good thing:

* Consider the Americans with Disabilities Act (ADA), which was intended to safeguard
disabled workers from discrimination. A noble intention, yes? Absolutely--but the data
convincingly shows that the net result was fewer jobs for Americans with disabilities. Why?
After the ADA became law, employers were so worried they wouldn't be able to discipline
or fire bad workers who had a disability that they avoided hiring such workers in the
first place.

I also liked the thorough documentation (some 36 pages) and, also, that the authors
didn't include this at the bottom of each footnoted page . . . rather, they put it at the
end of the book as "Notes," which is something that I wish others.

My only disappointment was in the last chapter on global warning . . . Levitt and
Dubner took potshots at Al Gore, which of course is their right to do so . . . however,
they then spent much time promoting the ideas of scientist/entrepreneur Nathan
Myrhrvhold and his crew . . . the reality is that while Myrhvhold might be onto
something, nothing yet has been proven to work.

... Read more

Editorial Review

A brilliant new reading of the economic crisis—and a plan for dealing with the challenge of its aftermath—by one of our most trenchant and informed experts.

When the nation’s economy foundered in 2008, blame was directed almost universally at Wall Street. But Robert B. Reich suggests a different reason for the meltdown, and for a perilous road ahead. He argues that the real problem is structural: it lies in the increasing concentration of income and wealth at the top, and in a middle class that has had to go deeply into debt to maintain a decent standard of living.

Persuasively and straightforwardly, Reich reveals how precarious our situation still is. The last time in American history when wealth was so highly concentrated at the top—indeed, when the top 1 percent of the population was paid 23 percent of the nation’s income—was in 1928, just before the Great Depression. Such a disparity leads to ever greater booms followed by ever deeper busts.

Reich’s thoughtful and detailed account of where we are headed over the next decades reveals the essential truth about our economy that is driving our politics and shaping our future. With keen insight, he shows us how the middle class lacks enough purchasing power to buy what the economy can produce and has adopted coping mechanisms that have a negative impact on their quality of life; how the rich use their increasing wealth to speculate; and how an angrier politics emerges as more Americans conclude that the game is rigged for the benefit of a few. Unless this trend is reversed, the Great Recession will only be repeated.

Reich’s assessment of what must be done to reverse course and ensure that prosperity is widely shared represents the path to a necessary and long-overdue transformation. Aftershock is a practical, humane, and much-needed blueprint for both restoring America’s economy and rebuilding our society. ... Read more

Reviews

An important book offering critical insight into the true cause of the economic crisis
AFTERSHOCK may well be the most important book written on the current economic crisis. I say this because it offers a critical insight that I have seen in very few other places: The fundamental cause of our problems is the relentless drive toward income concentration. The problem with concentrating income into the hands of a few people is that you take money from millions of people who would spend nearly all of it, and give it to a tiny number of people who can't and won't spend it -- but will instead save it, gamble with it, or invest it offshore. The end result is simply too few viable consumers to drive the economy.

Reich points out that income for American middle class families has been essentially stagnant or declining for over three decades. The middle class has coped with this in three basic ways: (1) Women have entered the workforce, (2) People worked longer hours, and, of course, (3) We all relied on debt (credit cards and home equity loans) rather than income to support our consumption. Those coping methods are now exhausted, and we are left in a position where average Americans simply do not have sufficient discretionary income to support a sustainable recovery. The great American consumer class -- which was the driving force behind our prosperity in the 1950s and 1960s -- has been largely decimated.

To his credit, Reich correctly identifies globalization and, especially, automation technology as primary forces behind declining middle class wages. At the same time, rather than enacting countervailing policies, the United States (beginning with Reagan) has gone in the exact opposite direction and adopted a conservative agenda that has actually accelerated the trend toward income concentration.

The one shortcoming of the book is that Reich -- not being a technologist -- fails to anticipate how advancing technology is likely to dramatically worsen the situation in the relatively near future. As someone who works in this area, I can tell you that the degree of progress we are soon likely to see in automation technologies is historically unprecedented.

To get a sense of what we may face in the future, I would strongly recommend that this book be read in conjunction with Aftershock: The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future. Both books offer an eerily similar analysis of the crisis -- both concluding that the problem is a dearth of viable consumers. Both books also propose very similar solutions: direct income supplementation. Reich proposes a negative income tax (which was supported by free-market icon Milton Friedman).

Anyone who wants to understand the current crisis and the danger we face in the future should read both "Aftershock" (for its emphasis on political and social implications) and "The Lights in the Tunnel" (for insight into how technology and globalization will continue to transform the economy -- and lead to an even more severe crisis, if we do not act ).

"History does not repeat itself, but it sometimes rhymes" Mark Twain
Every middle class American should read this book. Many observations about income disparities have been written up lately but Reich pulls the important points together in a powerful and accessible way.

Reich's main thesis is that the current transition the US economy is under is misunderstood. Many of the policy elite (Geithner, Volcker) have repeated the familiar claim that Americans are living beyond their means. Personally I don't discount that completely but Reich's insight goes much deeper and rings truer: "The problem was not that American spent beyond their means but that their means had not kept up with what the larger economy could and should have been able to provide them."

"We cannot have a sustained recovery until we address it. ... Until this transformation is made, our economy will continue to experience phantom recoveries and speculative bubbles, each more distressing than the one before."

Anyone looking at the unemployment data since WWII has to wonder why the unemployment component of the last three recessions is so prolonged. Instead of a sharp trend up, there are long slopes of delayed returns to peak employment. (Google "calculated risk blog" and look at Dec. 2010 articles.) I believe Reich has demonstrated the main culprit this. To be clear, he is not describing the detailed mechanics of what triggered the Great Recession. (Nouriel Roubini has a good book that I would recommend for more on the financial fraud, leverage and credit risks involved - Crisis Economics: A Crash Course in the Future of Finance. ) But Reich is taking a long term view and exposes a dysfunctional trait of the US economy that no one can afford to ignore. It is this weakness that will delay the current recovery and continue to create greater risks in the future.

Reich draws the parallels between the Great Depression and the Great Recession, particularly the imbalance of wealth concentrated in fewer hands and middle class workers with less income to convert into consumer demand. One of the fascinating devices he found to do this was the writings of Marriner Eccles (Fed chair between '34 to '48):

"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth - not of existing wealth, but of wealth as it is currently produced - to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."

Reich also shares a couple of powerful and disturbing graphs that show how the middle class has been squeezed and also how since the late 70s, hourly wages have not only not kept up with the rise in productivity but have remained essentially flat.

Another driving theme Reich presents is the "basic bargain" and he evokes Henry Ford, the man that took mass production to new heights and paid his workers well:

"[Henry] Ford understood the basic enconomic bargain that lay at the heart of a modern, highly productive economy. Workers are also consumers. Their earnings are continuously recycled to buy the goods and services other workers produce. But if earnings are inadequate and this basic bargain is broken, an economy produces more goods and services than its people are capable of purchasing."

I was concerned early in the book that Reich would leave out some of the important complexities of the topic but he covered related finances, politics and even consumer/voter psychology in a succinct yet informative way. His summary of changes to the labor market in the last 30+ years was very good.

His ideas for correcting this were interesting if perhaps difficult to implement politically. My take away however was that this is a strong indicator of how bad he thinks the situation really is. Many Americans may be yearning to return to "normal". Reich is the first to thoroughly convince me that it is not going to happen.

This is a very quick read of 144 pages and is well worth the time.

The Widening Income Gap and the Beleaguered Consumer
The defining statistic of this book is the fact that by 2007 the top 1 percent of America's earners garnered 23 percent of the nation's income. It hasn't been that high since 1928 which of course was right before the Great Depression. Robert Reich thinks that this is one of the reasons we are now in the Great Recession. The recovery, if and when it starts, will be very weak since the middle class has not gained any real buying power for the last 30 years.

Consumers constitute 70 percent of all economic activity in the United States, and if they are no longer employed or overburdened with debt they can no longer be the engine of growth that drives the economy. Many say that this figure is too high and that consumers should learn to live within their means. Reich, on the other hand, thinks their means should be increased.

There was time in American history that Reich refers to as the Great Prosperity, the years 1947-1975. (Read also Reich's book Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (Vintage) for more on this period.) This was a time when income was more equally distributed. The top 1 percent received about 9 percent of the nation's income. The top marginal tax rate ranged from 70 to 90 percent.

During the Great Prosperity a single earner - usually male - could provide a middle class lifestyle for an average family. Since then wages have stagnated and families have found other ways to increase cashflow. Over the years women entered the workforce, people worked two or three jobs, and finally, during the last decade, they lived on credit cards and home equity to maintain middle class lifestyles. Now they have run out of sources of income.

Reich makes some suggestions that will have his critics up in arms. One of his proposals is a more progressive tax rate. In his plan the top 1 percent - those making over $400K anually - would pay a 55 percent marginal rate. This would be a relatively mild increase compared to the era of Great Prosperity. The top 2 percent would pay a 50 percent marginal rate and the top 5 percent would pay about 40 percent.

On the other end of the spectrum, those earning less than $20k would be supplemented and the large middle class - those with incomes ranging from $50k to $160k would be paying anywhere from a 10 to 20 percent rate. He believes something of this magnitude needs to be done to get the economy growing again. But it won't happen in the current political climate.

Many say progressive taxation and redistributive income is unfair, or worse yet, confiscatory. The fact of the matter is all taxation is redistributive. Taxation is the price of civilized society - to borrow from Oliver Wendell Holmes.

The current Tea Party movement is doing the bidding of the super rich. They are terrified of the poor and, in their view, the undeserving ending up with some of their money. Unbeknownst to them, the better off the poor and the middle class are, the better off the super rich will also be. Reich's modest proposal will not only strengthen the economy, it will also strengthen our democracy.

It's the ridiculous income gap, stupid!
We are slowing becoming more and more like third-world countries: a few ridiculously rich people; too many poor people; and what used to be the middle class joining the later. If anyone tries to point this out or do something about it the apologists for the rich (i.e., G.B. & R.L.) immediately cry "CLASS WARFARE".

Robert Reich's Aftershock rationally and succinctly explains the mess we're in and offers solutions that should be adopted by the Obama administration ASAP. Unfortunately, if they try, Republicans and Tea Partiers will scream "SOCIALIST" but offer no alternative.

Excellent source of solutions than mere theories
Okay so I actually bought this book through Audible but it still is his book. I found it to be very practical and relevant given the situation we are in. The remarks regarding ' The Independent ' party didn't surprise or shock me. R.R is known for his acumen, intelligence and his ability to bundle complex theories into simple text and understanding context. While explaining the current economic situation, he didnt get into what is a CDO, M&As, MBRM, ETFs and all the Wall street terms. Rather he focused on the core issues and provided explicit and specific solutions to back his ideas. That's what made this book different than others where we only hear what happened and what would've happened instead of solutions.

I would highly recommend this book if you want some insights into how we got here and how we get out of this mess. I liked it

Beautiful, relevant but fatally flawed



Fascinating, but fatally flawed; although Reich is probably the most knowledgeable, candid and relevant observer of the Washington Insider Establishment, he is flawed in expecting any sudden major change.

In America, where a two-cent rise in postage stamps is cause for major outrage, "change" comes on little cat feet. It's the fatal flaw of Obamania with its brilliant rescues of Wall Street and Detroit auto makers plus reforms of health care and the financial industry; it's these revolutionary successes that have infuriated voters.

Gratitude? "Wail Street" cried all the way to the Treasury; then, like pigs with their snouts in the trough of public money, stampeded the farmer who just filled their feed bowl. In his final 'How It Could Get Done' chapter of five and one-half pages, Reich offers a rational but revolutionary plan to rescue the Middle Class from 30 years of stagnation.

It took 30 years for the "vested interests" with their Greed Is Enough mantra to vastly increase their share of American earnings and wealth. However, in America, revolution won't work; this is a society that trusts gradualism instead of upheaval. President Barack Obama failed this test of the American character; he expected a miracle from "Change" and instead got doubt, suspicion and fear.

So much for Reich's conclusion. The other 134 pages are a cogent analysis of America from the Great Depression to the Great Prosperity and downward into the current Great Recession. Only the Super Rich are liable to disagree, primarily because Reich explains how they are usually the problem and never part of the solution.

It's this analysis that makes this book so worthwhile. Granted, Reich cites more than the Super Rich -- even they aren't astute enough to cause all problems -- but the first step toward a solution is understanding the origins of the problem. Instead of rants and raves about the current mess, Reich offers a succinct and practical analysis.

But then,who listens to intelligence instead of emotion in politics?

Our economy, a clear and concise explanation
A very readable and interesting review of our economy, and what brought the US economy to the point it is today. This book helps to clarify what really has happened to our economy and why. Reich makes a good Rx of what could be done to help our economic future to be more equitable, by restoring the "basic bargain". I would highly recommend this book to anyone wanting to cut through all of the chatter on the "news" and have a better sense of what needs to be done to make a brighter future for us in the "middle class". ... Read more

Editorial Review

Why do our headaches persist after we take a one-cent aspirin but disappear when we take a fifty-cent aspirin?

Why do we splurge on a lavish meal but cut coupons to save twenty-five cents on a can of soup?

When it comes to making decisions in our lives, we think we're making smart, rational choices. But are we?

In this newly revised and expanded edition of the groundbreaking New York Times bestseller, Dan Ariely refutes the common assumption that we behave in fundamentally rational ways. From drinking coffee to losing weight, from buying a car to choosing a romantic partner, we consistently overpay, underestimate, and procrastinate. Yet these misguided behaviors are neither random nor senseless. They're systematic and predictable—making us predictably irrational.

Reviews

Made me think through some things I'd overlooked about market behavior
I have been thinking about economics seriously for nearly 30 years. Classical economics is built to no small degree on the notion that people will generally act in their own best self interest, after rationally and intelligently examining their options. This fit my world view fine in my first career as an engineer (BS and MS in Electrical Engineering).

From my 2nd Career as a Business Development person (MBA), I began to have to deal with people's tendency to not entirely think things through.

Here in this book, we have a professor who runs socioeconomic tests on his MBA students. These students are smart enough, worldly enough, experienced enough, and educated enough to approximate the standard economic assumptions and produce reasonably rational behavior.

Guess what. Even among broad experiments conducted on multiple MBA classes over time, one can predictably pre-bias the outcome of a particular run of a socioeconomic experiment by what seeds you plant in the class members' minds before the experiment. For example, in one experiment in estimating prices, the author requires his students to write the last two digits of their social security numbers on the top of the paper. Simply the act of writing a high number (e.g., 88) versus a low number (e.g., 08) produced statistically significant correlatable influences on the students' later price estimates. Those compelled to write "88" at the top of their papers would reliably estimate higher prices than those compelled to write "08" at the top of their papers, to a statistically significant degree.

Extrapolating to "real life." Watching Fox News will tend to make you more conservative without you knowing it. Watching MSNBC news will tend to make you more liberal without you knowing it.

If you want to understand "real truth," you are just going to have to do a little more than self-select your news feeds. You are going to have to seriously consider a diversity of viewpoints.

Moreover, if you have Social Darwinist beliefs as I once did, you may need to re-think the concept of the Poverty Trap. Early pre-conditioning really does make a difference.

Here is the way I think of it as an Engineer. Classical Economic Theory is analogous to Classical Newtonian Physics. There is nothing badly wrong with it, and it is a good approximation for most real world problems at the middle of the distribution.

However, General Relativity is indeed more correct that Classical Newtonian Physics, and the additional knowledge makes a real difference in certain special cases. And, those special cases are sometimes the really important ones. Likewise, Behavioral Economics is adding something very valuable to our knowledge of Classical Economics.

Read this only if you are brave enough to contemplate that the world might be a little more complex than we wish it were.

An excellent book which provides valuable insights
This book and Dan Ariely have recieved a lot of media attention, so I approached the book with some skepticism, thinking that it might be overhyped. I'm pleased to report that my skepticism turned out to be unwarranted.

The book has many strengths, the main one being that it convincingly presents many ways people are wired and/or conditioned to be irrational, usually without even being aware of it. This eye-opening revelation can be a bit disheartening, but the good news is that we can fix at least some of this irrationality by being aware of how it can arise and then making a steady effort to override it or compensate for it. That's not an easy task, but it can be done. As a simple example, I've programmed a realistic exercise schedule into my PDA, and I've been very consistent with my exercise because of that. The PDA imposes a discipline on me which I couldn't otherwise impose on myself (as I know from experience).

The book is also well written, and I would even say enjoyable to read. The many experiments described in the book are presented in a lively way which elicits interest, and Ariely goes into just the right amount of detail -- enough to convey the basic experimental designs, results, and plausible interpretations, without boring the reader by getting into esoteric points which are more appropriate for journal papers.

The one criticism I have of the book, which applies to most of Western pscyhology, is that most of the described experiments used US college students as subjects. That raises a serious question regarding the extent to which the results can be generalized to people of the same age who aren't college students, people of other ages, and people outside the US. Study of cultural psychology reveals that differences due to these factors can be profound, and Ariely himself notes a Korean study where such differences were observed, but he doesn't really elaborate on the point.

Despite this one criticism, I think this is an excellent and authoritative book, and among the better ones in the "why smart people do dumb things" genre, so I highly recommend it. The insights revealed are both fascinating and practical, if you can muster the discipline to apply them.

Brilliant look into behavioral economics
I enjoyed this book in much the same way I enjoyed Freakonomics. Whereas Freakonomics explores real-life examples of economics, Ariely's book discusses experiments that demonstrate principles of behavioral economics.

Ariely shows through a series of experiments that people are not the rational consumers of legend. People predictably overvalue things they already own, go after free things even if there's a better deal available, and do many other things that don't make sense. People's reactions are consistent, thus predictable, even if they're not optimal from a pure economic viewpoint - hence the title of "Predictably Irrational."

Throughout the book, Ariely discusses how the failure of many economists to consider behavioral economics has led companies and governments to bad decisions. Policies that seem appropriate if everyone were to make emotionless decisions fall apart when you consider that people are, well, human.

In Ariely's acknowledgments, he lists several people who helped him figure out how to write in "non-academese." Having read many books written by professors, I'd say he received excellent assistance in this area. His writing style is engaging and easy to follow.

This was one of the best books I read this year.

This was really an eye-opener
We like to believe that we are rational. Many investment philosophies are based on efficient market theory, which assumes that market participants are well-informed and act rationally. I always found efficient market theory to be flawed, because when I looked at individual investors, I would get surprised more and more every day by how irrational their behavior was. So how it is possible for markets to be efficient, when most investors I know are completely irrational? Well, this book has some really good explanations.

The author of this book shows us that even though we believe that we act in a rational way, in reality we act in predictably irrational way. As a result of this irrationality, we frequently make poor decisions with our money, life partners, and health. For example, we tend to overvalue things that we own. We might be made to believe that something works even when it doesn't. A placebo is perfect example.

This book was really an eye-opening experience. We all do the things the author talks about. As I read this book, I kept catching myself and saying, "Yes, I did this, too." I enjoyed reading this book, and I would recommend it.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

Lots to think about
It is a fantastic read, some people have a problem with the authors' assumptions and methods but I think they are trying to dig too deep and they appear to have forgotten this is a new way of thinking. The only thing I would like to see different in the book is more detail on the experiments, some of them we read the results and their interpretation of the data, but it would be nice to see how the info was gleaned.

Phenomenal Book
Probably the best book I've read yet on behavioral economics. Each chapter is well organized around a specific topic and incredibly thought provoking. I highly recommend it. ... Read more

Editorial Review

One positive side-effect of the recent financial market meltdown that toppled giant, century-old institutions and cost millions their jobs is that it created a strong desire among many Americans to better understand how the U.S. economy functions. In The Little Book of Economics, Greg, Ip, one of the country’s most recognized and respected economics journalists, walks readers through how the economy really works.

Written for the inquisitive layman who doesn’t want to plow through academic jargon and Greek letters or pore over charts and tables, The Little Book of Economics offers indispensible insight into how the American economy works – or, doesn’t. With engaging and accessible prose, the book

• Provides a comprehensive understanding of each aspect of our economy from inflation and unemployment to international trade and finance
• Serves as an insider’s guide to the people and institutions that control America’s economy such as the Federal Reserve and the federal budget
• Explains the roots of America’s current economic crisis and the risks the country faces in its aftermath, such as stratospheric government debt, while offering advice on overcoming these threats
• Walks readers through the basic concepts and terminology they need to understand economic news
• Punctures myths and political spin from both the left and the right with candid and often surprising insight

A must read for anyone who wants a better grasp of the economy without taking a course in economics , The Little Book of Economics is a unique and engaging look at how the economy works in all its wonderful and treacherous ways. ... Read more

Reviews

Connects the dots between economic theory and current economic issues
Greg Ip's Little Book of Economics frames current economic issues in an
easy to read and understandable fashion. It combines economic theory
with real world conditions. Ip provides context to the credit market
crisis, the Great Recession, and to the painfully high unemployment of
recent years. The book also explains in a non-technical fashion the role
of the Federal Reserve, the factors that are considered in the
formulation of policy, and the many unconventional policies of the
Federal Reserve employed during the crisis. I have assigned this book to
my Money & Banking class at Rutgers as a complement to the regular text.
Feedback from the students has been uniformly favorable. I strongly
recommend The Little book of Economics for those with an interest in
connecting the dots between theory and practice, for students who
are looking for purpose in economic theory, and for the more general
reader looking for the forest beyond the financial news trees.

Great, quick primer on the subjects
As someone with a degree in Economics who hasn't worked in the field as directly as Greg Ip, I found this book to be a great review of topics I had long forgotten about. Please don't confuse this with a textbook or a deep dive into any topic. It is to Economics what a cross-country flight is to geography. A lot of overview. A lot of great scenery. You will likely find a topic or two you want to delve in to deeper. Oh, and it takes about as long to read.

Thanks Greg.

Excellent text for public policy classes
The Little Book of Economics is engaging and interesting and written at a level that is perfect for students without much economics background. It gives them a basic understanding of the drivers of the economy and the effects of government policies. As an economist, I'd love to use the IS-LM and aggregate supply and demand framework, but I know from experience that economic models confuse and frighten some Masters in Public Administration [MPA] students. My students can get what they need without the math from Greg's book.

Qucik, Comprehensive, and an Excellent Read
Simply put... this is a superb read. If you are looking for that one book that tells you how the world really works, and want it done quickly, and without having to do any math with letters and funny symbols this is your book.

First-rate introduction for an adult who wants to know
The Little Book series on economics, money and investment is well served by this foundation book which is written so as to be easily accessible and clear about a subject often presented as very complex. It covers the issues that matter to us in our economic lives, shedding light where sometimes we are exposed to nothing but heat. It is a primer that escapes the fury of the Krugman/DeLong or Laffer/Kudlow battle over what theory must prevail in order to correct our employment woes.

This is an ideal book for my grandchildren who are teachers and engineers but with no exposure to economics. It and Jack Bogle's Little Book on funds make a great pair of helpful reads. Both are small enough to be non-threatening to those who live by the computer. It's a way to tell them about the game the real world plays with money and how to participate.

Wonderful (Little) Book
The book is very well written and organized. It's essentially what most people need to know about economics. In fact, I got more useful things out of this book than I did in many of my economics classes back in college. It's definitely worth the price and time to read through this.

Making Sense of Economics
Anyone who reads The Economist magazine on a regular basis has read plenty of Greg Ip's work, as he is one of those nameless journalists who make that magazine what it is. Mr. Ip has taken his considerable skills, knowledge, and understanding of economics and the financial world and used them to research and write a delightful--hard to imagine anyone using that term to describe a book on economics--survey of the field and how it works in the real world. I finished its 237 pages in just under three hours, and I believe I am much better informed as a result. Mr. Ip's work is jargon-free, and his clear explanations of such esoterica as credit default swaps and collaterized debt obligations make them almost seem comprehensible to a non-economist. His strength also lies in the wonderful analogies that are sprinkled throughout the book: one is struck by their aptness and the way they convey the essential image. "A central banker with dovish tendencies," he says, meaning one who cares more about unemployment rates than inflation, "is like a wine critic who drinks Merlot out of a box. Nothing wrong with it, but best kept behind closed doors." The global capital market is like a cookie sheet filled with water. "Just the slightest trip," suggests Mr. Ip, "and water sloshes over the sides." Or, "The job market is a wonderfully chaotic Petri dish in which new jobs are constantly being created or destroyed as new firms grow and old firms die." Neither is Mr. Ip limited to the facility of his analogies. His discussion of the dangers of Chinese holdings of US Treasury bills should be of concern to anyone who thinks about US national security in its broadest sense. "In other words," says Mr. Ip, "if one day China takes a dislike to American foreign policy it may threaten to dump Treasurys, which would perhaps drive up American interest rates. Skeptics note that by hurting its biggest customer this would also hurt China. But then countries routinely put national security ahead of economic expedience: it's why the United States embargoes Cuba." Mr. Ip also explains less portentous concepts like The Economist magazine's Big Mac index (BMI), which uses the local price of a Big Mac hamburger to compare purchasing power parity. Using the BMI and comparing the price of a McDonald's product in the United States and Mexico, Mr. Ip concludes that the peso is 33 percent undervalued against the dollar. Reason enough to visit that country, despite the drug war violence (my suggestion, not his). There is much, much more to this slim volume than can or should be covered in an Amazon review, but this short paean might give some notion of how good I thought it was. All said, it is a book that is well worth anyone's time, especially if you are not a professional economist.

Greg Ip's "Little Book"
Greg Ip has made the dismal science available and attractive. His "Little Book" is a delightful contribution to the literature that packs a great deal into this bite-sized and entertaining walk through the essential ideas behind modern economic theory. Crisp and wonderfully unaffected, it will be useful to students but is appropriate for the business reader who wants to have fun while retaking Economics 101.
... Read more

Editorial Review

This is by far the best thing I've ever read about negotiation. It is equally relevant for the individual who would like to keep his friends, property, and income and the statesman who would like to keep the peace. --John Kenneth Galbraith. ... Read more

Reviews

VERY BASIC INTRO TO NEGOTIATING
Getting to Yes started a revolution in negotiation, both by stressing principled negotiation and in making the material accessible to a very wide audience. It is still a good read, is still taught in universities and continuing education, and is an excellent starting point for people who are new to negotiation but intend a deep study because of its historical significance and its content.

However, having taught Getting to Yes and having used principled bargaining in practice, I think there are a few shortcomings that are dealt with in other books. While Fischer and Ury do make the point that principled bargaining includes sticking to your priciples and not being a pushover, it is not emphasized enough. I have even found myself being too cooperative after reviewing this text because the emphasis is on being cooperative. I think this is a partcular danger for new/lay negotiators, especially if this is the first text they're exposed to or they intend to practice these concepts in daily life. The tone of the book is just a bit too friendly. As a result, there has been a backlash (wrongly, in my opinion) against this text in some quarters.

The verbal judo section at the end is excellent, giving techniques for dealing with unreasonable people that are great. I would've liked more of these very practical tips and examples to go along with them, but the book as a whole is already a lot to digest. Newer versions of GTY do add more material here.

Newer texts take these problems into account. The best, in my opinion, is the follow-on by Ury, "Getting Past No." It can be read without having read "Getting to Yes," although it is very interesting as a follow-on, too. In it, Ury is clearly taking into account the criticism that GTY was too soft and he presents a more robust vision of principled bargaining. ... Read more

Editorial Review

Reviews

The most thought-provoking recent book., May 23, 2010
I found this book a highly stimulating read. It represents possibly the most thought-provoking contribution in the aftermath of the crisis that started in 2007 and that yet engulfs us. Let me first summarize some of the most salient points it makes, then talk about its strengths, and finally, why everyone should read it.

The epilogue of the book summarizes the book best - "The crisis has resulted from a confusion about the appropriate roles of the government and the market. We need to find the right balance again, and I am hopeful we will." The book presents two important government distortions - the push for universal home ownership in the United States and the push for export-led growth in some countries such as Germany and China that have left to massive "global imbalances", with some countries such
as the United States, the United Kingdom and Spain persistently being in deficits and borrowing from the surplus, exporting nations. While pursuit for home ownership affordability and growth are nothing to complain about per se, the book makes sharp observations that they are occurring at the expense of something more, or as, important. In the United States, the book argues, there has been a growing income inequality, which combined with a relatively feeble safety net for the poor, has created pressure on politicians to bridge the inequality. Instead of improving the competitiveness of labor force in a global market with changing mix of industries and required skills, governments have adopted the option "let them eat credit" (Chapter One's title). The presence of government-sponsored agencies in the United States enabled exercising such an option readily through a push for priority lending to the low-income households (sub-prime mortgages). In case of surplus countries, the single-minded focus on exports has led governments to ignore the domestic sector, preventing sufficient redeployment of surplus for internal development and somewhat perversely, boosted domestic savings rates significantly due to lack of adequate safety nets (at least in case of China, if not in case of Germany). The savings have thus had no place to go but to outside and ended up resulting in massive capital inflows that fueled the housing sector expansion in the US, the UK and Spain.

While these government "failures" are themselves pretty interesting to have observed and highlighted, what is fascinating is how they interacted with each other - and with the financial sector - in fueling the expansion to levels that can be called massive housing bubbles. The idea here is that the invisible hand operating through the price when the price is distorted can lead to massive distortions in allocation of capital also. The financial sector in developed world is so sophisticated and amoral (a great choice of word by the author) that its dispassionate pursuit of profits leads it to direct capital to wherever there is a relative mis-pricing. So if governments are subsidizing home ownership, efforts will be made to deploy pretty much all available free capital of the world to that sector. If some governments are finding it cheap to borrow because savings are seeking them out, the financial sector will grow at a sufficient rate to absorb and support expansion through the capital inflows. While clearly there are some incentive-based distortions, especially short-term nature of accounting-based compensation that ignores true long-term risks, the book takes the stand, and explains it well, that the bigger issue was that the imbalance of capital flows and the ease of pushing sub-prime home ownership - both due to government distortions - meant the financial sector was essentially the conduit to make happen what the rest of the world was seeking to achieve. In the process, it made a ton of bad loans (but the governments were happy with that till it all really blew up). And some parts of the financial sector pursued this role even more aggressively than one could have imagined due to the steady entrenchment of too-big-to-fail expectations --- large banks being repeatedly bailed out through government and regulatory forbearance and enjoying Central-Bank monetary stimulus each time markets turned south. In essence, one walks away with an explanation of what brought about the perfect storm.

Some may question the basis of this argument by saying - why did we see credit expansion across board and not just in low-income households. There are two important points the book makes. One, that once risk is mispriced for one investment (by governments for sub-prime lending), financial sector must demand similar return elsewhere. That is, there will be mispricing of risk across board. Second, the book focuses on a rather fascinating recent phenomenon that recent recoveries from recessions, especially in the United States, have remained "jobless" for extended periods of time. Perhaps as a subconscious response to this (or due to ideologies in other cases), Central Banks have tended to provide massive monetary stimulus to get the financial sector to push the real sector hard through greater lending and intermediation. Such stimulus, unfortunately, again serves to transfer rents from households to the financial sector (by keeping interest rates low) and produces mispriced risk and the economy moved "From Bubble to Bubble" (Chapter Five title), until the most recent bubble could not be mopped up by anyone, in spite of the efforts to do so.

Those who have read Raghu Rajan's earlier book and research would recognize that his writings are always cogent and based in sound set of facts. But this book is more special in the sense that here he paints on a much larger canvas, covering bases from distributional issues within income strata of society, to the persistent capital imbalances across large countries of the world, and the power and ruthless profit-maximizing incentives of modern market-based financial sector. The point of Fault Lines is that these are slow-moving tectonic plates, neither movement might seem dangerous by itself, but that when these plates come together and collide, global economy can get badly shaken. To most minds that are focused narrowly on their own positions, let alone the movements of the plate they stand on, the earthquake - like this crisis - may seem sudden. The beauty of the book is in explaining that when viewed carefully, the crisis was not a pure accident and that more may arise in future unless the root causes are addressed sufficiently soon.

While the book is worth it even just for its explanation of why we had a crisis now rather than at some other points of time in the past, it goes the extra mile and proposes valuable reforms - once again focusing on all three issues - building a better safety net in the United States (see in particular, the suggestions to improve education access to all), reducing the global imbalances, and improving the regulation of the financial sector so that they (and their financiers) pay for mopping up of "bubbles" that they create, rather than governments and Central Banks passing on these costs to taxpayers.

As you can tell from this review, there is a lot going on here. But it is written with great examples and cases - almost allegorical at times (even has a fascinating poetry recounted in the chapter "The Fable of the Bees Replayed" ), and should be accessible to one and all. Not all may find it easy to agree with every single point (as it will certainly question some long-held biases about different countries and societies), but it is hard to not take a deep breath and ponder once you have read it all. In many ways, it shows that when economic conditions so demand or induce, developed world behaves much the same way as developing world: they are both after all driven by choices of human beings and the book lays out some common patterns of global economic behavior - in households, markets and governments.

In summary, I recommend the book extremely highly and comment and thank Raghu Rajan for putting together this brilliant painting of global economy and finance, surrounding the arena of the recently witnessed crisis.

- Viral Acharya, Professor of Finance, New York University Stern School of Business
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Rajan's Reply to Krugman Re: Fault Lines, September 20, 2010

In the Sept 2010 issue of the New York Review of Books, Paul Krugman & Karen Wells reviewed Fault Lines. Below is Rajan's reply to their review:

Paul Krugman and Robin Wells caricature my recent book Fault Lines in an article in the New York Review of Books.

First, Krugman starts with a diatribe on why so many economists are "asking how we got into this mess rather than telling us how to get out of it." Krugman apparently believes that his standard response of more stimulus applies regardless of the reasons why we are in the economic downturn. Yet it is precisely because I think the policy response to the last crisis contributed to getting us into this one that it is worthwhile examining how we got into this mess, and to resist the unreflective policies that Krugman advocates. The article, and their criticism, however, do have a lot to say about Krugman's policy views (for simplicity, I will say "Krugman" and "he" instead of "Krugman and Wells" and "they") which I have disagreed with in the past. Rather than focus on the innuendo about my motives and beliefs in the review, let me focus on differences of substance. I will return to why I believe Krugman writes the way he does only at the end.

My book emphasizes a number of related fault lines that led to our current predicament. Krugman discusses and dismisses two - the political push for easy housing credit in the United States and overly lax monetary policy in the years 2002-2005 - while favoring a third, the global trade imbalances (which he does not acknowledge are a central theme in my book). I will argue shortly, however, that focusing exclusively on the imbalances as Krugman does, while ignoring why the United States became a deficit country, gives us a grossly incomplete understanding of what happened. Finally, Krugman ignores an important factor I emphasize - the incentives of bankers and their willingness to seek out and take the tail risks that brought the system down.

Let me start with the political push to expand housing credit. I argue that in an attempt to offset the consequences of rising income inequality, politicians on both sides of the aisle pushed easy housing credit through government units like the Federal Housing Administration, and by imposing increasingly rigorous mandates on government sponsored enterprises such as Fannie Mae and Freddie Mac. Interestingly, Krugman neither disputes my characterization of the incentives of politicians, nor the detailed documentation of government initiatives and mandates in this regard. What he disputes vehemently is whether government policy contributed to the housing bubble, and in particular, whether Fannie and Freddie were partly responsible.

In absolving Fannie and Freddie, Krugman has been consistent over time, though his explanations as to why Fannie and Freddie are not partially to blame have morphed as his errors have been pointed out. First, he argued that Fannie and Freddie could not participate in sub-prime financing. Then he argued that their share of financing was falling in the years mortgage loan quality deteriorated the most. Now he claims that if they indeed did it (and they did not), it was because of the profit motive and not to fulfill a social objective. Let me offer details.

In a July 14, 2008 op-ed in the New York Times, Krugman explained why Fannie and Freddie were blameless thus:

"Partly that's because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn't do any subprime lending, because they can't: the definition of a subprime loan is precisely a loan that doesn't meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income. So whatever bad incentives the implicit federal guarantee creates have been offset by the fact that Fannie and Freddie were and are tightly regulated with regard to the risks they can take. You could say that the Fannie-Freddie experience shows that regulation works."

Critics were quick to point out that Krugman had his facts wrong. As Charles Calomiris, a professor at Columbia University and Peter Wallison at the American Enterprise Institute (and member of the financial crisis inquiry commission), "Here Krugman demonstrates confusion about the law (which did not prohibit subprime lending by the GSEs), misunderstands the regulatory regime under which they operated (which did not have the capacity to control their risk-taking), and mismeasures their actual subprime exposures (which he wrongly states were zero)."

So Krugman shifted his emphasis. In his blog critique of a Financial Times op-ed I wrote in June 2010, Krugman no longer argued that Fannie and Freddie could not buy sub-prime mortgages.v Instead, he emphasized the slightly falling share of Fannie and Freddie's residential mortgage securitizations in the years 2004 to 2006 as the reason they were not responsible. Here again he presents a misleading picture. Not only did Fannie and Freddie purchase whole sub-prime loans that were not securitized (and are thus not counted in its share of securitizations), they also bought substantial amounts of private-label mortgage backed securities issued by others.

Of course, one could question this form of analysis. Asset prices and bubbles have momentum. Even if Fannie and Freddie had simply ignited the process, and not fueled it in the go-go years of 2004-2006, they would bear some responsibility. Krugman never considers this possibility. When these are taken into account, Fannie and Freddie's share of the sub-prime market financing did increase even in those years.
In the current review piece, Krugman first quotes the book by Nouriel Roubini and Stephen Mihm:

"Clearly, Fannie and Freddie did not originate sub-prime mortgages directly - they are not equipped to do so. But they fuelled the boom by buying or guaranteeing them. Indeed, Countrywide was one of their largest originators of sub-prime mortgages, according to work by Ed Pinto, a former chief credit officer of Fannie Mae: "The huge growth in the subprime market was primarily underwritten not by Fannie Mae and Freddie Mac but by private mortgage lenders like Countrywide. Moreover, the Community Reinvestment Act long predates the housing bubble.... Overblown claims that Fannie Mae and Freddie Mac single-handedly caused the subprime crisis are just plain wrong."

For instance, consider this press release from 1992, and participated from very early on in Fannie Mae's drive into affordable housing:

"Countrywide Funding Corporation and the Federal National Mortgage Association (Fannie Mae) announced today that they have signed a record commitment to finance $8 billion in home mortgages. Fannie Mae said the agreement is the single largest commitment in its history...The $8 billion agreement includes a previously announced $1.25 billion of a variety of Fannie Mae's affordable home mortgages, including reduced down payment loans...

"We are delighted to participate in this historic event, and we are particularly proud that a substantial portion of the $8 billion commitment will directly benefit lower income Americans," said Countrywide President Angelo Mozilo..."We look forward to the rapid fulfillment of this commitment so that Countrywide can sign another record-breaking agreement with Fannie Mae," Mozilo said.

"Countrywide's commitment will provide home financing for tens of thousands of home buyers, ranging from lower income Americans buying their first home to middle-income homeowners refinancing their mortgage at today's lower rates," said John H. Fulford, senior vice president in charge of Fannie Mae's Western Regional Office located here.

Of course, as Fannie and Freddie bought the garbage loans that lenders like Countrywide originated, they helped fuel the decline in lending standards. Also, while the Community Reinvestment Act was enacted in 1979, it was the more vigorous enforcement of the provisions of the Act in the early 1990s that gave the government a lever to push its low-income lending objectives, a fact the Department of Housing and Urban Development (HUD) was once proud of (see the HUD press releases below).

Perhaps more interesting is that after citing Roubini and Mihm, Krugman repeats his earlier claim; "As others have pointed out, Fannie and Freddie actually accounted for a sharply reduced share of the home lending market as a whole during the peak years of the bubble." Now he attributes the inaccurate claim that Fannie and Freddie accounted for a sharply reduced share of the home lending market to nameless "others". But that is just the prelude to changing his story once again; "To the extent that they did purchase dubious home loans, they were in pursuit of profit, not social objectives--in effect, they were trying to catch up with private lenders." In other words, if they did do it (and he denies they did), it was because of the profit motive.

Clearly, everything Fannie and Freddie did was because of the profit motive - after all, they were private corporations. But I don't know how we can tell without more careful examination how much of the lending they did was to meet government affordable housing mandates or to curry favor with Congress in order to preserve their profitable prime mortgage franchise, and how much was to increase the bottom line immediately. Perhaps Krugman can tell us how he determined their intent?

Interestingly, before the housing market collapsed, HUD proudly accepted its role in pushing low-income lending through the various levers that Krugman now denies were used. For instance, in 2000 when it announced that it was increasing Fannie and Freddie's affordable housing goals, it concluded:

"Lower-income and minority families have made major gains in access to the mortgage market in the 1990s. A variety of reasons have accounted for these gains, including improved housing affordability, enhanced enforcement of the Community Reinvestment Act, more flexible mortgage underwriting, and stepped-up enforcement of the Fair Housing Act. But most industry observers believe that one factor behind these gains has been the improved performance of Fannie Mae and Freddie Mac under HUD's affordable lending goals. HUD's recent increases in the goals for 2001-03 will encourage the GSEs to further step up their support for affordable lending."

And in 2004, when it announced yet higher goals it said:

"Over the past ten years, there has been a `revolution in affordable lending' that has extended homeownership opportunities to historically underserved households. Fannie Mae and Freddie Mac have been a substantial part of this `revolution in affordable lending'. During the mid-to-late 1990s, they added flexibility to their underwriting guidelines, introduced new low-downpayment products, and worked to expand the use of automated underwriting in evaluating the creditworthiness of loan applicants. HMDA data suggest that the industry and GSE initiatives are increasing the flow of credit to underserved borrowers. Between 1993 and 2003, conventional loans to low income and minority families increased at much faster rates than loans to upper-income and nonminority families."

If the government itself took credit for its then successes in expanding home ownership then, why is Krugman not willing to accept its contribution to the subsequent bust as too many lower middle-class families ended up in homes they could not afford? I agree there is room for legitimate differences of opinion on the quality of data, and the extent of government responsibility, but to argue that the government had no role in directing credit, or in the subsequent bust, is simply ideological myopia.

Let me move on to Krugman's second criticism of my diagnosis of the crisis. He argues that the Fed's very accommodative monetary policy over the period 2003 to 2005 was also not responsible for the crisis. Here Krugman is characteristically dismissive of alternative views. In his review, he says that there were good reasons for the Fed to keep rates low given the high unemployment rate. Although this may be a justification for the Fed's policy (as I argue in my book, it was precisely because the Fed was focused on a stubbornly high unemployment rate that it took its eye off the irrational exuberance building in housing markets and the financial sector), it in no way validates the claim that the policy did not contribute to the manic lending or housing bubble.

A second argument that Krugman makes is that Europe too had bubbles and the European Central Bank was less aggressive than the Federal Reserve, so monetary possible could not be responsible. It is true that the European Central Bank was less aggressive, but only slightly so; It brought its key refinancing rate down to only 2 percent while the Fed brought the Fed Funds rate down to 1 percent. Clearly, both rates were low by historical standards. More important, what Krugman does not point out is that different Euro area economies had differing inflation rates, so the real monetary policy rate was substantially different across the Euro area despite a common nominal policy rate. Countries that had strongly negative real policy rates - Ireland and Spain are primary exhibits - had a housing boom and bust, while countries like Germany with low inflation, and therefore higher real policy rates, did not. Indeed, a working paper by two ECB economists, Angela Maddaloni and Jos�-Luis Peydr�, indicates that the ultra-low rates by both the ECB and the Fed at this time had a strong causal effect in relaxing banks' commercial, mortgage, and retail lending standards over this period.

I admit that there is much less consensus on whether the Fed helped create the housing bubble and the banking crisis than on whether Fannie and Freddie were involved. Ben Bernanke, a monetary economist of the highest caliber, denies it, while John Taylor, an equally respected monetary economist insists on it. Some Fed studies accept responsibility while others deny it. Krugman, of course, has an interest in defending the Fed and criticizing alternative viewpoints. He himself advocated the policies the Fed followed, and in fact, was critical of the Fed raising rates even when it belatedly did so in 2004.

Then, as he does now, Krugman emphasized the dangers from a Japanese-style deflation, as well as the slow progress in bringing back jobs.

Finally, if he denies a role for government housing policies or for monetary policy, or even warped banker incentives, then what does Krugman attribute the crisis to? His answer is over-saving foreigners. Put simply, trade surplus countries like Germany and China had to reinvest their financial surpluses in the United States, pushing down long term interest rates in the process, and igniting a housing bubble that eventually burst and led to the financial panic. But this is only a partial explanation, as I argue in my book. The United States did not have to run a large trade deficit and absorb the capital inflows - the claim that it had to sounds very much like that of the over-indulgent and over-indebted rake who blames his Then, as he does now, he advocated more stimulus. Then, as he does now, Krugman ignored the longer term adverse consequences of the policies he advocated.

creditors for being willing to finance him. The United States' policies encouraged over-consumption and over-borrowing, and unless we understand where these policies came from, we have no hope of addressing the causes of this crisis. Unfortunately, these are the policies that Krugman wants to push again. This is precisely why we have to understand the history of how we got here, and why Krugman wants nothing to do with that enterprise.

There is also a matter of detail suggesting why we cannot only blame the foreigners. The housing bubble, as Monika Piazzesi and Martin Schneider of Stanford University have argued, was focused in the lower income segments of the market, unlike in the typical U.S. housing boom. Why did foreign money gravitate to the low income segment of the housing market? Why did past episodes when the U.S. ran large current account deficits not result in similar housing booms and busts? Could the explanation lie in U.S. policies?

My book suggests that many - bankers, regulators, governments, households, and economists among others - share the blame for the crisis. Because there are so many, the blame game is not useful. Let us try and understand what happened in order to avoid repeating it. I detail the hard choices we face in the book. While it is important to alleviate the miserable conditions of the long-term unemployed today, we also need to offer them incentives and a pathway to building the skills that are required by the jobs that are being created. Simplistic mantras like "more stimulus" are the surest way to detract us from policies that generate sustainable growth.

Finally, a note on method. Perhaps Krugman believes that by labeling other economists as politically extreme, he can undercut their credibility. In criticizing my argument that politicians pushed easy housing credit in the years leading up to the crisis, he writes, "Although Rajan is careful not to name names and attributes the blame to generic "politicians," it is clear that Democrats are largely to blame in his worldview." Yet if he read the book carefully, he would have seen that I do name names, arguing both President Clinton with his "Affordable Housing Mandate" (see Fault Lines, page 35) as well as President Bush with his attempt to foster an "Ownership Society" (see Fault Lines, page 37) pushed very hard to expand housing credit to the less-well-off. Indeed, I do not fault the intent of that policy, only the unintended consequences of its execution. My criticism is bipartisan throughout the book, including on the fiscal policies followed by successive administrations. Errors of this kind by an economist of Krugman's stature are disappointing.

Best book on current economics, May 30, 2010
Fault Lines is the best book to appear so far on current economic challenges. While the author is very focused on US policy, good and bad, he offers the lay reader a very solid understanding of how the global system has responded to this crisis. His "fault lines" are not American problems alone but rather deep fissures in the international banking and finance systems. Europeans will be espeically interested and provoked by Rajan's arguments for a stronger American saftety net. Yes, he believes that it is morally correct to protect workers and their families who are displaced by economic turmoil. But, his primary argument is that a stronger safety net would dampen political pressure for short-term and often poorly targeted stimuli. In addition, he believes that larger, longer unemployement benefits would also make it less likely that policy makers would use easy credit as a mechanism for addressing increasing economic differences within American society. Fault Lines is a thoughtful introduction to macroeconmics, a critical analysis of current policies and a compelling call for major reforms in how the US and the world manages the global economic system.

Saving Capitalism From the Politicians, June 18, 2010
In his previous book, Raghuram Rajan wanted to save capitalism from the capitalists. As he and his coauthor described, market forces can be annihilated by those bent on rent seeking and monopoly power. A few years after this first book, and in the midst of a world financial crisis, there is still ample proof that capitalists hold predatory views on capitalism, and that they want to hijack the system for their own private interest. But instead of distributing the blame for the crisis that befell upon us, Rajan argues that our post-crisis world economy needs to be saved from a new kind of threat: a combination of populist-driven politics and of geopolitical power shifts that create deep and lasting imbalances. These are the areas where he situates the fault lines that lie at the origin of the current world crisis and that, if unattended, may well provoke the next one.

In geology, fault lines are breaks in the Earth's surface where tectonic plates come in contact or collide. In using a geological metaphor, the author suggests that the cracks and imbalances in the world economy cannot be easily mended, and that they are almost beyond our control. But if mankind cannot prevent tectonic moves and earthquakes, we can build resistant buildings and improve the resilience of our economic systems. This is what Rajan proposes, in a set of recommendations that goes well beyond the usual fix in the financial sector that is now commonly discussed.

As Raghu Rajan emphasizes, his proposals are neither from the right nor from the left. They derive from his long experience as an academic originator of cutting-edge economic research, and as a decision-maker who, during three years, occupied the number-two seat at the IMF in Washington. His personal background as a US non-resident Indian also shows throughout the book. He mentions in passing that he is the director of a company, Heymath, that is based in Chennai in India and that helps teachers around the world to create teaching materials for math lessons and homework assignments. More generally, he insists that economists should analyze the US economy with the same tools and frameworks that they use for emerging countries. US policy-makers could also learn a thing or two from developing economies. For instance, health management practices in India could show the way to making US healthcare more affordable. Or conditional cash transfers in Mexico could encourage poor parents in American urban ghettos to pay more attention to their children's nutrition, health, and education by making welfare payments conditional on parents meeting certain milestones. Neither left nor right, many of his prescriptions are from the South.

It is unlikely that people from the radical left will read this book, but they should. For a start, the metaphor of "fault lines" is close to the Marxist concept of contradiction. For Marxists, capitalism is branded by an immanent want of balance, of crippling contradictions. This is exactly why it changes and develops incessantly: constant development is the only way for it to resolve and come to terms with its constitutive imbalance. Contradictions and fault lines are not digging capitalism's grave; on the contrary, they highlight its flexibility and adaptability, and also show the amount of work required in sustaining it. Similarly, Rajan's own explanation of the financial crisis comes close to the concept of overdetermination. For psychoanalysts, a phenomenon is overdetermined if it is caused by a combination of multiple factors, which taken in isolation cannot account for the effect alone. The financial crisis originates in the follies and excesses of the financial sector, but also in the "other scene" of growing domestic inequalities and global imbalances.

Although he quotes neither Marx nor Freud, Rajan shows up as a skilled dialectician. For him, politicians are part of the problem, and yet they are the ones that we must rely on to provide the solution. Likewise, our current predicament derives from the planet's growing interdependence, but the way out is to be found in more globalization, not less. Or to take another example, fixing finance from the consequence of financial engineering gone wild requires more financial innovation, albeit of a different, more inclusive kind. The art of the dialectical reversal is also displayed in the author's disregard for conventional ideas and political party lines. In Saving Capitalism, he argued that capitalist rent-seekers' best friends were the trade unions and antiglobalizers pushing for trade protection and anticompetitive practices. Likewise, he argues in Fault Lines that the IMF and the World Bank should seek their best supporters among the civil society organizations and media outlets that are so often found vociferating against the dictates of the Bretton Woods institutions.

I will not try to sum up the argument or reproduce some of the reasoning, because all chapters seem equally worthwhile. In every book I read, there are parts that deserve less attention and that I tend to read in a more cursory way, taking less notes and time to ponder the reasoning. Not so in Fault Lines: my scrapbook was full of notes, and there was not one passage where I felt left out or in need of additional explanation. The writing is never dull or technical, and there are real gems in style and composition. The author has a real talent for catching the attention of the reader head on and keeping him alert until the very last page. This is not only the best book on the financial crisis I have read so far, but also one of the most stimulating and readable economic volume that I have had the opportunity to review.

Well Done Presentation with Good Suggestions, May 17, 2010
Fault Lines by Prof. Rajan is one of an ever increasing number of books recounting the financial collapse of the past few years. Unlike many of the others, Prof Rajan is both knowledgeable and experienced having been at the IMF in a senior role during a portion of this period. Thus this book is written from the perspective of a highly credible professional as well as a hands on operative.

Overall it is well written and avoids the finger pointing polemics that we are forced to endure from the journalist types who have their points to make. Rajan writes in a clear and well structured manner and details the problems, as well as recommending solutions. As the title says the system has certain enduring fault lines that need to be avoided rather than rebuilding upon.

Chapter 1 is the introduction and he lays out the history well. Especially he has a balanced position on who should take the blame and on p. 42 he calls the Government and its actions as the "elephant in the room". He does not take the Progressive's stance and blame the lack of regulation as the sole cause and he does not take the Conservative cause agreeing that all regulation is an anathema. Like any complex system which we will never really understand there must be circuit breakers, and that means some form of balanced regulation. Rajan states on p 43 at the end of Chapter 1:

"Growing income inequality in the United States stemming from unequal access to quality education led to political pressure for more housing credit. This pressure created a serious fault line that distorted lending in the financial sector."

I would strongly disagree with this statement. The US has one of the most open educations systems in the world and despite the less than stellar grammar and secondary systems the university systems are without equal. The problem here was demanding that credit be given to anyone on the part of the Government. Frankly when the Government opens the faucet to individuals who have no idea what responsible lending even means it is in and of itself a recipe for a disaster.

Chapter 2 discusses the whole issue of exports and Rajan's personal recollections regarding the controlled economy of India are telling. India was and to some degree is still a socialist centrally controlled state. It is a window to what can go wrong in an economy centrally controlled. On p 50 he states: "The great Austrian economist Joseph Schumpeter argued that capitalism grew through innovation, with newcomers bringing creative new processes and techniques that destroyed the business of old incumbents." This is creative destruction. The Progressive movement of the early part of the 20th century rebelled against the railroad tycoons but understanding Schumpeter one could have just as easily said, "this too shall pass". Namely in a Hegelian sense each action has a reaction and a resolution. Rajan on pp 54-55 discusses the sometimes success of the old Soviet system. As I was wont to tell my Russian employees that I was trained in the Joe Stalin school of management, never fail, the results would be tragic!

Chapter 4 discusses the US and its "weak safety net" which is a double edged sword. We in the US have limited unemployment benefits. It is in many ways Darwinian in that it is also a force to drive people back to work or seek other alternatives. In Germany, where I ran one of my companies, you cannot fire anyone. It is impossible. That frankly is a barrier to entry for an entrepreneur. Only the large incumbents can work in such an environment. Rajan seems to vacillate between the benefits of the US approach and the need for more social benefits. He discusses the discretionary stimulus approach of the US where the Government chooses who to pay and who not to pay. These he alludes may be seen as political payoffs and may not in any substantial manner truly stimulate.

Chapter 7 is quite interesting. He opens the chapter, pp 124-125, with a simple explanation of the reasons for the collapse of the derivatives. Let me paraphrase:

Consider a company which buys a pool of ten mortgages, all most likely subprime. Now the chance of any one going under is 10%. That means on average only one of the 10 will not pay back. This does beg the question of what factual basis was used to determine this but alas that was left to Wall Street and the rating agencies. Now we create two tranches, bundles, one which get a great interest rate but bears the losses, and second which gets a lower but still good interest rate and has its losses hedged by the first tranche. This works well except that the model is wrong!

What really happens is a Markov chain where when the first guy goes bankrupt, then the probability of another going is not the same but higher, and when a second goes bust it goes even higher. This means that instead of the first tranche bearing all the risk, the risk is moved to the second tranche which never thought it would have any! And then an AIG insures the second, and we know that there is a high probability of at least a 50% loss, a number AIG would never have imagined. Dumb quants! Yes, and on pp 142-143 Rajan details the Trillin conjecture that the changes in Wall Street over the past 30 years resulted in the dumbest guys moving upward relative to the Merlin's mixing their brews in the quant rooms. Rajan rejects that conjecture somewhat but there is considerable truth in it...just look at some of the folks who left and ended up in Government.

Chapter 8 discussing the reforming of the financial world. On p 164 he details a suggestion which should be adopted, the altering of compensation to reflect the risk over time. In Chapter 9 he returns to how to improve things in the US and on p 189 he speaks of the major problem in secondary education, the lack of competent instructors. To teach in a public school you need an education degree. Even if you had a PhD, held faculty position in a half a dozen universities and taught for over twenty years you still needed to learn how to operate an overhead projector and prepare a lesson plan. Thus the lack of educational advantage he posits in Chapter 1 is in many ways a result of the teachers unions barriers to entry of competent folks. Yet he never takes that leap. On pp 192-193 he posits the expansions of unemployment and benefits. Here I would disagree. Just look at the results in Germany, Greece, and other countries. In Russia I could fire a bad employee in Greece he was there until the return of Homer!

Rajan overall does a superb job at presenting the problems, the continuing faults and discussing solutions and safeguards. He deals with facts and logic and he does not tell stories as is typical of the wandering journalist. This is worth a read and for some worth a detailed study.

Hoping for More, August 4, 2010
Having read Rajan breathtaking paper from the Fed's Jackson Hole Conference, I rushed to buy his book when it was finally published expecting insightful in-depth analysis of the leading banking proposals. Instead, what he gives us are brief summaries of the existing laundry list of proposals - hardly the in-depth analysis I expected that carefully considers the unintended secondary repercussions of each proposal. When he strays from his expertise - banking - his analysis grows even more superficial.

Even worse, the most important issue - how can the US best recycle short-term debt into its most productive uses - never hits his radar. Instead, he simply asserts that exporters like China should stop subsidizing exports, reduce savings and encourage domestic consumption - presumably to reduce the offsetting supply of cheap capital to the US. He also proposes reducing government guarantees of banks and deposits to discourage banks from taking tail risk - tail risk that is only created by utilizing short-term debt. Ok, but at what cost? This central issue never seems to cross Rajan's mind. But we saw what happened when short-term debt withdrew from funding US borrowing and sat idle to avoid risk. The economy contracted, unemployment rose and growth slowed - some now predict for a decade. That appears to have been a very high price to pay, especially so relative to the estimated once-in-75-years (less than) $100B net cost of crisis-induced government guarantees. How can he leave that central tradeoff wholly unaddressed?

It's clear that Rajan believes the use of short-term funds predominately affects only an unsustainable increase in household consumption. Perhaps, but he recognizes rising levels of debt without acknowledging that the market values of assets grew faster than debt and household net worth rose, even at post recession asset values. From the narrow focus of his discourse - discourse that never once mentions the acceleration in US productivity - one can only infer that he believes that monetary policy is the predominate driver of asset values even though post-recession asset values including real estate have remained surprisingly high by historical standards despite a dearth of credit. I found his monetary argument unpersuasive although others might not.

Rajan is one of the first writers (along with Reinhart and Rogoff and I'm sure others) to rightly link the rising trade deficit and its effect on the supply of short-term credit to the financial crisis when those short-term funds panicked and withdraw from financial intermediation. He also acknowledges the role of the government - through Fannie and Freddie - in distorting mortgages market credit standards that were critical to banks given the growing self-funding of business (an alternative use for the funds), which many demagogues surreptitiously ignore. But from a macro perspective - the chosen emphasis of his book - I believe he completely misses the major shift in US production to intangible investment to discover innovation (mistakenly counted as the intermediate cost of production) and its real effect on productivity, assets values, growth, wages, and employment (including the employment of Mexico and China). As a result, he doesn't see any link between business using domestic employment for increased innovation instead of households selling assets (to each other in a more close economy) and competing with business to buy domestic goods and services for increased consumption rather than borrowing offshore funds against the increased value of their assets to buy offshore goods. Said differently, in the face of capacity constraints, he fails to see the value of the US offshoring less valuable production for consumption in order to continue growing more valuable intangible investment domestically and the resulting effect that tradeoff necessarily has on debt AND assets. Had we simply borrowed from offshore exporters to consume their goods as Rajan seems to assert, household net worth would have declined steadily. As such, he sees little if any cost to discouraging the use of short-term funds. It's ok to disagree after thorough analysis; it's not ok to completely overlook alternative hypotheses central to the issue - issues, no less, that explain the slow recovery of employment, which leaves him scratching his head.

Nevertheless, when Rajan sticks to what he knows - banking and finance - he provides a fairer portrait of the issues than the many diatribes of demagogues masquerading as pundits. Me, I still think moral hazard is an unpersuasive explanation of the crisis - an explanation upon which Rajan relies heavily - but at least he presents it and other banking-related issues maturely. I only wish he would have stuck to banking and used his 230 pages to dig a lot deeper into what he knows instead using 40% of the book to address issues outside the scope of his expertise where I would describe his understandings as pedestrian at best (although that has no bearing on my rating). Still, the book is superior to most.

Extremely well thought out and thought provoking, August 15, 2010
Fault Lines is a remarkable book. The recent crisis that was experienced and is being worked through has brought forward a library of books on the causes and consequences of it. Many of these books add valuable perspective to the mechanics of what happened whether it be trade imbalances or leverage increase or incentive misallignment at the micro economic level etc etc. This book stands out in its analysis by trying to analyze the real roots of the issues. It discusses the housing bubble as an outgrowth of increasing wage disparity in the US, it discusses the reason why many export led growth economies have under developed domestic consumption markets, it discusses why arms length financial transactions lead to the deterioration in due diligence and finally it goes into the policy fixes. Ill discuss the major themes a bit to give some clarity.

The author attributes the housing bubble to be at its root, a product of the growing disparity in wages between the 90th percentile and 10th percentile in the US over the last 25 years and the Fed's dual mandate of low inflation and full employment. In particular, he argues that the easiest way to deflect attention to growing divergence between economic classes is through easy credit as it normalizes purchasing power in the absense of real economic normalization, this manifisted itself in politics pushing easy credit to homebuyers of lower income status. This in combination with the fact that the post internet bubble recession/recovery was a jobless one and a jobless recovery allowed the Fed to justify keeping rates too low for too long given its dual mandate which led us to a bubble in housing credit. The author discusses the fact that perhaps, the philips curve doesnt drive the relationship between the two anymore and we need to rethink the dual mandate goal. The author is extremely well thought out in his analysis of the structure of the economy and where foundational stresses lie. The interpretation of easy credit as an outgrowth of political will to renormalize purchasing power is a deep and intriguing thought.

The author discusses the structural issues at the heart of export economies as well with great precision. In particular he believes that export led growth economies funnelled preferential credit/subsidies to chosen businesses which has led to lack of investment to consumption dominated parts of the economy. The deposit rates relative to lending rates and the lack of investment options by depositors leads to reallocation of a populations savings to these export businesses and thus feeds on itself at the expense of other parts of the economy. Looking at japan and the rates and modus operandi of consumer finance businesses is a strong example of how a banking system without a focus on consumer credit can lead to lending networks at both extremely high rates and low transparency, stifling consumption.

The author also does a very good job discussing the financial sector and what has been going on there for the last 2 decades. He discusses the repurcussions of arms length finance and discusses the behavioural finance repurcussions of what it can do to people. At the heart of it the author argues that we are a product of our environment and arms length transactions removes us from the end results of our actions and thus makes dollars and cents (on short time horizon) the only measurable quantity of productivity and value add. This part of the book is less "unique" to the extent that incentive problems in finance and allignment of interest in arms length financial systems is discussed frequently by many authors.

The author then goes into the solutions to the fault lines that he sees as being the reason we are where we are. The auhor is very disciplined in distancing himself with popular fixes and restrictions that dont address the causes of the issues. I wont go into too many specifics but the local fixes for the US economy are a combination of reworking the safety net that the US provides, being all too minimal right now, and incentive reallignment in the financial sector. In the global setting, it is a broadening of mandate and audience of the World Bank and IMF to discuss the required policy changes through more grass roots communication. People are willing to sacrifice something immediate for something long term when there is mutual discussion and more importantly trust, right now the IMF talks to leaders who's terms are shorter than the required policy thus making allignment of interest more difficult/impossible. People need to understand the need for policy for politicians to be able to push through the legislation and the need for the experts at the IMF to be able to communicate with the population directly, the author sees as a means to effect greater change. All in all this is a must read. I havent read a book so insightful and eye opening in a while and I think if more people thought and communicated the way the author does, we would have far fewer problems. This is an excellent an highly memorable work.

Good, but A Bit Off Center -, June 4, 2010
Raghuram Rajan is a Professor of Economics at the University of Chicago, and former Chief Economist at the IMF. Rajan warns that it wasn't just greedy bankers taking irrational risks that caused the recent global financial crisis. Other factors included over-dependence on the indebted American consumer, growing inequality, and a weak safety net. These latter factors created political pressure to encourage easy credit and keep job creation robust. Rajan also contends that unequal access to quality education and health care acerbated the situation. Sounds good at first, but the book makes a weak and inconsistent case to support these conclusions. Regardless, "Fault Lines" still adds up to what most everyone has already concluded - that the Federal Reserve kept rates too low for too long, trying to dig out of the prior recession, and the government further acerbated problems by trying to increase the proportion of home-owners.

Rajan's book, does however, report important data involving the top 1% of households, accounting for 8.9% of income in 1976 and 23.5% in 2007. This change represented a growth of 32.2% in real dollars. The data come from a paper authored by Atkinson, Piketty, and Saez, "Top Incomes in the Long Run of History," published in the 1/2010 "Journal of Economic Literature." The authors conclude that the top 1% of income earning families during this period captured 58% of the real income growth between those two periods. During the Bush years this proportion grew to 65%. A second important piece of data concerns the lengthening time required to recoup jobs lost in recessions. From 1960 until 1991, this average about 8 months, measured from the trough of the recession. In 1991, however, the time required became 23 months, and 38 months in 2001. Returning to prior GDP was much faster, requiring only 9 months in 1991 and 3 in 2001. Rajan offers no explanation for the difference; I contend we simply boosted imports faster than hiring. My opinion: The 58%-65% of real income growth going to the top 1% is a major economic, political, and moral problem; Rajan believes it is also responsible for the growth of political polarization. Also important - the increasing times required to restore prior employment levels, coupled with our fragile, compared to other nations, social safety-net.

Meanwhile, those at the 90th income percentile are also gaining on those at the 10th. In 1975, incomes for the former were about 3X those at the latter; by 2005, this had risen to about 5X. Rajan contends this is due to computers displacing former low-paying jobs, accompanied by the lack of improvement in our high-school drop-out rate. I would suggest the influx of millions of illegals also contributed. Rajan then tries to explain why some groups are less likely to graduate than others, and recommends more/better education for reducing income inequality - however, in doing so the author only succeeds in revealing how little he knows about education and the billions, perhaps even trillions, spent on innumerable, sustained, and unsuccessful efforts to affect improvement. As for Rajan's desire to boost access to health care, that problem has already been addressed in the "Health Care and Education Reconciliation Act of 2010" that expands care, without addressing the need to cut costs by 50%+ and improve outcomes.

Author Recommendations: On 'too big to fail,' Rajan points out that simply breaking up big banks, without taking other actions, is likely to simply recreate the same outcome via many smaller banks taking the same unwise actions. He also suggests ending deposit insurance, except for the smaller banks. Another recommendation is to extend unemployment benefits and make them more generous - reducing political pressure to take quick action leading to long-term problems (eg. cutting interest rates and taxes). He also suggests allowing Medicare and Medicaid to pay for health care delivered cheaper in other nations.

Bottom-Line: The biggest lesson from "Fault Lines" is that jobs recovery after a recession is now taking much longer - a serious factor for the present. Rajan fails to adequately examine the key question - "Why has wealth become much more concentrated?" He also assumes we should continue as a trade-debtor nation while building a cumulative trade deficit approaching infinity, instead of trying to mimic at least Germany, if not China. Nonsense - Rajan should read IMF critiques by Stiglitz, Klein, and others. Rajan's data about the top 1% make a compelling case for increasing tax rates on the very top. I'd also suggest sharply reducing the 47% that pay no federal taxes - that also encourages poor decision-making and is unfair to everyone else. Finally, let's get serious about illegal immigration and require either a legitimate 'green card' or U.S. citizenship for employment - this would help those in the U.S. at the bottom of the pyramid.

A must-read book on the financial crisis, June 28, 2010
Fault-Lines is one of a handful of must-read books on the recent financial crisis. What makes this book a tour de force is that it goes beyond the surface-level explanations of the sources and origins of the crisis- such as the greedy bankers and inept regulators- to describe the interplay between the economic and political forces that brought about the crisis. The central thesis of the book is that the fissures that led the world economy to the brink of collapse still exist and will- unless the world's leading nations enact fundamental reforms- continue to pose a grave threat.

The first fissure that Rajan identifies is the growing income inequality within the US. Since the 1980s, the wages of workers with advanced education- for instance, workers with a college degree- have grown rapidly while the wages of workers without advanced education- for instance, college dropouts- have remained stagnant. Add in the emergence of off-shoring, the sharp decline in the pace of job creation and the weak-safety nets and the result has been an anxious middle and working class. Rajan observes that politicians of all stripes responded to the growing income inequality- if, for different reasons- by encouraging government-sponsored agencies (such as Fannie Mac and Freddie Mac) to provide the working classes with easy access to housing credit. Throw in the private sector- which saw an opportunity to originate and securitize housing loans- and the result was a boom in sub-prime lending. Inevitably, the good times could not last and the result was a surge of defaults by sub-prime borrowers that ultimately led to the sharp decline in value of a whole range of assets. Rajan notes that improving access to better schools and colleges for the middle and working classes is the only direct solution to rising income inequality but acknowledges that this solution is only a long-term fix and, importantly, does not address the predicament of the current generation of workers without adequate education. One lesson I take from Rajan's book is that in a less than ideal world (in the parlance of economics, a world of second-best) a modest level of (direct and indirect) fiscal transfers to the working classes may not be so bad after all.

The second fissure that Rajan identifies can be traced to the growth strategies of the world's largest economies. Germany, Japan and, most recently China, have relentlessly pursued an export-oriented growth strategy and have been unwilling (or unable) to stimulate domestic consumption. In contrast, the US (and the UK) have relied on a consumption-driven growth strategy and have been all too willing to tolerate an increase in household and government indebtedness. One consequence of the inevitable build-up in trade (and current account) deficits in the US, etc., and the trade (and current account) surpluses in Germany, etc., is the surge in economic and political pressures directed at both sets countries to correct these imbalances. Marshalling evidence from the experience of other countries- most notably, Indonesia, Mexico and South Korea- Rajan asserts that in the absence of serious economic and political reforms, the end result is usually an economic crisis. To avert such crises, Rajan proposes that the IMF go beyond its role as a lender of last resort to engage in a debate with the citizens of nations (with serious economic imbalances)-a-la Oxfam- on the economic and political compromises necessary to avert such crises. While such debate could alleviate the economic and political pressures that lead to a crisis, it is unclear whether the IMF is prepared for such a role.

Fault Lines is a beautifully written book that traverses through history, geography (and literature!) to describe the complex economic and political relationships within and across nations. I highly recommend it.

worthwhile, November 17, 2010
I spent some time considering whether to give this book four or five stars, but decided on four to balance some of the unreasonably favorable reviews here. I give the book a five for quality - the author is erudite and wise, and conveys this through his language and content. However, the book is thickly written in what unfortunately has become the standard style for academic monographs, and his arguments are equivocal almost to a fault. Also, his prescription for change is so abstract and lofty to almost be laughable (basically a sermon on the mount by the reinvented IMF to the people of the world). I don't disagree with the intent, but there is little consideration of the path from A to Z - I think a forceful and convincing argument of what A to B should be, and how to get there, would be a more relevant contribution.

The good news is that he gives one of the best explanations that I've seen of the background to the 2007-2009 crisis, with general dismissal of the idea that nefarious actors or plots were behind the problem. He provides powerful arguments that implicit support of the private sector by government, whether acknowledged or not, which has been tested and generally found to be there, has been and remains a critical problem and driver of behavior. He also gives repeated cogent explanations of the good original motivations behind the policies of export-driven emerging economies, and how these shrivel as the economies develop and thus should lead to policy changes that in many actual cases have not come to be. Finally he makes a strong case that the lack of support for education and education reforms in the U.S. are big problems, which have not been properly addressed because there is politically little current upside but large downside in these efforts.

You can't go wrong by reading this book, it's just that I think it could have been something more. In any case some of the material isn't going to have a long shelf life, so read it sooner rather than later. ... Read more

Editorial Review

A simple, straightforward analysis of economic fallacies that are so prevalent they have almost become a new orthodoxy. ... Read more

Reviews

Students Love Hazlitt!
Henry Hazlitt is best known for this brilliant work, one of the most concise and persuasive defenses of the free market ever written. One reason why socialism and statism appeal to the common man is that government actions are immediate and dramatic: they give the impression that something is being done about a specific problem or crisis. To show that government intervention in the economy isn't wise, one must "look not merely at the immediate but at the longer effect of any act or policy; one must trace the consequences of that policy not merely for one group but for all groups."

Hazlitt proceeds to apply the above lesson to numerous government actions. By drawing the reader's attention to the unseen effects, the failure of socialism is exposed. Take for example government "jobs programs." If the government employs 500 people, one might think that government has "created" 500 jobs. However, government had to tax its citizens to fund these jobs. Had the money been left in the hands of taxpayers, their spending would have resulted in an equivalent number of employed individuals. Government didn't "create" jobs - it merely destroyed jobs in the private sector. On issue after issue, Hazlitt demonstrates that government intervention in the economy fails to achieve its stated goals (although its real goal - an increase in government power - is always achieved). In addition, many basic economic falicies are refuted, such as "machines destroy jobs," and workers need "to earn enough money to buy back the products."

If you are new to the study of economics, don't stop here. Be sure to read Rothbard's "Man, Economy and State"; Von Mises' "Human Action"; and Reisman's "Capitalism." They are the twentieth century's "big three" works in economics.

Economics in One Lesson
If you are interested in learning more about economics, this isthe book to get you started. Forget the statist Samuelson and Nordhaustext they forced on us in Econ 101, "Economics in OneLesson" is the real stuff! Each essay is clear and easy to read with no hard math for us remedial liberal arts majors. More organized and consistent than Friedman, Hazlitt shows that economics only becomes complicated when it is twisted and contorted so as to fit an intellectually dishonest view of the world.

If you're taking an introductory high school or college economics course that doesn't use this book, buy it and read it as a supplement to your coursework. It's very easy to read an essay a day and you'll be intellectually armed, no matter what tripe they try to force down you in class.

As a follow-up book, may I suggest Ayn Rand's "Capitalism: The Unknown Ideal," which lays a moral foundation for a free market, an essential step and one lacking in most economists' view of life. After all, capitalism is not some system devised by experts, it is what naturally occurs when free men are able to trade goods and services...

And if you really want to be versed in the subject, get "Capitalism" by George Reisman, who should win a Nobel prize for this brilliant text. Just having this 1046-page volume on your bookshelf will keep the statists at bay.

If you have already read and learned from "Economics in One Lesson", consider buying a copy for a friend. Spread capitalism and spread the wealth!

Hazlitt shines light on the dismal science of economics
This is perhaps the best book to introduce the layman to the field of economics... This book was a Godsend for me... I stumbled on it in my early college days when I was taking two semesters of Economics and neck-deep in a Keynesian textbook of Fabian socialist fallacies and lies. Hazlitt's book opened my eyes to an insightful intellectual library that supports free-markets and individual liberty. Economics in One Lesson enlightened me, while it helped develop my economic reasoning. It helped me confirm what common sense told me all along - that a laissez-faire free market is the way to go!

This book basically introduced me to the Austrian School of Thought on Economics. The "Austrians" vindicate the market economy's spontaneous order as the surest way to have optimal prosperity, opportunity, and individual liberty for the masses. The verbal logic and reasoning of the Austrian school is generally easy to understand and makes sense to the reader. Needless, to say my interest in the laissez-faire perspective grew - and I read and amassed a library of hundreds of interrelated books on various disciplines from economics to history to political theory. I also recommend any books by other "Austrian" luminaries such as Ludwig von Mises, F.A. Hayek, and Murray Rothbard. Hidden Order by David Friedman and Capitalism by Ayn Rand are also worth mentioning.

Become an economist, the easy way.
Henry Hazlitt's one lesson consists of learning to view ALL the long-term consequences of an economic event, not just the short-term benefits of the special-interest groups.

The rest of the book analyzes different common economic fallacies and misunderstandings, one chapter per issue, and shows the error in thinking that makes each one a fallacy.

Here are some of the issues tackled by this book:

-The fallacy of the Broken Window (ie. the broken window brings prosperity to the repairman).
-Spread-the-work schemes.
-The fetish of full employment.
-"Parity" prices.
-Who's protected by tariffs?
-Saving the _____ industry.
-Government price-fixing.
-Rent control.
-Minimum wage laws.
-Do unions really raise wages?
-The function of profits.
-The mirage of inflation.

and several more (there are 25 chapters, total, in this book).

If you want to get a good start on evaluating economic situations on your own, this book will walk you through the process.

--George Stancliffe ... Read more

Editorial Review

Seeing is believing . . . The Smash Hit SuperFreakonomics is now Bigger and Better

SuperFreakonomics was an instant New York Times bestseller that caused a media uproar, continuing the amazing success begun with the groundbreaking, worldwide sensation Freakonomics.

With the Illustrated Edition, Steven D. Levitt and Stephen J. Dubner bring alive their smart thinking and great storytelling with an explosion of visual evidence, including:

• A by-the-numbers tally of a high-priced call girl's career, and a tracking sheet from an intensive survey of Chicago street prostitutes.
• A visual quiz that lets you pit your memory against the memory of a chess grand master.
• Images of the hurricane-killing machine and other geo-engineering inventions described in SuperFreakonomics.
• A look into whether doctors are better at saving lives in TV dramas or in real hospitals.

Whether probing the intricacies of sex change oper-ations, the effectiveness of child car seats, or what really motivates people to do good, the Illustrated Edition of SuperFreakonomics employs photographs, drawings, and graphs that will lead readers to see the world in a bold, fresh way.

Reviews

Excellent! Even Better than the first, November 15, 2010
I love this book. It is a fascinating look at real data that often tells us a very different story than we are quick to believe. No, it is not a foundational bastion of absolute certainties, but it was never intended to be. This book offers a different way of looking at common everyday issues and poses the idea of "maybe it's not like you always thought it was." It is funny, poignant, quirky, curious, odd and in some cases quite practical (e.g. the Realtor chapter). It's also a quick read, keeps the readers attention throughout.

I loved it.

I particularly like this edition better than the first (Freakonomics) because it saves each punchline for just the right place. The first book, gave you all of the really exciting and interesting punchlines right up front, then gave you chapters detailing each example further into the book. The result was that by the time you got half way through, it became somewhat boring. You already knew what the answer was, so you lost the thrill of surprise and the joy of wondering and speculating and trying to figure it out along the way. This book plays it just right, with a fascinating punchline punctuating each chapter.

Lipstick on a Pig!, October 27, 2010
I didn't like the original Superfreakonomics" because it contained hidden distortions, little edification, and a prurient fixation on sex for no useful purpose. This 'new, improved' version is only slightly better, thanks to the glossy paper, illustrations, and a few charts.

"People respond to incentives, although not necessarily in ways that are predictable" is the unifying theme claimed by Levitt and Dubner's latest book. They go on to state that their reports rely on accumulated data rather than individual anecdotes, opinions, and anomalies.

One of Levitt and Dubner's first expositions concludes that walking drunk leads to 5X deaths/mile as driving drunk. Validity, however, requires both walking and driving drunks be equally intoxicated. My experience with ambulatory inner-city 'down and outs' is that they are probably far more intoxicated than the average drunk driver - an important distinction. Then its on to concluding that rural Indian families with cable TV had lower birthrates and were more likely to keep their daughters in school, and reporting that Indian penises are generally too small for standard condoms (why do we need to know this?). As for agents, prostitutes using an agent (pimp) earn more and are beaten up less, while home-sellers using an agent (realtor) get little or no monetary value - though their homes did sell about three weeks faster. Their rhetorical question: "Why is a street prostitute like a department store Santa?" "They both take advantage of short-term job opportunities brought about by holiday spikes in demand." Milking their salacious topic one more time, readers also learn that the demand for prostitutes is far lower now than 60 years ago - in large part because of the feminist revolution and 'giving it away for free.' We also learn about the Everleigh sisters (Aida and Minna) and their brothel in early Chicago - selection criteria, employee earnings, customer preferences, etc., and Allie, a computer programmer who turned to studying economics - after several years of prostitution.

Then its why doctors are so bad at washing their hands (one reason, not mentioned, is that they usually get paid more for rework); the book's solution comes from Cedars Sinai and its use of a xcreen-saver display of germs cultured from an unwashed hand. Largely, but not entirely, replacing their horrible geo-engineering example of the first edition (aimed at preventing Global Warming) is a section on hurricane prevention; they still had to suggest 'garden hoses to the sky' pumping SO2 into the stratosphere (acid rain redux) and extending power plant chimneys - despite having to survive jet-stream, hurricane, and tornado winds, and the risk of unintended consequences. (The current issue of "The Economist" suggests that a new problem of increased ultraviolet radiation would result from injecting sulfur into the upper atmosphere, and that some areas would still undergo major reductions in rainfall - eg. China.)

Bottom Line: "Superfreakonomics" ('new and improved') is an easy read, though not an in-depth analysis and does not represent unassailable or even always useful conclusions. On the other hand, much of the reading is interesting, though only tenuously related to learning economics principles, at best. Finally, while the authors may be qualified to discuss and make micro-economic recommendations, I'd look elsewhere for important science advice on breaking up hurricanes, ameliorating global warming, etc. ... Read more

Editorial Review

Nudge is about choices-how we make them and how we can make better ones. Authors Richard H. Thaler and Cass R. Sunstein offer a new perspective on preventing the countless mistakes we make- including ill-advised personal investments, consumption of unhealthy foods, neglect of our natural resources, and other bad decisions. Citing decades of cutting-edge behavioral science research, they demonstrate that sensible "choice architecture"can successfully nudge people towards the best decisions without restricting their freedom of choice. S straightforward, informative, and entertaining, this is a must-read for anyone with interest in our individual and collective well-being. ... Read more

Reviews

The elephant in the room.
Richard H. Thaler and Cass R. Sunstein are both professors at the University of Chicago and where the Chicago school was once famous for the Milton Friedman doctrine of free markets (look where they've got us today!) Thaler and now his Law professor friend Cass Sunstein have swung the pendulum the other way.

Here in Nudge, they argue that totally free markets can lead to disasters precisely because human individuals are not actually very good decision-makers. As Behavioural Economists (Kahneman & Tversky Judgment under Uncertainty: Heuristics and Biases- who credited Thaler as being a key inspiration - and Dan Ariely, whose Predictably Irrational: The Hidden Forces That Shape Our Decisions has become a best seller) argue, we are riddled with little psychological tics in our decision-making processes. We buy things, then suffer remorse. We get confused by choices and often make no choice at all.

But where Ariely keeps his discourse in the world of the day to day, Thaler and Sunstein develop an argument that is political - and is bound to cause heated debate. What they argue is that, in the face of our decision-making weaknesses, Governments and Businesses can help "nudge" us in the right direction. The elephant in the room can be benign.

They call their viewpoint `libertarian paternalism' and what they argue is that it would be a good thing for some gentle nudging of the citizenry in the right direction. As Thaler said recently in the New York Times: "In light of human limitations, Cass Sunstein and I argue for policies that we call libertarian paternalism. Although the phrase sounds like an oxymoron, we contend that it is often possible to design policies, in both the public and private sector, that make people better off -- as judged by themselves -- without coercion. We oppose bans; instead, we favor nudges."

How does a Government do this without imposing laws and edicts. A primary argument is that defaults can be set that counter the tendency by humans to procrastinate or make no decision. One example is the Save More Tomorrow Plan which Thaler developed back in 1996 as an employer sponsored retirement plan for employees. Instead of presenting the details and asking employees to consciously sign-up to increase their savings each time they got a pay rise, the plan presented the details and asked employees to basically check the box if they wished in future to automatically increase their savings as their pay went up. To pre-commit. Such schemes have proved very successful, yet they offer the same free choice, though with a different default.

As Thaler argues: "Since it is often impossible for private and public institutions to avoid picking some option as the default, why not pick one that is helpful?"

Another form of nudge might be the act of disclosure. Thaler & Sunstein argue, for example that credit card companies should issue annual statements that tell us how much we've spent this year on late fees and interest. Again: we have the complete freedom to use cards as we want, but the additional information may help us reframe our own spending strategies. Or how about stickers on new cars that show how much gasoline each vehicle would burn over the next 5 years under typical usage. Hold that Hummer.

These are examples of what the authors call helpful "choice architecture." Nice phrase. The architecture puts our options on more clear display.

I must say, I like the thinking here, and it gives credence to agent-based simulation modelling I've carried out whereby small changes can lead to big effects.

But this volume is about more than modelling and mere theory. One cannot help but think that the book has been timed to coincide with the meltdown of the present economy. The free market, the totally free market, the authors implicitly argue, needs quite a nudge itself. Rather than seeking highly regulated solutions, the better response might simply be a series of tweaks to the choice architecture that influences our spending, saving, health care and borrowing patterns.

The authors present a clear argument and no doubt it will cause heated and lively debate. This book has landed like a rock, right into the centre of the current and somewhat stagnant economic pond. It will definitely cause ripples. Well worth reading.

Important for medical decisions as well
"Buy on apples, sell on cheese" is an old proverb among wine merchants. Taking a bite of an apple before tasting wine makes it easier to detect flaws in the wine, and the buyer who does so will not as easily make the mistake of paying more than the wine is worth. Cheese, on the other hand, pairs well with wine and enhances its flavor, so a seller who offers cheese may command a higher price for the wine (and may even deserve it, if the wine is intended to be drunk with cheese).

The proverb captures important psychological nuances of choice. The same product - a bottle of wine or a risky medical procedure - may be perceived differently depending on its context, and it is often possible to arrange the context to influence a choice while still maintaining the decision maker's autonomy.

The practice of structuring choices is called "choice architecture" in a brilliant and important new book, Nudge, by University of Chicago Distinguished Professors Richard Thaler (Business) and Cass Sunstein (Law). Nudge lays out the groundwork for the science of choice architecture in investing, insurance, health care delivery, and other areas, and argues for a "libertarian paternalism" in which choices are structured to make it more likely that a decision maker will select what is considered the most beneficial option, without impairing the ability to decision makers to select other options. For example, making enrollment in 401(k) plans automatic for new employees, with a form for opting out, is likely to result in greater retirement savings than an opt-in system, without limiting anyone's freedom to choose.

Thaler and Sunstein apply the principles of choice architecture to a few problems in health care (How could Medicare part D be improved? How can organ donation rates be increased? Why shouldn't patients be allowed to waive their right to sue for medical negligence in return for cheaper health care?) But the concepts in the book go beyond their specific examples and could prove very useful to practicing clinicians, who, they note, are often in the position of being choice architects for their patients.

Their principles of choice architecture (paraphrased by me and focused on physicians helping patients make decisions) are:

* Make sure incentives are aligned with desired outcomes
* Help patients map outcomes of different alternatives into formats they can understand (a major focus of Medical Decision Making as well)
* Arrange default options to favor better health. Pediatricians have done a good job of making vaccination a default option.
* Provide timely and relevant feedback about choices and outcomes. A patient seeking to lose weight needs to experience feedback in the form of measurable progress soon enough that they are not discouraged.
* Expect error and develop systems to prevent, detect, and minimize it. For example, pill cases and inhalers with dosage counters are simple and valuable ways to reduce the frequent errors people make in remembering medication. Psychological research provides direction as to what kinds of errors are to be expected when people are making decisions.
* Structure complex choices to reduce the difficulty of making good decisions. In many ways, that's what medical decision making -- and Medical Decision Making -- is about.

I highly recommend Nudge. It's a great read, and has the potential to change the way you think about clinical practice and medical decisions.

Economics as though real humans mattered
Nudge's purpose is to use our understanding of Man As He Is to build better policies. Rather than assume a perfectly rational human who can parse long, complicated documents with his mighty, limitless brain, Man As He Is sometimes skims and can be deceived by cleverly worded contracts. Man As He Is is often aware of his own limitations: he'll flush his cigarettes down the toilet to prevent his future self from doing what his present self knows to be harmful; he'll promise to start exercising tomorrow; and he'll curse himself for procrastinating. Perfectly Rational Man -- whom Thaler and Sunstein call an "Econ," to be contrasted with a "Human" -- would never have these problems. Econs sit down with (notional) pencil and paper and calmly work out the costs and benefits of all available actions, then take the action that maximizes their present and future happiness subject to a discount rate (future happiness is worth less than the same quantity of present happiness). They don't have an internal procrastinator at war with a rational planner, nor do they ever regret on Sunday morning what they did on Saturday night.

Nudge is for Humans, not Econs. Nudge realizes, for instance, that making 401(k)s opt-out rather than opt-in, and setting a reasonable default investment plan, will lead lots more people to save money for retirement. And now that they've been enrolled, very few people will opt out. This is what Thaler and Sunstein call "libertarian paternalism": giving people a gentle push in the direction of their own best interests (the "paternalism" part), but never taking away choices (the "libertarian" part). People can quit at any time; it's only the default that has changed.

Your 401(k)'s default investment plan is part of what Thaler and Sunstein call "choice architecture." As a 401(k) administrator, I can guide your choices in any number of ways. I can choose opt-in or opt-out; if I choose opt-out, I have to choose a default plan, whereas if I choose opt-in, I have to decide how much prodding to give you. The point is that choice is inevitable. There's no way to avoid structuring the options available to people, so the right thing to do is to pick the best default. Given this realization, most of Nudge will be entirely uncontroversial.

Thaler and Sunstein digest a mountain of psychological research and reassemble it into a convincing story about how to build policies that correct for human failings. Humans can be expected to make the right decision when faced with a routine, concrete problem -- buying food at the grocery store, say -- but all bets are off when we're asked to evaluate a complicated, large-scale problem like the impact of our air-conditioner usage on global climate change. Thaler and Sunstein want to give the market itself a nudge here. They wouldn't insist that we buy only low-power appliances. Instead, they want our appliances to give us simple, immediate feedback on our energy usage: thermometers that reveal moment-to-moment energy costs, say, and EPA fuel-economy infographics that use easy-to-understand metrics like "dollars per year."

Econs may be able to consume any information thrown at them and correctly render a judgment from what they read; Humans have finite attention spans and would rather spend time with their families than pore over fuel-economy tables. If we want Humans to make the best choices, we have to structure their choice environment to make this possible. Nudge is Thaler and Sunstein's brilliant contribution toward this goal.

Nudge for goodness sake
Nobody forced my neighbor to buy that expensive plasma TV. After reading Nudge now he knows why he spent so much more money than he intended. It seemed like such a bargain, standing right next to a much more expensive set in the store display. In Thaler and Sunstein's terms, the store nudged him to buy that TV. They organized the choice set in a way that gently moved him towards what they want him to do. They got him to buy a pricey TV by taking advantage of the principle of contrast. Such psychological biases have been exploited since the beginning of human commerce to sell us things we don't need. This book makes a compelling argument that the same psychological biases can be used to get us what we really want.

After reading Nudge it is easy to understand how small things can make a big difference. For instance, most people I know would like to save more money; most of them don't. Nudge convincingly argues that people can, and should be helped to do that. Very few of us can commit to saving more money today, but most of us can commit today to save more money tomorrow. This human tendency can be used to help people save, and Nudge describes how several companies have already implemented such programs successfully by nudging employees to committing in advance to save part of a future salary increase.

By relying on a large body of work in Psychology and Behavioral Economics, Thaler and Sunstein elegantly argue that people have predictable, systematic biases and that this knowledge can be put to work to help all of us.

Their basic thesis is simple and brilliant: First, how options are presented matters. There is no neutral way to present options. If you present the salads first in a buffet, people will eat more healthy food than if you put salads at the end. Second, don't reduce choice, but organize the options so that people will be more likely to end up with what they themselves would prefer. This is as true for the salad bar as it is for health care.

This amazing book is useful for individuals and policy makers. Policy makers should be interested because such "choice architecture" is strictly non-partisan. Individuals should be interested because this book will nudge them to improve their life their way.
... Read more

Editorial Review

For more than twenty years, millions of managers in Fortune 500 companies and small businesses nationwide have followed The One Minute Manager's techniques, thus increasing their productivity, job satisfaction, and personal prosperity. These very real results were achieved through learning the management techniques that spell profitability for the organization and its employees.

The One Minute Manager is a concise, easily read story that reveals three very practical secrets: One Minute Goals, One Minute Praisings, and One Minute Reprimands.

The book also presents several studies in medicine and the behavioral sciences that clearly explain why these apparently simple methods work so well with so many people. By the book's end you will know how to apply them to your own situation and enjoy the benefits.

That's why The One Minute Manager has continued to appear on business bestseller lists for more than two decades, and has become an international sensation.

Reviews

Short to Read, Big on Wisdom
I really liked this book, but for the same reasons I liked it, some may hate it.

First of all, it's an easy read, and it gets its points across by telling a story. Other books, such as The Sixty-Second Motivator, have also used this format succesfully, but this style may not appeal to everyone. To me, it makes the book a lot less boring to read.

Secondly, the book is short. The vast majority of readers will easily be able to read this book in a day. It has bigger font, which I personally liked and thought it made it a joy to read. However here again, some may be turned off by that and consider it to be too "child-like."

Thirdly, the book takes solid mangagerial info and gives it to the reader handily in the form of three "secrets." I found the advice to be very practical and while some may consider it far too simple, it can help you a lot IF you actually apply the info- which I suspect most managers do not.

In conclusion, I recommend this short business classic to anyone looking for better ways to improve their managerial skills. I doubt most will be disappointed. Also liked Who Moved My Cheese? An Amazing Way to Deal with Change in Your Work and in Your Life by the same author.

Great Role Modeling of Communications and Motivation
When most people become a manager for the first time, they are more than a little unsure of themselves. Naturally, they often use speech and ways of doing things that they have seen others use. That's great if their role models are good, but can be terrible otherwise.

The One Minute Manager provides a positive role model for those who have not yet seen one, and good reinforcement for those who have not seen one lately.

If organizations try to operate on the assumption that only the manager has ideas worth acting on, then very little will be accomplished. The One Minute Manager provides a useful model for opening up and stimulating the minds of everyone in the organization to accomplish more.

Not only is this advice worth following from an effectiveness point of view, it will also make you feel better about yourself as a manager and as a person when you follow it. And you will certainly make those who report to you feel a lot better, as well.

I like the use of a parable to help each of us reexamine ourselves, because it makes the reader feel less defensive. But be sure to remember what you gut instincts would have been in the same situations the One Minute Manager describes. Otherwise, you may miss the point of how much your behavior needs to change.

This is one of a handful of books well worth rereading annually.

Unlike most business books, this one is short and easy to read. The academic language has been banished, and it is well written.

If you want to go beyond The One Minute Manager to get even better results, you will have to learn and use other beneficial habits as well. But you can have all the great ideas in the world, and if you annoy and stifle everyone around you, not much will happen. So think of this book as necessary for more success, but not sufficient in and of itself for getting the utmost benefits in working with others.

The One minute Manager
A measurement of a good leader is ability to develop other leaders, not followers. In today's world, many new supervisors are thrust into a "baptism by fire" management environment. I found this book to be an easy to read guide that arms newcomers to management with the basic tools for building worker relationships and getting the best out of their staffs. As a result, their efforts are guided into decisions that generate increasingly positive outcomes in uncomfortable situations. Self confidence builds and leadership/management styles improve.

I have made it a habit during my welcome interviews to provide each new management employee with a copy of "The One Minute Manager". We all enjoy the benefits!

Must Reading for all Leaders
This book has influenced me for many years. It's wonderful. Some people may consider it too simple and common sense...unfortunately common sense isn't always common practice. It's quick and easy reading and on my personal "Top 10 List of Great Book." I refer to it in nearly every Seminar I present, because it's basic philosophy motivates people...catch them doing something right and tell them about it. This book is simple, yet very powerful. I'm still amazed how few people raise their hands when I ask in my Seminars, "How many people have read `The One Minute Manager.'" This is must reading for all leaders.

Powerful Simplicity
I was a little disappointed when 'The One Minute Manager' arrived in the mail and I saw its small size and large fonts. However, this tiny little fairy-tale is the best management book I've read. I strongly recommend this book for managers in all fields, including professors in academia. 'The One Minute Manager' takes less than an hour to read, and if you have any interest in becoming a better manager or a stronger leader, surely you can risk 60 minutes of your time? The ideas are not contrived, artificial mechanisms that interfere with our natural personalities. Instead, the entire strategy can be implemented by following a few simple rules that feel natural and are easy to perform and maintain. Sound too good to be true? Just try it!

A word of caution though, use of the strategy assumes the individuals on the manager's team are intelligent, and the tools presented are designed to encourage subordinates to become more independent and responsible, not reliant on a manager's approval, input or direction on minor decisions. Any manager who wants to be involved in all aspects of a project couldn't possibly use the strategies of 'The One Minute Manager' without driving his team nuts.

Practical, cute, and easy to read
This is a great little introduction to personnel management. Though slightly misnamed, the book introduces three skills of management which can be done in a concise way (but probably not quite 60 seconds). Managers should cast clear vision and expectations, commend good work, and correct mistakes. That's it.

The reason the book is so good is that so many managers can't or won't do those three simple things. The ability to confront employees in a non-combative way is too abrasive for sensitive people-people, and too limited for true autocrats. Praise is simple and obvious enough, but many managers think they've done it when they haven't. And precise goal-setting is sometimes beyond business leaders who do not have sharp mental editing skills. When you're finished with the book, you haven't heard anything you didn't already know, you've only been reminded of how important it is to do these things. Like diet and exercise, most of us know what's best for us regardless of whether or not we do it. Additionally, and this is a subtle point, the manager has to express how he or she feels about an employee's performance, and accurate expression of feeling is sometimes beyond the emotional range of some really driven leaders.

It's a top notch, brief read. Everyone in leadership ought to read it, even if they walk away with nothing new. The only thing I'd correct is some mediocre narrative, as the whole book is written as a fictional set of interviews by a young manager-to-be of his idiolized One Minute Manager, running a company. But no one's reading this book because they meant to pick up a good novel, so writing style is a minor issue. That aside, it's worth the content.

THE ONE MINUTE MANAGER ISN'T STALLED
The first time I read The One Minute Manager, I remember thinking "If only I could remember all these good ideas and what to say and what questions to ask". On rereading it, I can say "Yes, I do these things naturally". That is why the book is so powerful. It describes what effective people in business do naturally. Why then should so many people reread it and share it with their friends and children? The answer is simple - With today's daily pressures, people take too many short cuts and those short cuts along the bumpy road get us stalled. "The 2,000 Percent Solution" by Donald Mitchell, Carol Coles and Robert Metz talks about these "stalls" that keep us from succeeding. These "stalls" are caused by poor Communications (the message is not understood), Disbelief (We can't do it), Tradition (We've always done it this way), Bureaucracy (too many unproductive policies and procedures), Misconception (based on poor assumptions), Unattractiveness (Not wanting to wade in murky waters) and Procrastination (We can do it tomorrow, and maybe it will get better before then). The One Minute Manager takes us back to the basics of being a good manager. "The 2,000 Percent Solution" shows The One Minute Manager how to grow his or her business by 20 times the normal rate. Both are needed. ... Read more

Reviews

1st edition compared to 2nd
Years ago, I purchased the first edition of VISUAL DISPLAY OF QUANTITATIVE INFORMATION. The second edition provides high-resolution color reproductions of the several graphics found in the first edition. In addition, corrections were made. However, to most readers/users, I doubt that the changes would be worthy of purchasing the second edition if one already owns the first edition.

Edward R. Tufte is a noteworthy scholar and the presentation of the material presented in this book is awe-inspiring. Tufte has also compiled two other books that can be best described as quite remarkable. These additional books are entitled, ENVISIONING INFORMATION and VISUAL EXPLANATIONS. All three of these volumes are not merely supplemental textbooks; they are works of art.

My intent was to use VISUAL DISPLAY OF QUANTITATIVE INFORMATION as part of teaching my statistics course. Students, but mostly faculty, are overly impressed with inferential statistics. Graphics play an important role in the understanding and interpretation of statistical findings. Tufte makes this point unambiguously clear in his books.

Two features of VISUAL DISPLAY OF QUANTITATIVE INFORMATION are particularly salient in teaching a statistics course. First, the concept of normal distribution is wonderfully illustrated on page 140. Here the reader is reinforced with the notion that in the normal course of human events, cultural/social/behavioral/ psychological phenomena usually fall into the shape of a normal distribution. The constant appearance of this distribution borders on miraculous. Just as importantly, it is the basis for accurate predications in all areas of science. Tufte's illustration (page 140) speaks to this issue much more clearly than a one-hour lecture on the importance of the normal distribution. Which goes to show -- once again -- "a picture is worth a thousand words." Sadly, the illustration on page 140 is small and in black and white. I wish the second edition included a larger reproduction of this photo. A color presentation would have been helpful.

Second, Tufte continues his unrelenting pattern to reinforce the importance and impact of illustrations in understanding complex concepts. In particular, page 176 demonstrates the impact of Napoleon's march to Moscow. The illustration is both profound and eerie. The reader is left with a feeling of death and pain for the foot soldiers...

Superbly thought provoking
I divide my graphics work into two categories: BT (Before Tufte) and AT (After Tufte). I rarely acknowledge any involvement of a publication from those dark BT days.

Tufte's masterful and dead-on takes about how to communicate statistical and quantitative data challenges standard assumptions about developing graphical information and reveals, though it is not his stated intention, the weakness of so many graphics software packages. Just look at his collection of chartjunk and "ducks" (his term for hideous graphics) to see how all the whistles and bells available to us via computer graphics programs actually obfuscate the interpretation of visual information. By the time you read how much ink and paper are wasted by created bad graphics, you should be a convert.

And if you are ever lucky enough to have the chance to attend one of Tufte's seminars, pawn your PC if that's what it takes.

It Will Change Your Thinking
Are you put to sleep by briefings on a regular basis? Do they become more colorful and simplified as the intended audience rises in your company hirearchy? Do you feel that you are being talked down to by a lot of fluff that could be condensed by a factor of say, a million? If your answers are "yes," but you cannot provide a good alternative, then this is the book for you. It changes the way you look at data. Through numerous examples, Tufte demonstrates how to rearrange and simplify tabulated lists, schedules, graphs, diagrams and maps in a way that elegantly reveals otherwise hidden relationships and patterns. I have applied his techniques to my own briefings as well as to vacation itineraries, meeting notes, and to do lists. But be forewarned. I have touted this book to my peers and managers and of the four people who have read the book none have had the epiphany I experienced. This book may be only for those who are fed up enough to change.

Changed my style
I was one of those chart-makers who used color just because I could, even when it was unnecessary or even inappropriate. This book changed the way I looked at graph-making. His concepts of data per unit of ink (which should be maximized), and trying to make each droplet of ink convey something useful were extremely helpful, as were his suggestions to minimize distractions and phony 3-d effects.

This, and his second book, "Envisioning Information" are must-reads for anyone designing computer statistical tools (like I was) or simply trying to convert raw data into meaningful graphs, maps, etc.

Excellence in graphical work
If you buy just one of Edward Tufte's three wonderful books on good graphical practice (soon to be four, incidentally: watch out for Beautiful Evidence, expected later this year), then it has to be this one, because it is here that he sets out the principles that underlie all of his later work. It is a book that everyone who uses graphs for displaying information needs to read and read again. Every page contains something of interest and importance, and sometimes something entertaining as well.

So, what are these principles that define a good graphic? First of all, the presentation must be honest. So far as deliberate dishonesty is concerned this is obvious, but often graphical dishonesty results from incompetence rather than bad intentions. A frequent error of this kind is to vary the linear dimensions of little drawings intended to represent the relative magnitudes of different things. It is common, for example, when one quantity has double the magnitude of another to represent this with a drawing that not only has double the length but also double the width of the other, forgetting that this means that it has four times the area. In more elaborate illustrations where the drawings imply three dimensions, i.e. depth as well as length and width, doubling the linear size implies multiplying the volume by eight.

To this point Tufte's arguments are surely uncontroversial, but he goes on to discuss other principles that excellent graphics display and bad ones do not, and here he may part company with some of his readers. He dislikes meaningless decoration -- flourishes intended to make "dry statistics" more interesting. However, as he rightly says, if the statistics are not interesting in the first place one should not be presenting them, and if they are interesting they don't need decoration to make them more so. Another point -- related to this one, but more extended -- is that good graphics maximize what he calls data ink: as far as possible all of the ink used in printing the graphic should be conveying information about the data. Grids, scale measures, frames and so on should be kept to a minimum and should never be allowed to overwhelm the data they are supporting. A good graphic should be clear, but at the same time contain many details that constantly call the attention back.

The book is fairly repetitive, as certain examples recur during the course of reading it. However, this is deliberate, and probably essential. When we see a truly excellent graphic for the first time, such as the summary of New York City's weather in 1980, which appears in Chapter 1, we can see immediately that it is excellent, but it is less evident what makes it excellent. To understand this we need to have the various features explained and contrasted with some of the truly horrible examples that Tufte also provides: the very large quantity of real information contained in a small space, the simultaneous comparison of numerous different variables, the intelligent (and not garish) use of shading, the explanatory labels within the graphic, and so on. Convincing the reader that all this is desirable, and that gratuitous shading, meaningless bright colours, and so on, are not, requires a leisurely pace and some repetition. Many readers simply don't get it even after it has been explained, and the continued frequency of really bad graphics underlines the necessity of Tufte's books.

An absolutely superb book.
Tufte presents an examination of a frankly under-esteemed method of data analysis that can be accurately described as passionate. As a Behavioural Scientist trained in sophisticated methods of statistical analysis, I previously was arrogantly inclined to regard charts and graphs as simplistic and naive approaches to data interpretation. However, I now apprehend the undeniable utility of graphical representation, and have acquired a fascination with the field through Tufte's contagious enthusiasm.

If you work with data of any form, it is IMPERATIVE that you read this book.

If a picture is worth a thousand words, better draw it carefully
The Visual Diplay of Quantitative Information is not exactly a how-to book, in that it won't give you step by step instructions on how to create charts. Rather Tufte shows us principles of good design, principles of bad design (i.e. how people lie with graphics) all accompanied by many inspirational examples.

His examples strike us with their beauty and economy and show us how picturing data makes a huge difference in how effectively and quickly we understand it. Looking at Mivart's chart of Napoleon's march on Moscow, or the Salyut 6 hand drawn mission schedule, or a Japanese train schedule can only make a geek like me gush out "Way cool!".

I find it gratifying that Tufte takes so many examples from Japan, where I live. The Japanese are often accused of simply working with other people's ideas. This is naive and the Visual Diplay of Quantitative Information provides an excellent counterexample of the Japanese being sophisticated leaders in a creative endeavor.

Vincent Poirier, Tokyo ... Read more

Editorial Review

Editorial Review

THE MULTI-MILLION COPY BESTSELLING CLASSIC

Read by millions, this timeless book holds the key to success-in the secrets of the ancients. Based on the famous "Babylonian principles," it's been hailed as the greatest of all inspirational works on the subject of thrift and financial planning.

ACHIEVE PERSONAL WEALTH...

This celebrated bestseller offers an understanding of-and a solution to-personal money problems.This is the original classic that reveals the secrets to acquiring money, keeping money, and making money earn even more money. Simply put: the original money-management favorite is back! ... Read more

Reviews

Even better the fifth time around!
I first heard about this book 17 years ago. At that time, I was in a direct sales company and had the good fortune to attend a seminar conducted by a businessman named Jim Rohn.

Mr. Rohn talked about his early mentor, a man named Earl Schoff and went on to tell us how Mr. Schoff turned him on to personal development and pointed him to the right books to read. One of the most important books, said Rohn was The Richest Man in Bablyon.

Rohn had made and lost a fortune but came back and made another fortune and gave credit to the principles in The Richest Man in Bablyon for helping him accomplish that feat.

I read The Richest Man in Bablyon and have to admit, I hated it! I thought it was stupid, like feel good stuff that has no substance. When ever friends came over, I hid the book. I felt so ridiculous.

But Mr. Rohns words of wisdom kept echeoing in my mind. So I read it over and over untill the principles were imbedded into my conscious and subconsious mind.

Soon, after the fifth reading, the the principles became habits for me. My wealth esculated at a very rapid rate. I was no longer wasting money. I was now investing the first 10% of my income, tithing 10% and investing another 10% in capital like no load mutuals, real estate, discounted mortgages, tax liens and my own business.

The Richest Man in Bablyon has 7 basic principles:

1) Start thy purse to fattening - save/invest
2) Control thy expenditures - watch out for self serving brokers
3) Make thy gold mutiply - use powerful investments
4) Guard thy treasures from loss - watch out for brokers with
their hot tips.
5) Make of thy dwelling a profitable investment - rental properties, your own home---but stay within your means.
6) Insure a future income - do work that you love to do. Become excellent at it.
7) Increase thy ability to earn - education never stops. Keep reading good books like this one, The Millionaire Next Door, Rich Dad Poor Dad and so on.

The Richest Man in Bablyon is an excellent book. Although only 145 pages, it is packed with powerful information that can be life changing. It has helped some people like Jim Rohn and others become millionaires.

George Samuel Clason was born in Louisiana, Missouri, on November 7, 1874. He attended the University of Nebraska and served in the United States Army during the Spanish-American War. Beginning a long career in publishing, he founded the Clason Map Company of Denver, Colorado and published the first road atlas of the United States and Canada. In 1926, he issued the first in a series of pamphlets on thrift and financial success, using parables set in ancient Bablyon to make each of his points.

These were distributed in large quantities by banks and insurance companies and became familiar to millions, the most famous being "The Richest Man in Bablyon," the parable which has impacted the lives of millions of people. These "Babylonian Parables" have become a modern inspiritional classic.

The Richest Man in Babylon is must reading for anyone who wants to achieve maximum financial success. Highly recommended.

A ONE OF A KIND CLASSIC
I first read "Richest Man in Bablyon bac in 1975. At first I was taken back by it's compact size and story book style. This book should be read by everyone from grade school to the college level students, employees, executives and the self employed. In todays's society, where people spend most if not all of what they make, this book is mre valuable than ever. Other books I would recommend are; "The Millionaire next Door" by Dr. Stanley et all, "More Wealth without Risk" and "Financial Self-Defense" by Charles Givens. Great book. A must read for anyone seeking financial independence,

POWERFUL, VERY POWERFUL BOOK!
I am continually amazed at how a book so small can contain so much content and be so powerful. This book should be mandatory reading beginning at the grade school level through college and should be given as a gift right along with a diploma.

I took the advice of acde1034@yahoo.com who recommended 'The Millionaire next Door" and "More Weath without Risk" and bought and have read both. Both of these books are in the same status as "The Richest Man in Bablyon" and should also be required reading by anyone who is serious about their financial future. I am now giving "Richest Man in Bablyon" as a accessory gift to a cash gift at weddings and graduations.

Powerful and timeless
I am still amazed that such a tiny book can deliver so much powerful and timeless information. The Richest Man in Bablyon contains the secrets of the ages and is a must read book for anyone who wants financial success.

It should be read and reread, over and over.

An Old Book with a Fair Amount of Wisdom
I often give this book out as a gift whenever a person younger than me asks for my advice on money. I always present this book to them saying "if you read it and do as it says, it will work magic." It really contains excellent, time tested advice, and would make a good gift for someone in their early 20s who is on their own for the first time, and struggling.

The book is a series of parables about money written in the 1920s by George Clason. They were written as individual essays of a few thousand words, but the theme throughout them is consistent -- save 10% of your money, give 10% away, use 10% to reduce your debt load, and live on the remaining 70%.

The stories in the book are entertaining; they are reminiscent of some of the parables in the Bible, such as the Prodigal Son or the story of the Workers in the Vineyard. I think this is intentional on the part of the author; certainly readers in the 1920s had an appreciation for "old fashioned stories with a moral" that people today seem to have lost. I enjoy the book greatly, though, and any thoughtful person who reads the book should find it interesting, especially if they are trying to get their finances in order.

Still a must read for all who want to be wealthy
When I first started in sales 19 years ago, a good friend of mine advised me of the benefit of personal development books and suggested that I start to build a good library.

One of the first books he recommended to me was The Richest Man in Bablyon. His advise was that you can live off your income but you can't get wealthy off of income. You only get wealthy by investing, starting with that first 10% and with the proper management of money.

The Richest Man in Bablton may be a turnoff to the analytical types. Question: how are you analytical types doing financially?
Read and use the principles in this book. It will make all the difference in the world.

I also recommend The Millionaire Next Door, The Automatic Millionaire and More Wealth without Risk.

Les I forget, always remember that a lesson in wealth building is to give to recieve and the best time to start giving is when you feel you cannot afford to. It will come back to multiplied many times over.

Definitely a must read for everyone.
When I started in sales 15 years ago, a very good friend of mine turned me on on the mind books. This was one of three he recommended and he was very successful.The other books were Think and Grow Rich and Success through a Positive Mental Attitude. The principles in Richest Man in Bablyon are timeless. Remember, you can live off your income, but you can't get wealthy off your income. You only get wealthy by investing and Richest Man in Bablyon teaches that all important step of investing.Two other books to read in the area of personal finance are Wealth without Risk and Financial Self Defense by Charles Givens. These books will show you how to save more on what you make.

Common sense is not necessarily common knowledge
I have to chucle when people say that outstanding books like this one by George Clayson are just "good old fashioned common sense" and are complaining because of the books brevity. You missed the whole point!Common sense is not necessarily common knowledge.I used to work for a millionaire who credited the principles in this book for helpin create his fortune which was in the hundreds of millions of dollars. Save a dime out of every dollar. That is all it takes to start your fortune. But how many actually will do it?

A classic and powerful book
Don't underestimate this small book. It contains powerful information. Written in parables, Richest Man in Bablyon will teach you the philosophy of the wealthy. And how you can achieve great wealth in any economic condition.

Richest Man in Bablyon should be mandatory reading in schools. I submit that if it was, we would have a financially stronger America.

Great book. Must reading.

Not for the sophisticated...But,
How are the sophisticated doing financially? By sophisticated, I mean the affluent, high income earners who spend most of what they make...Richest Man in Bablyon is timeless like Think and Grow Rich but written in a style like the very popular Rich Dad, Poor Dad series.An easy read. Informative and entertaining.I suspect that this book hit a nerve with the 1 star reviewers. Living a little bit too high? Then read this book. ... Read more

Editorial Review

This myth shattering book reveals the methods Nouriel Roubini used to foretell the current crisis before other economists saw it coming and shows how those methods can help us make sense of the present and prepare for the future.

Renowned economist Nouriel Roubini electrified his profession and the larger financial community by predicting the current crisis well in advance of anyone else. Unlike most in his profession who treat economic disasters as freakish once-in­a-lifetime events without clear cause, Roubini, after decades of careful research around the world, realized that they were both probable and predictable. Armed with an unconventional blend of historical analysis and global economics, Roubini has forced politicians, policy makers, investors, and market watchers to face a long-neglected truth: financial systems are inherently fragile and prone to collapse.

Drawing on the parallels from many countries and centuries, Nouriel Roubini and Stephen Mihm, a professor of economic history and a New York Times Magazine writer, show that financial cataclysms are as old and as ubiquitous as capitalism itself. The last two decades alone have witnessed comparable crises in countries as diverse as Mexico, Thailand, Brazil, Pakistan, and Argentina. All of these crises-not to mention the more sweeping cataclysms such as the Great Depression-have much in common with the current downturn. Bringing lessons of earlier episodes to bear on our present predicament, Roubini and Mihm show how we can recognize and grapple with the inherent instability of the global financial system, understand its pressure points, learn from previous episodes of "irrational exuberance," pinpoint the course of global contagion, and plan for our immediate future. Perhaps most important, the authors-considering theories, statistics, and mathematical models with the skepticism that recent history warrants- explain how the world's economy can get out of the mess we're in, and stay out.

In Roubini's shadow, economists and investors are increasingly realizing that they can no longer afford to consider crises the black swans of financial history. A vital and timeless book, Crisis Economics proves calamities to be not only predictable but also preventable and, with the right medicine, curable. ... Read more

Reviews

How economic crises are probable and predictable, and how to get out of them, May 11, 2010
Nouriel Roubini gained great notoriety as one of the few economists who correctly predicted our current financial crisis, specifically pointing to the 90 percent increase in home prices from 1997 to 2006. While Roubini has written other books, "Crisis Economics" is his first foray into economic literature aimed at the mass market and serves to expound on his argument that most financial bubbles are not only predictable, but avoidable. To borrow a phrase from Nassim Taleb, these are not unpredictable "black swan" events, but can be forecasted with some degree of probability. The authors aptly point out the difficulty in defusing bubbles as they inflate as no one within the financial markets or the regulatory structure typically wants to take the punchbowl away from the party. As bubbles inflate they typically open the door for schemers and opportunists who become the inevitable scapegoats for the inevitable crisis, conveniently deflecting criticism from those who deserve it. Worse still there's little accountability in either the public or private sector for those who should have known the bubble was over-inflated and took no corrective measures to stop it. What compounds the problem this time is governments are re-leveraging the system by taking on massive debt to prop up the private sector, leaving them vulnerable and unable to respond when the next crisis inevitably comes. Worse still, these "balance-sheet" crises hobble government finances resulting in anemic recoveries that drag on as happened in Japan in the 1990s. And for all the talk of the private sector de-leveraging there's little real proof that's occurring and instead it appears to be stabilizing at unsustainably high levels, setting the stage for the next liquidity crisis.

The authors look over economic history and point out a well reasoned argument, namely that economic collapses are both likely to occur and are predictable. They are not freakish, unforeseen occurrences, but oncoming events whose warning signs are ignored by policy makers, executives, and politicians. Even recent history proves this to be correct, pointing out crises limited to specific countries over the past few decades (Thailand, Mexico, Argentina, Indonesia, etc) that have led to more large scale economic problems. By now you'd be inclined to feel that Roubini truly is living up to his "Dr. Doom" nickname, but he is hardly finished. The authors roundly criticize the current tendency to socialize losses and privatize gains and calls on governments to do more to break up too-big-to-fail institutions before they do fail, as the temptation to bail them out when they do fail (and they will) will prove irresistible for policy makers and politicians alike. The sad reality is that policy makers have not yet learned their lessons and are tinkering at the margins when a more massive overhaul is required. While keeping interest rates near zero percent has kept the economy from totally collapsing it is unsustainable and new bubbles are appearing in the form of commodities prices, which have surged greatly in price.

But the authors do offer ways in which policy makers, executives, and politicians can get out of our current situation and avoid recurrences. Sadly they are not easy or palatable situations, and its all to easy for all three groups to ignore taking hard steps to reign in economic growth during robust growth periods. And that's the problem. Societies are predicated on growth and expansion. We detest the idea of tamping down economic growth as it is so contrarian, yet that's what essential. Thankfully Roubini and Mihm make economics and finance relatable and easy to understand, yet without dumbing it down significantly. As academics both write with a flair and �lan uncommon in economics, yet they certainly do tend to get readers to despair at times. Their solutions seem reasonable; one can only hope that policy makers, executives, and politicians would not only read this but find the will to actually do what is necessary to prevent the next crisis.

MUST READ book of the Year - Why It's Worse this Time Around & What to Expect. Buy a Copy for Friends & Family, May 11, 2010
Dr. Doom sounds more dire than ever...and with good reason. As a college instructor and business writer, Nouriel Roubini has been a personal favorite since properly predicting the real estate and resulting financial fiasco. However, this book takes everything to the "next level". Here is why you MUST buy this book (and a copy for friends or family)...

1. Compares alternatives...doesn't just complain. Many economists make a living from finding fault in current policy but when it comes time to making a suggestion they fall silent. Not so with Roubini and co-author Mihm. This book sorts through the clutter to discuss the pros and cons with each course of action, the limitations and the illusions to current and past policy...and the missed opportunities.

2. Future Trends...unlike other books that focus on the past, this book provides a firm foundation for what you can expect next. Unfortunately, the news isn't good. In fact, it's more than a bit troubling but those that fail to heed good advice are the ones likely to suffer the most. At times such as these there are two types of people...those that prepare and those that simply believe it is all "doom and gloom" so ignore it all at their own peril.

Roubini provides the reader with a firm foundation to understand how we arrived at this point and what the likely outcomes will be in the future. In fact, he clearly spells out exactly the type of scenario currently taking place with Greece...the default of nations rather than just banks and the resulting social-political and financial outcomes. There are no quick/easy fixes - just tough choices.

3. Inflation/deflation/gold and other debates. Although not the focus of this book, the authors don't shy away from taking on these hot button debates. Inflation versus deflation, the role of gold (if any), the position of the dollar, China and global positioning plus much more.

Other points. The book provides the novice with exceptional history surrounding the current economic condition while managing to include sufficient detail sure to entice the informed reader. Elusive points including the role of Basel Committee on Banking Supervision and other pertinent organizations/entities are explored without becoming tedious or boring. The book is data packed and does not rely on filler or fluff to make a point. Pure information, exceptionally balanced with positive and negative considerations on each and every point made.

Bottom Line: Must read for every informed citizen, investor or anyone else interested in the current financial situation and the likely aftermath to be experienced by the nation. This time things are different...find out why and what is likely to be coming soon to a nation near you.

Excellent - Every Page!, May 11, 2010
Most books on economics are boring and predominately filled with vacuous philosophy. Not so with "Crisis Economics." Nouriel Roubini, Professor of Economics at New York University, is best known for his detailed forecasts of the recent U.S. financial meltdown. Co-author Stephen Mihm, is a journalist and professor of history at the same school. The authors begin by demonstrating that financial cataclysms are as old as capitalism itself (China inflated its way out of financial problems in 1075), not 'Black Swans' (rare events, per fellow author Nassim Taleb). Then, the authors provide an excellent summary of varying economic schools' perspectives on today's problems.

Today it is fashionable to see the economy as a self-regulating entity that, left alone, stabilizes at full employment and low inflation. A prominent example is Alan Greenspan, who took his basic economics lessons from philosopher Ayn Rand. Karl Marx, on the other hand, was the first thinker to see capitalism as inherently unstable; Marx contended that capitalism would inevitably plunge into chaos because continual cost-cutting by owners would eventually leave so many unemployed that a revolution would result. 'Behavioral economists' try to explain why markets are inefficient - explanations include the naive jumping on the bandwagon, and various other biases and irrational inclinations. Keynes, like Marx, also undercut conventional wisdom, stating that deflation will occur and demand will fall if wages are cut and workers fired. Keynes' solution was to have the government create the needed added demand. Milton Friedman et al (the Chicago school), explained the Great Depression as a result of the decline in bank deposits and reserves, coupled with the Federal Reserves' failure to cut the discount rate. Hyman Minsky recently revitalized Keynesians by pointing out that capitalism contains the potential for runaway expansion powered by an investment boom. The problem is due to an excess of borrowers - 'hedgers' can cover their interest and principal payments, but 'speculators' can only cover their interest payments and 'Ponzi' borrowers can't cover either. Irving Fisher added the idea that government should revive a stagnant economy by flooding it with easy money ('reflation') - that's what we did in 2007 and 2008, in addition to throwing out lifelines of liquidity out to one financial institution and business after another. Finally, the Austrian school (Schumpeter et al - 'creative destruction') argue that even Hoover did too much in the Great Depression, and our recent actions only ensured the survival of zombie banks and firms needing endless lines of credit and special legislation. This burden, however, eventually causes the government to default or inflate its way out of debt. FDIC deposit insurance and the 'Greenspan put' are folly, per Shumpeterians.

Who's right? The authors contend the Austrians are heartless and wrong in the short-term, but have validity in the median to long-term. Roubini believes "the successful resolution of the recent crisis depends on a pragmatic approach that takes the best of both camps, recognizing that while stimulus spending, bailouts, lender-of-last-resort support, and monetary policy may help in the short term, a necessary reckoning must take place over the longer term in order to achieve a return to prosperity."

Many bubbles begin when an innovation heralds the dawn of a new economy. Examples include the 1840s railroad boom in Great Britain, the Internet dot.com boom of the 1990s, and the financial services boom in the 2000s. The 'good news' is that society was left with additional rail assets in the 1840s, and unused Internet cable lines in the early 2000s. Today's latest excess - vacant houses, are not such a boon as they are subject to vandalism and deterioration, in addition to having been grossly overpaid for.

Roubini and Mihm contend that our most recent crisis is not the result of sub-prime mortgages infecting an otherwise healthy financial system, but rather a system sub-prime in its major aspects - from 'top to bottom.' The first problem is our 'shadow banking system' that looks and acts like banks, greatly exceeds the impact of banks, but has never been regulated like banks. The second is the financial services industry's moving beyond the 'originate and hold' model for home loans that had gotten S&Ls into trouble earlier when they held onto bad assets. Unfortunately, this new paradigm eliminated concern over loan quality, and was expanded to student, car, and credit card loans.

Financial wizardry was the second major contributor. "Tranching" took a bunch of risky eg. BBB-rated sub-prime loans and put about 80% into senior tranches given an AAA-rating. The more exotic products had 50-100 levels, and others involved CDOs of CDOs (CDO-squared), and even CDOs of CDOs of CDOs (CDO-cubed). These complexities made it difficult or impossible to value the instruments by conventional means - instead mathematical models were used that relied on optimistic (eg. no real estate value declines) assumptions. The result was completely opaque and ripe for panic.

'Moral hazard' was the third major piece of our latest bubble, and consisted of several components. Inappropriate bonuses (based on single-year performance, paid in dollars instead of the dodgy securities being created) was the first. In 2006 the average bonus accounted for 60% of total compensation at the five biggest investment banks, and encouraged excessive risk-taking and leverage. Shareholders didn't have much incentive to rein these practices because the firms were employing high levels of leverage, giving shareholders 'little skin in the game' and over-sized upside potential. Even bank depositors, the ultimate source of much of the funding, had no reason to care, thanks to FDIC insurance. Regardless, in the event of a downturn, the Federal Reserve could be counted on as a lender of last resort, and even that protection was backstopped by the 'Greenspan put' (his being always ready to lower interest rates). In fact, the 2007 bubble was preceded and fed by low rates instituted to get out of the 2000 dot-com bubble.

The fourth major component of this bubble was largely courtesy of former Senator Phil Gramm, who successfully had much of the derivatives market ($60 trillion of CDS by 2008) placed off-limits to regulation. (Senator Gramm, along with Robert Rubin (Clinton's former Sec. of Treasury), Greenspan ('The Maestro'), and others also brought about the repeal of Glass-Steagall limitations.) This was followed by the SEC allowing investment banks to increase leverage to 25X+ vs. 12.5X for their more regulated commercial bank brethren.

Debt-levels increased everywhere. In 1981 U.S. private sector debt was 123% of GDP, and by 2008 it was 290%. Household debt increased (48% GDP in 1981, 100% in 2007) more than industrial debt, and financial sector increased the most of all (22% of GDP in 1981, 117% in 2007). Nor did leverage stop there. Roubini relates how a borrower would obtain eg. $3 million from a bank, add $1 million of his own, and then invest the $4 million in a hedge fund. The hedge fund would then borrow another $12 million (still 4:1 leverage) and have $16 million to invest - backed by as little as $1 million. Hedge funds often didn't even stop there, increasing leverage even further.

Some blame the Community Reinvestment Act of 1977 as a major contributor to the real-estate bubble. Roubini believes this is misplaced, even though the law was augmented in the 1990s to require 42% of loans to come from those with below average income within their areas. Roubini adds that most of the growth in sub-prime came from private lenders like Countrywide. (I suspect the truth lies somewhere in the middle. Freddie and Fannie both ended up operating with 40:1 leverage ratios.)

Citibank and others then added another twist - 'Structured Investment Vehicles' (SIVs) used as off-balance-sheet vehicles to hold mortgages prior to their being sold off as CDOs, etc. The applicable reserve ratios for SIVs were only 10% those for ordinary bank assets. Citibank held $100 billion in 7 SIVs, and was ultimately forced to take them back onto its balance sheet when things went sour. Meanwhile, woe to unaware investors.

The U.S. was not alone in these new frontiers of perilous finance. Fortunately, not all participated - India benefited from greater regulation and reserve requirements.

Everyone knows how it all began falling apart. Roubini focuses instead on what the government did. Initially the Federal Reserve faced a 'liquidity trap' (akin Japan) in which the central bank was unable to spur loans, even by lowering the discount rate to 0%, because banks were afraid of the future, and had too great a proportion of toxic assets. The Fed/Treasury then bought up many of their toxic assets, provided added capital (preferred stock) and looked the other way while the banks placed overly high values on their remaining assets. The Treasury also bought up a great deal of government obligations in an effort to force down their yields and encourage banks to move their money out of these safe havens and back into loans. The key points, per Roubini, are that these actions again strengthen the moral hazard pattern, set up a possibly even worse situation down the road, and added trillions to the federal deficit. (Roubini is not against these moves, believing there was no alternative. However, he's emphatic that we're nowhere near out of the woods.)

"Crisis Economics" recommends more effective government regulation (consolidating existing agencies, and ending 'regulation arbitrage' - shopping for the most lenient regulation; re-instituting a stronger Glass-Steagall Act - "on steroids"), and breaking up those 'too big to fail' (eg. Citigroup and Goldman Sachs) . Unfortunately, we are mostly back to business as usual, and Roubini is concerned that these changes will not take place.

We now owe $3 trillion to the rest of the world, and are running current account deficits of $400 billion/year. Increasingly the U.S. will have to borrow shorter term, making us more vulnerable to future crises and sudden collapse. Roubini is worried this will lead to disruptions to Free Trade (I hope so), even though he recognizes that there are 2.0 billion people in developing nations ready to join China and India in selling to America, and former Federal Reserve Vice-Chair Alan Blinder foresees up to 25% of Americans vulnerable to additional off-shoring. The dollar's days may be numbered in years, rather than decades, though the Chinese don't seem to want the lead currency role - yet.

The unemployment rate + discouraged + underemployed (< 40 hours) now approximates 17%. Many/most offshored jobs won't return. Adding the fall in averge work-hours (equivalent to 3 million more unemployed) to the 8.4 million jobs lost by the end of 2009, recognizing that 30% of capacity is now idle in the U.S. and Europe, that 42 states and the District of Columbia have already articulated plans to cut government jobs, and that the 2003-07 'boom-years' fueled by a credit bubble won't return, leads Roubini to conclude that this recovery will be U-shaped, not a "V," and fortunately not a "W" (double-dip). But, because U.S. interest rates are near zero, speculators are borrowing dollars and investing in risky assets elsewhere, then repaying the loans in depreciated dollars. Roubini asserts this technique has easily created 50-70% profits since March, 2009, can't continue, and is building the "mother of all asset bubbles."

Roubini sees Japan and Europe in no better economic shape. The U.K. is having problems, but taking corrective steps. However, problems with the 'PIIGS' (Portugal, Ireland, Italy, Greece, Spain) may break up the European Monetary Union. China needs to boost consumer spending, and its infrastructure exceeds current needs, says Roubini. (I'll take their problems, and their economists!)

Roubini's 'Bottom-Line' - the coming era may best be described as one of "Great Instability."

Dr. Doom Explains It, September 18, 2010
The economic crisis of 2008 has caught almost all observers unaware. Here and there, a few voices issued warnings, pointing out the existence of the housing bubble and the dangerous effects of the global financial imbalances and America's growing deficits. Chief amongst these Cassandras, the man whose dire predictions proved most accurate, was Nouriel Roubini. Nicknamed "Dr. Doom" in a New York Times article written by Stephen Mihn, Roubini's reputation as a forecaster, almost a prophet, is today unmatched.

Roubini's sterling reputation was the reason I chose to read "Crisis Economics", a further collaboration between Mihn and Roubini. Of the half a dozen or so books about the crisis that I have read (Richard Posner's A Failure of Capitalism: The Crisis of '08 and the Descent into Depression and The Crisis of Capitalist Democracy, Robert Shiller's The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It, Vince Cable's The Storm: The World Economic Crisis & What It Means, etc), Roubini and Mihn offer the most wide ranging look, discussing the roots of the crisis, the government's response, and suggestions for reform. Roubini and Mihn write well, and their book is an excellent introduction for the crisis to the uninitiated. Unfortunately, "Crisis Economics" offers rather less to those of us who have spent some time on the subject. Those readers might, like me, find little new in the early chapters of the book (the ones discussing the origin of the crisis) and much to disagree with in the later chapters (the ones outlining the authors' suggested way out of it).

The first half of the book described combines a run of the mill description of the crisis's formation, mixed with standard history of economic thought (from Smith to Keynes), only partially enlivened by the rather unorthodox focus on economic crisis and failure rather than success.

The authors employ mostly conventional Keynesian perspective on the crisis, and so should be applauded for their discussion of the Austrian school views about it. But although they explain the Austrian position in full, they ultimately discard it with a superficial analysis that would not convince any Austrian. Later they argue that they are offering a synthesis of the Austrian and Keynesian perspectives, but no self respecting Austrian could possibly accept their call for massive government intervention, while Keynesians would find little to disagree with the notion that the problems of twisted incentives caused by the necessary intervention should be addressed, or at the very least taken into account.

For me, the book only became interesting in earnest about halfway through, when the authors discussed the response to the crisis. Particularly, they emphasize the role of Fed. I knew that the Federal Reserve played a huge part in the bailouts of such players as Goldman Sachs and AIG. But Mihn and Roubini's account highlighted a fact that I was insufficiently aware of - how America's central Bank acted not only as a lender of last resort, saving the financial system from collapse, but also as an almost ordinary lender, lending money to more and more non-bank institutions in order to stop the credit freeze. It seems to me that while the Fed's action as lender of last resort was probably necessary, the active intervention in the markets more questionable. Monetary tools are effective in restraining an overheated economy (as Paul Volker did in the early 1980s), and in unleashing willing investors, but they are generally no good for promoting economic activity when there's no will for it. Ben Bernanke took very extreme actions to try to encourage economic activity and especially lending, and it is far from obvious that the relatively meager results were worth the effort.

The classic Keynesian account places the onus of reigniting the economy on the government's fiscal rather than monetary powers: Crudely speaking, Keynes taught that governments should spend their way out of depressions. Oddly enough, beyond criticizing the stimulus for being a political bargain and thus far from ideal, the authors have little to say about the government's direct role in creating demand, focusing their discussion on the various ways it underwrote risks taken by other institutions.

The bottom line may be that both fiscal and monetary policy focused excessively on "reigniting" markets rather than on stimulating the economy via government spending on public works and other government projects. This arguably prevented the "work" of the crisis - culling out the weak firms from the good ones - from taking place, and increased the amount of irresponsible players who gained from the bailouts.

Moving forward, the authors make several proposal for reforms. Unfortunately, I think many of these proposals are extremely problematic. Take compensation - the authors point out that traders and managers in financial firms to excessive risks, because they had wrapped incentives - they would make a fortune if the gambles paid off, but would lose very little if they didn't. In the short run, the traders and the firms both did very well, but in the long run, the firms had to be bailed out, while the trader's bank accounts remained as healthy as ever. The authors therefore make a series of proposals, all meant to link the compensation of executives with the long term prospects of the firm they work in. The problem with these plans is that in the long run, the well being of the firm is likely to be determined by a host of factors, few of them in any person's control. Delaying compensation cuts the link between the employees' pays and their performance - which is, ironically, exactly what self dealing executives want (see Pay without Performance: The Unfulfilled Promise of Executive Compensation). Furthermore, in trying to align the interests of firms with those of the executives, the authors ignore the fact that part of the cost of a firms' downfall is carried by its creditors and suppliers (and as we see in this crisis, by the taxpayers). When the a cost of an activity are born by those other than the parties involved in the activity, the cost is what's known in economic terms as an externality. Negative externalities (costs), unborn by the firm, are not taken into account by it. Which means that from a social perspective, even rational, income maximizing firms are taking excessive risks.

Another problematic proposal is an overhaul of America's financial regulators. The authors point out that America has a host of bodies meant to regulate finance, all of them work in an uncoordinated and inefficient way. The argue that America should reform its regulators to make them more streamlined and centralized - somewhat like Britain's Financial Services Authority. But the FSA did not seem to spare Britain the crisis. Is it really a great model for a regulating agency?

The book's final chapter describes the global financial imbalances - namely the huge deficits incurred by the United States and other rich countries, contrasted with the enormous surpluses amassed by such emerging countries as South Korea and especially China. The authors disagree with the "Global Saving Glut" hypothesis (advocated by the likes of Paul Krugman and Martin Wolf - see Fixing Global Finance (Forum on Constructive Capitalism)). They argue, in effect, that America and Americans are responsible for their choice to borrow excessively (p. 250).

But whether to save or spend is a question of benefits versus costs. As long as Americans are offered amazingly cheap credit (and correspondingly, few avenues for profitable and safe long term investments), they are unlikely to stop taking advantage of it. It is natural to borrow when the costs of borrowing is low - it is unnatural to lend money for meager returns

"Crisis Economics" is therefore an eloquent introduction to the financial crisis, and a thoughtful program on how to get out of it. I disagree with many of the authors' recommendations, but they are worth considering very carefully. After all, Roubini has been proven right before.

5 Stars for those with the background of a layman, May 29, 2010
Any review of this book would have to start with the intended audience for this book. That audience would definitely not be PhD or MA level economists, graduate students or financial professionals. The book is geared primary to the layman with little in the way of a macroeconomic or financial background. This is not to say that some knowledge of the theories of Keynes, Friedman, Hayek or Schumpeter would be unhelpful (it would provide some good perspective to the reader) but the book provides the necessary relevant background of these where necessary. This is also not to say that the book would be of no or little value to the more knowledgeable, however. Roubini provides many insights and tangents in this book that even they would find interesting.

In a nutshell, the book describes the problems that have caused the current economic and financial crisis (along with historical perspective), the steps that have been taken by various nations (with emphasis on the U.S.), the future dangers underlying those steps and actions that he believes would help mitigate, but by no means eliminate, the problems that have led to the current crisis (and will probably lead to future crisis).

With respect to the causal problems, Roubini discusses seven in-depth. They are moral hazard in the financial system, leverage, regulatory arbitrage, securitization, principal agent risks, loose monetary policy and current account balances. Moral hazard has led to financial institutions taking far too large risks due to an expectation of being bailed out by central banks. Leverage, primarily through the introduction of new financial instruments, has led to a massive expansion in lending vis-�-vis reserve requirements and the monetary base (thus greatly increasing both the volatility of aggregate financial instruments available as well as their quantity in dollar terms). Regulatory arbitrage involves financial institutions minimizing (or altogether avoiding) financial regulations currently in place by, in very sophisticated ways, moving themselves or the relevant financial instruments to spheres those regulatory agencies that either do not have the authority or ability to regulate. Securitization, combined with principal agent risk, has led to two problems. One is that it has permitted banks to off-load their loan portfolios to third parties and hence has eliminated the need to make decent and secure loans to begin with. After all, if the bank does not have to keep the loan on its own books, why would it have to worry about making a good loan to begin with? Related to this, third parties have done a very poor job at due diligence with respect to checking the quality of the loans they purchase... This, in turn, according to Roubini is due to 2 facts. The first is that they do not (in general) plan to hold them long themselves (and hence why worry about the risk inherent in them?). The second is that the rating agencies have done a poor job at rating the quality of these instruments due to conflict-of-interest and the fact that they are quite difficult to rate. These facts, combined with the fact that many players in the financial sector are only rewarded on a short term basis, has insured that far too much risk has been undertaken by the financial sector leading to a huge bubble. Not that these have been the only problems. The fact that many of the world's central banks had loose monetary policies in place too long after the 2000-2001 crash has not helped. Neither has the fact that huge current account deficits (especially in the U.S.) has led to a flood of capital flowing back from lending nations (particularly Asian surplus countries) thus further inflating financial instrument prices. These inflows have also made it much more difficult to control nations' money supplies. For example, when Greenspan tried to raise interest rates to cool down the economy in the mid to late 2000s very large capital inflows into the U.S., to a very large degree, counteraccted his attempts.

Roubini also discusses how the world's central banks have dealt with the crisis. In short, they have pumped a huge amount of liquidity, many times in a very haphazard way, into the banking system to prevent it from collapsing. This, he points out, has not only dramatically increased debt (thus creating a serious inflation risk in the future) but has also caused serious moral and principle agent problems in that financial institutions may, as a result, take more risks in the future than prudent due to expectations of being bailed out the next time around.

Roubini, toward the conclusion of the book, provides steps to mitigate against the current and future crisis. A few (but by no means all) include the need for tighter links in the financial sector between risk and reward (so that risk and return can be better matched as opposed to just passing risk on to third parties or to the future); reduction in rating agency conflict-of-interest by preventing agencies from issuing ratings to issuers of financial instruments (this could, more logically, be done by purchasers); separation of banking functions from investment banking; and more transparency (and standardization of transparency) to make it easier for third parties to better judge the true value of collateralized debt obligations. It would a serious loss to not mount this reforms now, in Roubini's opinion, as they will be almost impossible to enact into law in a non-crisis environment. Even then, although Roubini does not come out and explicitly state it, he seems to imply that he is not optimistic that much of what needs to be done here will implemented.

For financial professions, PhD level Economists and those actively engaged and closely following the markets (i.e., reading Financial Times, Euromoney, Economist on a regular basis) what is mentioned above is not exactly a revelation. Hence the book would be of limited value to such persons albeit Roubini still have many interesting insights that may intrigue this group whether or not they may agree with them (i.e., his belief that gold is currently [as of December 2009, when book was completed] more an overpriced commodity, in a speculative bubble, than an anti-inflationary hedge). For the layman, however, the book is a five star.

Zzzzzz, June 16, 2010
If you haven't read much about the crisis, Roubini and Mihm write a comprehensive summary of what I would describe as the lawmakers' view of the Financial Crisis. If you've read much at all, you won't find anything new here.

I would describe the lawmakers' view as one where greedy and incompetent bankers facilitated by incompetent or laissez-faire regulators took too much financial risk and bankrupted the worldwide financial infrastructure. As such, the solution is to pass more laws and beef up our regulatory organizations to prevent it from happening again. I believe this is a narrow view of the crisis.

For example, there was a large build up of institutional short-term debt, which unlike retail deposits is not afforded guarantees by the US government, at least not until the crisis. Banking's raison d'�tre is putting short term funds to work. Investors willing to bear duration, liquidity or credit default risk, don't need banks. That money panicked and withdrew from the economy rendering banks insolvent long before homeowners defaulted. Roubini asserts that banks should match the duration of their funding to their loans but that's not possible because of the long-term nature of investments other than efficient market arbitrage. How do we solve that? Pass a law that mandates it. What if the short-term funds flow elsewhere? Regulate every non-bank and coordinated regulations worldwide to control every inch on the planet. And if the funds flow into financial arbitrage as a way to match short durations? Restrict it. And if large quantities of short-term savings then get stuffed into mattresses and the economy grinds to a crawl as it did in the recession? Well, the book never addresses that because at its core it's really a one-sided debate.

Should banks or borrowers hold substantially more equity to mitigate the risk of panicked withdrawals? If so how much? What is the cost to borrowers, mainly homeowners who ultimately bear these costs through higher prices? What impact will using our equity this way have on long-term growth? Not a mention. The role of Fannie and Freddie, who are purported to have purchased or guaranteed half of the sub-prime and alt-mortgages? Nothing.

By turning a blind eye to what are probably the most important issues, Roubini and the eager lawmakers who espouse his logic can elevate what is probably a second or third tier issue - Wall Street incentives and moral hazard - to their narrow list of culprits. Then we simply pass laws that regulate their behavior. It's a wishful lawmakers' perspective.

The authors similarly ignore the fact that with surplus exporters eager to supply the US with risk-adverse capital the task of Wall Street has shifted away from raising capital and toward the pricing, underwriting, syndication and trading of risk that goes hand-in-hand with employing risk-averse hair-trigger capital. When the central problem is risk management, restricting derivatives, credit default swaps, syndication, proprietary trading and other devices that separate risk from capital, as the book recommends, seems counterproductive and likely to have far-reaching consequences unaddressed by the book. Two-side analysis would have be insightful.

If Roubini truly had fresh insights about our contemporary economy his evaluation of the government's monetary response (Chapters 6) wouldn't have been limited to a mere narrative summary of the actions taken without analysis and conclusions. His evalaution of the fiscal response (Chapter 7) wouldn't have been limited to the non-committed "on the one hand... and on the other ..." His analysis of his own proposals would have illuminated both pros and cons.

Similarly, his analysis of the real economy would explain why housing prices rose less than the prices of most other assets despite there being a housing bubble. He would explain why US productivity has achieved record growth rates relative to our peers despite a dearth of household savings and what he claims is a lack of investment and reckless borrowing solely for the sake of consumption. He would explain why assets have grown even faster than debt which he laments for having reached unprecedented portions and why household net worth has grown in line with historic averages - even at post-recession valuations - despite all his claims. And he would fit all his assertion of recklessness into a framework that explained why the import-oriented US economy grew 60 plus percent over the last two decades employing 40million new workers including 10 of millions of poor immigrants and offshore workers while our export-based peers in Northern Europe and Japan only grew 15 to 20%. Instead, we get a superficial rant about the reckless US economy.

This turn-a-blind-eye approach to tradeoffs sets him up to give a long list of proposals without ever truly examining their unanticipated effects on the economy. It's a do-whatever-it-takes times three to-make-sure-it-never-happens-again laundry list of proposals. Like so many one-sided arguments costs are irrelevant. If you haven't read much about the crisis and are looking to load your gun with the lawmakers' arguments, this book is for you. If you are looking for fresh perspectives, you'll be disappointed.

This one should be a text book!!!, August 15, 2010
I started to read this book expecting to get into a dark, profound and difficult analysis of economic theory...and it was a surprise to find it so clear and easy to follow. Roubini and Mihm delivered a book full of credible and understandable explanations of what really happened. But more...this book is also full of what would be recipes for sound economic policy.
I must also say that after reading this book I am really scared, because if such a bunch of people, that are supposed to know their trade and are expected to act with responsibility can deliver such poor results..you have to be scared..!! But the main thing is that we can not know if this mess was created out of stupidity or out of bad faith...or both...

Really good insight into the history and the current economic crises, August 5, 2010
Excellent writing with some typos ( which is unfortunate),excellent interpretation of macro economics and excellent analysis of the future economic scenarios. This book is better than Joesph Stieglitz book "Freefall: America, Free Markets, and the Sinking of the World Economy".

I am seeing some typos in my kindle version. Example: Section called " A world awash in cash" - Chapter 3 second paragraph has duplicate "had". I saw a some typos in the first 2 chapters. I am not sure if you see them on the print version.

Yes.The Obama Bubble is with us now., May 31, 2010
The authors are correct in their analysis .There will be no substantial financial and regulatory reforms, following the massive Bush-Obama bailout of the Wall Street hedge funds,private equity firms,investment banks and commercial banks, because such reforms will be full of holes(exceptions that will allow the speculators and projectors to continue business as usual)like a piece of Swiss cheese.Bank loans continue to be primarily used for speculative purposes while American small business ,which accounts for 80% of total employment in the US, continues to find the supply of credit unavailable.
The authors correctly point out that another bubble has been created by the alliance that existed between George Bush and Wall Street and now exists between Obama and the same Wall Street speculator financiers who financed his senatorial and presidential campaigns.Again,the only question is when this new bubble will deflate and how destructive it will be.
The book might have been a little better if the authors had tied their analysis into that that was originally made by Adam Smith in 1776 in The Wealth of Nations and J M Keynes in the General Theory in 1936.The financial crises are ergodic.It is the same factors coming into play again and again.Each episode is followed by a repeat episode.This process repeats itself although the cast of characters is different.Smith and Keynes had the answer-cut off all bank loans to speculators and projectors.It is as simple as that. Heavy regulation and control prevented these kinds of speculative occurrences from happening in the period 1938-1978.

Roubini's Crisis Economics is timely, balanced and bold, May 23, 2010
Loved it! Roubini's views are balanced (across economic doctrines of monetarism, laissez fare and Keynesian economics) and global (he covers with great clarity the role of emerging markets, China and IMF). Roubini's coverage of the current crisis is quite detailed, interesting and ground breaking. The discussion on US Dollar and loss of its position as a reserve currency is quite insightful as well. Overall, a wonderful book! ... Read more

Editorial Review

The provocative follow-up to the New York Times bestseller Predictably Irrational

• Why can large bonuses make CEOs less productive?
• How can confusing directions actually help us?
• Why is revenge so important to us?
• Why is there such a big difference between what we think will make us happy and what really makes us happy?

In his groundbreaking book Predictably Irrational, social scientist Dan Ariely revealed the multiple biases that lead us into making unwise decisions. Now, in The Upside of Irrationality, he exposes the surprising negative and positive effects irrationality can have on our lives. Focusing on our behaviors at work and in relationships, he offers new insights and eye-opening truths about what really motivates us on the job, how one unwise action can become a long-term habit, how we learn to love the ones we're with, and more.

Drawing on the same experimental methods that made Predictably Irrational one of the most talked-about bestsellers of the past few years, Ariely uses data from his own original and entertaining experiments to draw arresting conclusions about how—and why—we behave the way we do. From our office attitudes, to our romantic relationships, to our search for purpose in life, Ariely explains how to break through our negative patterns of thought and behavior to make better decisions. The Upside of Irrationality will change the way we see ourselves at work and at home—and cast our irrational behaviors in a more nuanced light.

Reviews

Fascinating look at human behavior

Well worth the wait.

OK, so I'm a fan already

Due credit is given to the power of irrationality

Wow! This is good stuff!

Editorial Review

Winning by Not Competing: A Fresh Approach to Strategy

Since the dawn of the industrial age, companies have engaged in head-to-head competition in search of sustained, profitable growth. They have fought for competitive advantage, battled over market share, and struggled for differentiation. Yet these hallmarks of competitive strategy are not the way to create profitable growth in the future.

In a book that challenges everything you thought you knew about the requirements for strategic success, W. Chan Kim and Renée Mauborgne argue that cutthroat competition results in nothing but a bloody red ocean of rivals fighting over a shrinking profit pool. Based on a study of 150 strategic moves spanning more than a hundred years and thirty industries, the authors argue that lasting success comes not from battling competitors, but from creating "blue oceans": untapped new market spaces ripe for growth. Such strategic moves-which the authors call "value innovation"- create powerful leaps in value that often render rivals obsolete for more than a decade.

Blue Ocean Strategy presents a systematic approach to making the competition irrelevant and outlines principles and tools any company can use to create and capture blue oceans. A landmark work that upends traditional thinking about strategy, this book charts a bold new path to winning the future.

W. Chan Kim is the Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management at INSEAD. Renée Mauborgne is the INSEAD Distinguished Fellow and Professor of Strategy and Management.

... Read more

Reviews

Value Innovation - strategy book of the year 2005?
The authors have published many articles over the last decade on Value Innovation. This is their first book. It summarizes their extensive knowledge on out-of-the-box strategic thinking.

What is a BLUE OCEAN STRATEGY? The authors explain it by comparing it to a red ocean strategy (traditional strategic thinking):
1. DO NOT compete in existing market space. INSTEAD you should create uncontested market space.
2. DO NOT beat the competition. INSTEAD you should make the competition irrelevant.
3. DO NOT exploit existing demand. INSTEAD you should create and capture new demand.
4. DO NOT make the value/cost trade-off. INSTEAD you should break the value/cost trade-off.
5. DO NOT align the whole system of a company's activities with its strategic choice of differentiation or low cost. INSTEAD you should align the whole system of a company's activities in pursuit of both differentiation and low cost.

A red ocean strategy is based on traditional strategic thinking - e.g. Harvard's strategy guru Michael Porter.

Some cases:
* Airline industry price wars result in bankruptcies and low profit margins. Southwest Airlines creates a new market by offering the speed of air travel with the low cost and flexibility of driving.
* Golf equipment industry competes to win a greater share of existing golf customers. Callaway Golf creates "Big Bertha", a golf club with a large head that attracted new customers to golf that had been frustrated by the difficulty of hitting the ball.
* The cosmetic industry creates a red ocean with models, expensive advertising, and promises of youth and beauty. The Body Shop creates a blue ocean that lasts more than a decade by creating functional cosmetics that defied the industry which sold emotionally appealing cosmetics.
* The wine industry gluts the market with a red ocean of thousands of brands competing on the finest oaks and tannins and legacy winey names. Casella wines creates [yellow tail], a blue ocean wine that succeeded by eliminating complexity, elitism and consumer confusion and creating a fun simple image that non-wine drinkers could enjoy.

A blue ocean is created in the region where a company's actions favourably affect both its cost structure and it value proposition to buyers. Cost savings are made from eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates.

Examples of strategic moves that created blue oceans of new, untapped demand:
- NetJets (fractional Jet ownership)
- Cirque du Soleil (the circus reinvented for the entertainment market)
- Starbucks (coffee as low-cost luxury for high-end consumers)
- Ebay (online auctioning)
- Sony (the Walkman - personal portable stereos)
- Cars: Japanese fuel-efficient autos (mid-70s) and Chrysler minivan (1984)
- Computers: Apple personal computer (1978) and Dell's built-to-order computers (mid-1990s).

The INSEAD professors Kim and Mauborgne have written regularly on the subject of Value Innovation since 1997 in Harvard Business Review. Being a business development manager, their thought leadership on strategic innovation has inspired me tremendously over the years. Their articles have been standard texts for many MBA students for some time (e.g. "Value Innovation", "Creating New Market Space", "Charting your Company's Future"). I expect their first book to be just as dominant in any strategy library as Michael Porter's books (the guru behind the classic red ocean strategies).

Peter Leerskov,
M.Sc. in International Business (Marketing & Management) and Graduate Diploma in E-business

"To strive, to seek, to find...."
This is an especially thought-provoking book which, as have so many others, evolved from an article published in the Harvard Business Review. According to Kim and Mauborgne, "[in italics] Blue ocean strategy [end italics] challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant...This book not only challenges companies but also shows them how to achieve this. We first introduce a set of analytical tools and frameworks that show you how to systematically act on this challenge, and, second, we elaborate the principles that define and separate blue ocean strategy from competition-based strategic thought." There are six principles which are introduced and then discussed on pages 49, 82, 102, 117, 143, and 172, respectively.

Frankly, I was somewhat skeptical that this book could deliver on the promises made in its subtitle. In fact, the material provided by Kim and Mauborgne is essentially worthless unless and until decision-makers in a given organization accept the challenge, are guided and informed by the six principles, and effectively use the tools within appropriate frameworks. The responsibility is theirs, not Kim and Mauborgne's. To assist their efforts, Kim and Mauborgne focus on several exemplary companies which have dominated (if not rendered irrelevant) their competition by penetrating previously neglected market space. They include the Body Shop, Callaway Golf, Cirque du Soleil, Dell, NetJets, the SONY Walkman, Southwest Airlines, Starbucks, the Swatch watch, and Yellow Tail wine.

Of greatest interest to me is Kim and Mauborgne's assertion that the innovations which enabled these companies to succeed with a Blue Ocean strategy did NOT depend upon a new technology. Rather, each company pursued a strategy which enabled it to free itself from industry boundaries. For Dell, that meant mass production of computers sold directly to consumers per each customer's specifications. Quite literally, each sale is "customized." For Callaway, creating an enlarged sweet spot to increase the frequency of solid contact for new or infrequent golfers just as, years ago, the enlarged Head racquet did so for new or infrequent tennis players. For Starbucks, creating a congenial environment within which to socialize, go online, or read while consuming coffee. All of these Blue Ocean strategies created new or much greater value for customers. Their emphasis is on the quality of experience, not on the benefits of a new technology.

According to Kim and Mauborgne, their research indicates that "the strategic move, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and sustained high performance. A strategic move is the set of managerial actions and decisions involved in making a major market-creating business offering." The cornerstone of a Blue Ocean strategy is value innovation which occurs "only when companies align innovation with utility, price, and cost positions. If they fail to anchor innovation with value in this way, technology innovators and market pioneers often lay the eggs that other companies hatch." For Kim and Mauborgne, value innovation is about strategy that embraces the entire system of a company's activities. It requires companies to orient the whole system toward achieving a "leap" in value for both buyers and themselves. Kim and Mauborgne explain HOW to create uncontested market space wherein competition is essentially irrelevant.

To paraphrase Henry Ford, whether decision-makers think they can or think they can't do that, they're right.

How to find, analyze, and develop new markets


I got to listen to Ren�e Mauborgne speak about "Blue Ocean Strategy." She was a very entertaining speaker and she made a number of interesting points. I tracked down the book and read it. I am glad I did. This book is the result of years of research into the history of business. One of the key questions the authors focus on is: "What makes a business profitable?" They came to the conclusion that companies which develop new markets can basically print money for the first five to ten years.

A "Blue Ocean" represents an uncontested market, a product or service that only one company is selling. The authors show that historically this has been the most profitable situation to be in, as opposed to a market with lots of competitors, or a "Red Ocean." The authors found that most of the tools for developing strategies in business are focused on "Red Oceans." The authors found that most "Red Ocean" strategies take the current industry's structural conditions as a given. A "Blue Ocean Strategy" sees market boundaries and industry structures as flexible. This book was written to help people find new markets, analyze if the new market could be profitable, and then develops strategies for fully exploiting the new market.

One of the key tools for finding new markets is what the authors call a "Strategy Canvas." The idea is to pick a set of key factors that current markets focus on, then on a scale from low to high put a point for where a market is for each factor, and then draw a line for a market. By looking at where there are no lines you may get some ideas for new markets.

Once a new market is identified the authors help analyze if there is potential for making money. They have a set of ideas on how to look beyond the existing demand, more importantly they provide some tools and processes for the analysis just how big a new market might be.

And once the decision is made to move into a new market, the authors have ideas on how to organize the business. They made the point that there is often a lot of reluctance to make changes and provide some ideas on how to get employees on board.

In many ways developing a new market, or a "Blue Ocean," is a lot of work. And in the past it has been very risky. By using the ideas from "Blue Ocean Strategy" businesses will have a better chance of finding and developing profitable new markets. It will be interesting to see if there is a new emphasis by businesses to more systematically look for new markets, and where that leads us.

This is going to be a classic. It is very readable, and worth rereading. The key insights and principles in the book are well explained, and supported by lots of examples. People will be reading it for the next twenty or more years. If you enjoy books about business, read this book. If you are looking for ways to expand or develop your business, read this book.

... Read more