Archive for the 'book reviews' Category

French Horn Close UpWhat has the French Horn to do with the science of uncertainty? The Economist review of journalist Jasper Rees’s book I Found My Horn may have nailed it.  The book chronicles Rees’s mid-life crisis in which he picked up his childhood instrument rather than running a marathon ;-) .  It’s now being published in the US as A Devil to Play: One Man’s Year-Long Quest to Master the Orchestra’s Most Difficult Instrument.  More pertinently, a play starring co-writer Jonathan Guy Lewis opens this very night on the London stage.

What makes the horn quite so hard to play is the length of tubing necessary to produce its tonal range; despite three valves, it is very easy to hit the wrong note, or fall off the right one. There’s a level of doubt about each outcome that does not trouble other musicians to quite the same degree.  Even professional orchestral players are more exposed than most to public musical catastrophe, because of the horn’s expressive value to composers.  For this, among other reasons, horn players are considered a breed apart.  This is how Simon Rattle puts it:-

You never eyeball a horn player. You just don’t. They’re stuntmen. You don’t eyeball stuntmen when they’re about to dice with death.”

Given the Knackered Hack’s quest for antidotes to hubris, perhaps mastery of the horn (if that is not a contradiction in terms) should be considered an essential qualification for public or corporate office?  I’ve noticed that this website seems to attract a disproportionate number of horn players (at least two).  Perhaps there’s a connection? You can purchase a CD by one of those readers below.

[By way of full disclosure, the Knackered Hack was placed first in the under 12s brass section of the Harrogate Festival in 1976, performing the second movement of Mozart's Fourth Horn Concerto K495, cough... :oops: ]

Photo credit: vtengr4047

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The bad economic news goes on. But so does life. Consequently, I’m contractually obliged to indulge in yet more comic relief.

There’s been a new Friday ritual in the Knackered household since May. A vibrant red-and-yellow A4 envelope, emblazoned with the letters “DFC“, drops through the letter slot to sizzle like a stick of cartoon dynamite on the doormat until the kids (8 and 13 years old) get home from school. They can’t wait to rip it open and devour the 36-page comic inside.

The DFC, whose initials remain shrouded in mystery (alternative hypotheses are supplied inside the front cover each week, e.g. “Dracula’s Favourite Cardigan”, “Disco For Crustaceans”) is no ordinary comic: not that there are many of those left these days. This comic combines the talents of a rich mixture of graphic novelists, artists and storytellers, along with the literary demi-god of children’s fiction, Philip Pullman.

Mesolith at DFC

Mezolith, Stories from the Stone Age, illustration by Adam Brockbank

The weekend before last, the younger Chip off the Old Hack got to meet his heroes: a handful of the illustrators and storytellers were down at the Bath Festival of Children’s Literature, entertaining the kids and signing copies. I’ve never seen him shake with excitement, but that is how it was as he clutched his pride-and-joy, the very first edition, waiting for it to be initialed. Gratifyingly, the sight of the very first copy had the young illustrators cooing like parents over a newborn.

Well, if you haven’t heard of The DFC, publisher David Fickling wanted to recreate the great storytelling tradition of the heyday of British comics: names from the 1950s and 1960s like The Eagle and Bunty. I was lucky enough to be introduced to Fickling, someone who was, until that moment, an invisible hand in shaping the education and destiny of the two Chips off the Old Hack; he published Pullman and Jacqueline Wilson; he also initiated the Horrible Histories series. If you have kids, grandchildren, nephews or nieces of a certain age, these titles will probably be very familiar to you. The Knackered favourite in that imprint is the Murderous Maths series, and some eagle-eyed readers tell me that MM author Kjartan Poskitt provides the The DFC‘s puzzles.

Fickling seems to have an eye for the creative outlier. In conversation, it was clear that his passion is good stories and that when he finds them he’s prepared to take risks. Writer/illustrator partnership The Etherington Brothers put in several proposals, but threw in one completely off-the-wall suggestion with no expectation of it being accepted; this was Monkey Nuts, the tale of Sid (a tap-dancing monkey) and Rivet (a robot drinks-machine). Happily, it made the cut. Perhaps that typifies the joyously exuberant, anything-goes creativity that the publication is managing to foster. And young people (even slightly reluctant readers, in our experience) are equally motivated and enthusiastic to read it.

So, it’s a fair guess that something very special is happening over at The DFC. Already, some of the illustrators are generating interest from Hollywood; it’s said we should expect some of these storylines to find their way into future Dreamworks productions. And us paleo types can get excited, because Mezolith (above), written by Ben Hegarty, is the story of stone-age, hunter-gatherer Britons.

It is early days still. The publication carries no advertising, and (as I understand it) the forty-odd contributing creatives are part-shareholders in the venture. So, as a pioneering enterprise, it deserves your support. If you want the kids in your life to think kindly of you on a weekly basis, (and don’t we all?) I’d scurry over to The DFC website, and get them an annual subscription. Better than money in the bank!

Of course, if you are planning to go to the Cheltenham Literature Festival this coming weekend to see Nassim Taleb, the Etherington Brothers will be there for a The DFC comic workshop* too. Now what are the chances of that happening?

* The DFC would like to hear from any schools willing and able to host a comic workshop. You can contact them via the website or via their terrestrial address: The DFC, Oxford, England, Europe, Earth, Solar System, Milky Way, The Universe 31 Beaumont Street, Oxford, OX1 2NP.

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The Subprime SolutionHaving effectively called the top of the dotcom bubble with his first book, Irrational Exuberance, and documented the emerging US housing bubble in his second edition of the same, you’d think that Yale economist Robert Shiller would have been treated with significant reverence by our economic and financial institutions (both public and private) over the past few years. And you’d think that he would already have been asked to make a material contribution to resolving the crisis. In fact, you’d think that writing Irrational Exuberance would alone have been enough to forestall the second crisis. But then, if you thought that, you’d be me. And you’d be wrong. Again.

If you’re unfamiliar with Robert Shiller then understand that he is perhaps the most eminent and considered examiner of modern investment bubbles. It was two days after Shiller and a colleague testified before the Federal Reserve Board in December 1996 that then Fed Chairman Alan Greenspan sent stock markets into a mini-crash by coining the now legendary phrase “irrational exuberance” in the context of stock market behaviour. Influential indeed. Shiller’s book Irrational Exuberance came out in March 2000, after which the dotcom boom finally collapsed.

As Shiller tells it, the world of political and economic authority just does not work the way you might have hoped when it comes to emergent investment bubbles. And yesterday I took a look at one or two of the more popular economics websites to remind myself of how well they responded to the notion of a US housing bubble, and their level of reference to Shiller’s work. Even at the peak, these sites were looking for reasons why we were not in a bubble. It made me think that if you desperately want to sell your house these days you should do no more than find an economist or central banker and just name your price: they’ll tend to believe excessively in market efficiency and won’t even haggle with you. In fact, they really don’t seem to be very savvy at all; in the way Shiller observes Greenspan‘s ideological devotion to Ayn Rand (pp 43), they would seem to be honour-bound to reward your heroic selfishness.

Shiller’s new book, The Subprime Solution: How Today’s Global Financial Crisis Happened, and What to Do About It (publication date: September 1), is a concise attempt to elaborate in just seven short chapters the genesis of the housing bubble (a psychological carry-over from the dotcom bubble), explode its myths (“prices always go up”), explore its scale and the dangers of its deepening impact (it’s bad), assert the need to maintain confidence in our economic and financial institutions by aggressive action (comparing the US and European responses to the Great Depression), and then explore longer-term, more fundamental reforms and innovations that will create a population much more attuned to economic risk.

Case Shiller Home Prices
How the US housing bubble looked at the peak. (Source: Irrational Exuberance website)

If you were among those who’d imbibed his dotcom analysis, or just lived the visceral torment of trying to swim against the tide of this particular mania, Shiller’s narrative of the social psychology of the housing bubble is all too familiar. By the way, if you think you already paid a high enough price for being prudent and that you may now cash in, Shiller has more bad news: you’re gonna have to pay for the inevitable bailouts too.

We have to be ready for the possibility that many more tax rebates will be necessary, perhaps for years to come. These rebates may eventually have a significant negative impact on the national debt. That possibility can be accepted only if we truly recognize the seriousness of the problem.

The book describes the process of the contagion of ideas, likening the spread of bubble mentality to a disease epidemic. Like a disease, the epidemic grows as the infection rate exceeds the removal rate; in other words, positive beliefs about the market outnumber more negative perspectives. For instance, there was the irrational belief that housing always appreciates, born of the inflation-ignoring money illusion; the increasing salience of particular “new era” narratives; regional or city patriotism that implied a particular area was somehow intrinsically different — where “everyone” wanted to live — justifying the inexorable local market rise. These ideas also inform the stock of media coverage, and are woven into reports of market gains in an attempt to explain what has little or no real fundamental basis:-

Most persons can be forgiven for not seeing that the sense of economic prosperity that usually attends a major speculative bubble is actually caused by the bubble itself.

But what is particularly telling is how this infects not just the private institutions, who stand accused of complicity in creating the subprime mess, but also our public institutions: political, monetary and regulatory. For example, describing conversations with the officials from the US Office of the Comptroller of the Currency and The Federal Deposit Insurance Corporation when he was urging prompt action to curb the then excessive lending:

I had the feeling that many of them viewed me, with my argument that the bubble would burst, as an extremist who deserved a skeptical response.

The problem Shiller complains of now, though, is that he is too readily characterised as a Cassandra. Mirroring the positive feedback loop that attends market rises, Shiller describes how journalists now invite him to describe how deep and how long a recession might be, while seeming much less interested in the solutions and frameworks that he proposes as a response to the economic and market disaster that is unfolding. He argues that this negative feedback loop — the increasing salience of bad news stories — serves to undermine confidence, and deflects attention from the scale and detail of the remedies needed. And I can attest to that; I may no longer eat breakfast cereal but am obliged to consume an oversized portion of Credit Crunch every morning c/o BBC Radio 4′s The Today Programme.

More than just an academic observer, Shiller is a practitioner. He has designed institutional and market frameworks to help avoid the economic catastrophes which tend to follow bursting bubbles. For instance, discovering that there was no long-run continuous data series to analyse the activity of this most important of asset markets, he set about researching and building the now widely used (one could say “benchmark”) S&P/Case-Shiller house price index, which charts the housing market in the US back to 1890. It’s on the basis of this data, Shiller shows, that US house prices rise with inflation over the long-run and are not the one-way bet of popular imagination. With colleagues, he also devised a domestic property futures market on the Chicago Mercantile Exchange.

So, Shiller is not really in the business of I-told-you-so, nor here to knock markets. He’s passionate about understanding the individual and group psychology of investment, and designing market mechanisms that better serve us as citizens — that will enable us to take more informed risks, and so perhaps lead us toward more creative lives.

And it is worth reminding ourselves why Shiller thinks it’s important that markets send us the right signals. In this, from Irrational Exuberance, one need only substitute “dotcoms” with “new granite worktops”:-

If we exaggerate the present and future value of the stock market, then as a society we may invest too much in business start-ups and expansions, and too little in infrastructure, education and other forms of human capital.

But in The Subprime Solution, Shiller argues against those who call for a retreat to a simpler financial age. He suggests a range of options that can trickle down to the ordinary person to democratize finance, provide them with the security of home-ownership (where appropriate), and insulate them from some of the risks to their longer-term earnings profile. One interesting point he makes is that some people, lacking the means to offset their socio-economic risks, may become far too cautious in their choice of employment, thus depriving society of their more creative endeavour.

I especially liked his defence of mathematical finance as an important new technology. When we think of technology we too often think of gadgets and software rather than applied knowledge and know-how. It’s clear that some mathematical models have been erroneously applied, and I take Paul Wilmott‘s blog as my guide for insights on how that has happened. But, in simple terms, I’d venture that this is not greatly different from the misapplication of GPS: use it with common sense, and know how to navigate without it when it doesn’t work. Shiller reminds us not to throw the baby out with the bath water.

At less than 200 pages of wide-margined type, lightly annotated and with no bibliography, there is something of the emergency pamphlet about this book. And Shiller is advocating a much speedier and more deep-rooted response to the crisis, which, as of a few weeks ago, he felt was still not being taken seriously enough. I suspect the effective collapse of Fannie Mae and Freddie Mac into government support since then has helped change that, but the policy response still seems some way from the kind of discussion Shiller is trying to lead here.

Shiller notes as his inspiration John Maynard Keynes‘ 1919 best-selling critique of The Treaty of Versailles The Economic Consequences of the Peace. And there is a strong moral imperative running through Shiller’s advocacy, no doubt reflecting the increasing severity of the social consequences that can compound very quickly if the policy response is half-baked. Of Keynes’ book, Shiller says in an accompanying release:-

This says something important about human emotions and drives, and a weakness that can cause people to careen blindly into huge catastrophes. In an important sense, we see the same human weaknesses again with the subprime crisis. The resolution to this problem calls for the kind of integrated thinking involving economic, political and moral dimensions that Keynes brought to the crisis of his time. In this sense, Keynes’ great book is an inspiration to me.

There are many examples in the book of how our financial understanding can be re-framed over the long-term. One that definitely seems worthy of further examination is the unidad de fomento used in Chile and copied elsewhere in Latin America where prices are quoted in a standard inflation-indexed basket measure rather than hard currency to reveal to the individual the intrinsic value of a commodity or asset over time rather than its nominal, currency-based value. For it is the rise in nominal values over time to which Shiller attributes the recent sense that you can’t go wrong with housing. Shiller describes Chile as the most inflation-sensitive population in the world.

There are many more recommendations, but if this book has the ambition of Keynes’ earlier work, and the scale of the problem is as suggested, I’d argue that the book is as accessible as you are going to get from such a modern behavioural economics guru. It’s a book that everyone who lives in a house (and who is of reading age) should own; just don’t buy ten and try to rent them out to friends.

Shiller links

  1. The Atlantic Monthly has an exclusive feature article by Shiller, drawn from the book.
  2. You can read Shiller’s occasional New York Times pieces here.
  3. A publisher’s video interview of him is here.
  4. His Yale lectures are being made available to the public later in the year at Open Yale.
  5. the Irrational Exuberance homepage is here.

The book should also be available on Amazon’s Kindle from August 18, two weeks prior to print publication:-

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AncestralFitnessCoverI thought I should point you in the direction of a new anthology of blog posts, written by some of the leading online proponents of ancestral fitness. It’ll soon be available at and will make the ideal gift for the Neanderthal in your life in need of a little self-improvement.

For those unfamiliar with the concept of ancestral fitness, it describes a lifestyle philosophy which attempts to incorporate diet and exercise regimes consistent with our evolutionary biology. That translates as a diet avoiding “easy” carbs, and exercise revolving around high-intensity workouts. There’s more to it than that, naturally.

Of course, top of the list of contributors is Professor Art De Vany. But why they roped in the last guy is anybody’s guess. I bet he’s pleased to be in such illustrious company.

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So, I was fretting about underdogs in the last post. This past weekend, the Sunday Times Magazine ran a long interview with Nassim Taleb in which he was described as “now the hottest thinker in the world”, charging up to $60,000 per speaking engagement, with the great and good beating a path to his door — from the world’s leading banks to NASA.

Interestingly, the interview by Bryan Appleyard included lunch and, naturally, had Nassim following Art De Vany‘s dietary prescriptions of evolutionary fitness. Well, some of my most loyal readers will have heard it here first.

For other reasons (and by accident) I found an old email pitch yesterday that I made in 2003 to a magazine on corporate governance; let’s say this was during my ugly duckling phase:-

Also, I have an interview idea which you might be interested in. Have you heard of a book Fooled By Randomness by Nassim Nicholas Taleb–a maths professor and hedge fund trader from the US? He is in town in a few weeks and I thought I might try and get a hold of him. Although his background is in quantitative trading, he has some interesting things to say about luck and probability in a business context, and it has struck me that this could provide some interesting reflections from a corporate governance point of view. The underlying theme would be that over-remunerating senior executives is even more hazardous than we think if both success and failure may owe more to luck than judgement, backed up by a good dose of sound mathematics of course.

Let me know if you think it a bit too outlandish. My owns sense is that Taleb and others are leading market thinkers and their ideas will permeate downwards in due course.

I didn’t get a commission.

Back in those days, even though Fooled By Randomness was a bestseller, you could still turn up at the now-disappeared Financial World Bookshop in Bishopsgate and hear Taleb talk for nothing to a small and select audience of besuited quants and the odd unshaven, head-scratching scribe. And you try and tell that to the young people of today — will they believe you? No.

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