Dark Money

Dark Money by Jane Mayer covers a period from the early 1970’s to the run up to the Trump election. It documents in meticulous detail the amount of money spent over the period by super rich Americans, not just to secure the election of politicians  supportive of their radical libertarian views but more insidiously to shift the terms of political debate to the right.

DMThe process begins in the late 1960’s early 70’s when a number of very wealthy Americans began to fear the US was about to succumb to socialism. It may seem unbelievable now but looking back it was a time of radical foment, the rights of black Americans were being fought for, a nascent women’s rights movement was emerging, young people’s opposition to the Vietnam war resulted in 4 students being shot and killed in a protest at Kent State University.

Whilst all this protest were real worries to many on the right there were other issues about the role of the state that were of perhaps of more profound concern. The Democratic President Lyndon Baines Johnson had initiated a War on Poverty. Worse however was a proposal by Republican President Richard Milhous Nixon to create a modest basic income, an idea about which there is currently renewed interest.

In 1970 the Family Assistance Plan passed through Congress with a healthy majority but was lost in the Senate to Democratic opposition that it was not radical enough. At the time it was said “This bill represents the most extensive, expensive and expansive welfare legislation ever handled.” Not only was their bipartisan support for this proposed legislation, but it was supported by 90% of the press and popular in the country.

For some, all of this represented an unwarranted intervention by the state in the operation of the market economy. An intervention that would expand the role of the state, require increased taxation and thus impact directly on the fortunes of the very wealthy. Some decided it was time time to act.

Ms Mayer’s book focuses primarily on the brothers Charles and David Koch. The brothers engaged in active politics in the 1970’s providing financial support to the Libertarian Party. In 1980 David Koch ran as the running mate to the party’s Presidential candidate, Ed Clark who was challenging Ronald Reagan, from the right. They got 1% of the vote. From this point on the Koch’s receded from public view and over the next three decades according to Ms Mayer gave well in excess of $100m “…to dozens of seemingly independent organisations aimed at advancing their radical ideas.”

The book charts how the brothers “weaponised philanthropy”, maximising the tax benefits of establishing charitable trusts, thus avoiding inheritance tax, and then using the money from the trusts to support a series of educational and social welfare groups to promote their libertarian viewpoint. Over the years a variety of think tanks were established or supported all with the aim of ensuring that conservative ideas were made respectable.

Over time the thinking evolved and there was a recognition that in order to change opinions the elite educational institutions of the US had to be “penetrated”. This led to the “beach head” theory which was about establishing conservative beach heads at “…the most influential schools in order to gain maximum leverage.” By 2015 the Charles Koch Foundation was “subsidising pro-business, anti-regulatory and anti-tax programmes in 307 different institutions of higher education in America.” Interestingly the book reports a comment about the Golden Rule of philanthropic giving – those with the gold, rule. This was taken to a higher level when a donation of $965,000 to West Virginia University by the Charles Koch foundation came with strings. The foundation was to have a say over the professors it funded, fundamentally undermining academic independence.

The Koch’s were not alone in this enterprise but they did, and continue, to play a major co-ordinating role such that at one point the sprawling breadth of their influence in right wing political promotion was described as Kochtopussy. Ms Mayer’s book makes clear that this was not the outcome of a series of more or less random individual initiatives. Rather it was an evolving, but very conscious, political strategy to move the political goal posts. It responded to a very clear cri de coeur set out in a memo by Lewis Powell in the late 1970’s urging American capitalists to wage “guerrilla warfare” against those he saw as trying to insidiously undermine them. Ms Mayer claims his call to arms inspired some of the super rich, “to weaponise their philanthropic giving in order to fight a multi-front war of influence over American political thought.”

You may wonder whether these people were driven by a bizarre but genuine belief in radical libertarianism, where the state, taxes and regulation were perceived as demeaning constraints on the freedom of the individual. In truth their idealism was always tempered by a strong regard for their personal advantage. When congress was considering the Troubled Assets Relief Progamme (TARP) the Koch’s and their radical caucus were opposed to the massive package of  state support. This changed however when the stock market started to tank. Suddenly their wealth was at risk and opposition to the TARP was dropped.

Another fascinating insight into the motivation of the Koch brothers comes from a post mortem conducted into the right’s failure to prevent a second Obama term at one of their annual seminars. Arthur Brooks, President of the American Enterprise Institute funded generously by the Koch brothers, made the point that if the 1% want to win control of America, “… they needed to rebrand themselves as champions of the other 99%”. This theme was built on in 2014 in a paper that Richard Fink, Charles Koch’s “grand strategist”, gave to a meeting of one of their annual seminars of the libertarian super rich. The paper was entitled “The Long Term Strategy: Engaging the Middle Third”. In a perfectly candid way Fink asked the question, “We want to decrease regulations. Why?” he then answered his own question, “It’s because we can make more profit, okay?.”

One third of the electorate who were perceived as solidly on the side of the libertarians, another third never would be. This mean the battleground was about gaining the trust of the middle third. To do this it would be necessary to convince the them that libertarian intent was virtuous. “We’ve got to convince these people we mean well and that we are good people.”

Following a Supreme Court decision in 2010 known as Citizens United it was found that corporations had the same rights to freedom of speech as individuals. This overturned a century of restrictions banning corporations and unions from spending all they wanted on the election of candidates. This opened the floodgates to political spending to support congressmen and senators and the Koch Brothers took maximum advantage building a real power base which was in but not of the Republican Party.

In 2014 the Koch network invested $100m into House and Senate races for the GOP plus almost twice as much into other kinds of activism. The result was they won full control of both. Their aim was to spend $889m in the 2016 presidential race. Whilst they could not legislate for the Trump wildcard the first attempt to replace Obamacare was such a shambles because of the intransigence of the right wing caucus within the Republican Party largely made up of Koch supported Congressmen and Senators who thought the Trump proposal was too generous!

Dark Money is a sobering work which casts an unflinching light on the very private world of the super rich in America and specifically on the brothers David and Charles Koch estimated to be worth $41.6bn each. It raises all kinds of issue about the role of multi-billionaires in undermining democracy in America and reinforcing a process which is concentrating ever more power and wealth in the hands of a smaller and smaller group of super rich plutocrats.

The influence of the Koch brothers, and many others of the same ilk, is not confined to the States however. They have played a part in shifting the terms of political debate across the whole of the developed world, dragging the centre of politics so far to the right that people like Richard Nixon look like lefty softies. If one thinks about how a proposal to increase taxes on the rich in Britain today would be greeted it is a testament to how far the super rich have captured common sense and shaped it to their benefit.

This is a book that should be read widely. It’s scale will probably prevent this which is a real shame. It is a tremendous summary of a long and sustained process of the exercise of soft power through the expenditure of vast amounts of private money. If the process is not stopped it will ultimately undermine democracy.

Dark Money. Jane Mayer. Scribe Publications 2016




Will robots “Exterminate!” jobs?

In December 2016 Mark Carney gave the Roscoe Lecture in Liverpool and spoke about the challenge of automation. He made the point that, “…every technological revolution mercilessly destroys jobs and livelihoods – and therefore identities – well before the new ones emerge.” His talk reflects growing concern around the world about the impact of robotics, machine learning and artificial intelligence. Some take an optimistic position arguing we can and should race “with” rather than “against” the robots, others are more concerned about the social and economic consequences. The following books reach differing conclusions,  but pretty much all agree on the accelerating pace of change and the ubiquitous impact they are set to have on the labour market.

In 2014, Erik Brynjolfsson and Andrew McAfee published “The Second Machine Age” It followed an earlier and much shorter work entitled “Race Against the Machines”. I start with this, much quoted, work as it provides a good overview of the brynspeed and scale of change. They start out with an interesting analogy to illustrate the accelerating pace of change in information technology based on the operation of Moore’s Law. That “law” was first enunciated by Gordon Moore in 1965. Over the years the shorthand version has become that roughly every two years the complexity of integrated circuits double and their cost halve. The critical consequence of this is the power and costs of computing double and halve respectively also.

This law has proven reasonably accurate over the past 50 years which means of course the power of computers has doubled 25 times since it was first described. Brynjolfsson and McAffee then use an analogy to give some indication of what may happen in the future if the law continues. They use the, possibly apocryphal, story of the reward provided to the man who invented chess. When asked by the emperor what he wanted he said he would like rice, and the amount of rice to be the exponential sum of rice if you started with one grain on the first square of a chessboard and then two grains on the next square and then doubled again on each remaining square of the chess board.

His request was granted until the amount started to become apparent. After 32 squares it amounted to 4 billion grains of rice which is about one large fields worth. So the first half of the chess board delivered a significant but manageable reward. The problem was when they moved into the second half of the board. Geometric progression really starts to accelerate and by the time you get to the 64th square you are at 18 quintilian grains of rice, more than has ever been grown on the planet. In passing, the emperor had the inventor’s head chopped off. No one likes a smart Alec.

The point that Brynjolfsson and McAfee are making is that computer technology is now approaching the second half of the chessboard and the increases in power which have been impressive to date, will pale into insignificance as we go forward. Computer power will increase at such a rate that it is difficult to predict what the limits of its capacity going forward will be or its consequences.

When you read Brynjolfsson and McAfee you cannot but be infected by their optimism. They are clearly impressed by the speed and depth of challenge technological change is creating. Despite the optimistic tone of their writing they do see the issues which this rapid change generates. In an article for the January 2016 World Economic Forum they recognised that “Globalisation and technological change may increase the wealth and efficiency of nations and the world at large but they will not work to everybody’s advantage…” They go on to make clear “ordinary workers” will bear the “brunt of the changes”.

Further they see the negative outcomes are likely to be increasing inequality of wealth and incomes leading to inequality of opportunity meaning that not all talent will be accessed, undermining the “social contract”which underpins social order. They also state, perhaps prophetically given what happened in the remainder of 2016, “Political power, meanwhile, often follows economic power, in this case undermining democracy.”

They argue, because of all this, there is a need for greater social investment to allow the provision of good quality basic services including education. They also make the case for public sector investment to boost the economy in the short term however they also talk about simultaneously putting in place a fiscal consolidation plan. There is a bit of cake and eat it here.

Coming from a rather different position is Martin Ford whose book “The Rise of the Robots” was the FT’s surprise business book of the year 2015. Ford makes the point that Information Technology is a radical “general purpose technology” by which he means it is similar to fordelectricity or steam. These advances had implications in every area of life. Electricity effected production, transport, communications, culture and opened the way to the creation of completely new industries. IT is a similarly powerful and ubiquitous innovation, what is more the pace of its evolution is accelerating across the second half of the chessboard.

Ford focuses on the economic impact of IT on employment. He describes how the declining costs of technology and the rising costs of labour are undermining the competitive advantage of developing economies workers. Foxconn, for example, who make Apple devices in China announced in 2012 plans to introduce up to a million robots into its factories there.

Another interesting example Ford presents relates to the textile industry. This was decimated in the US in the 1990’s as jobs went to low wage economies like China, India and Mexico. But between 2009 and 2012 US textile exports increased by 37% on the back of automation technology that could now compete with the lowest wage economies on the planet. Of course this does not mean the jobs that were lost have been recovered. It means the jobs were first exported to the developing economies and have now been replaced altogether by technology. Mr Trump might find it more difficult than he thinks when he tries to bring the jobs back home.

Of course many of the jobs that have been lost to technology to date have been precisely the manual jobs which provided reasonably well paid work for the lower skilled working class. With the development of machine learning and artificial intelligence however a wider and wider range of jobs are becoming vulnerable. The success of Deep Blue in beating Garry Kasparov in 1996 was seen as a major milestone in the development of computer capacity.

Whilst this feat was impressive it was largely a result of what might be called brute computation. There are an immense number of potential chess games however they are all derived from a set of basic moves which can be easily programmed. Advantage is obtained by computing the potential future moves given any particular configuration of the pieces. As computers become able to compute ever larger numbers they can see further ahead in the game which gives them the advantage.  In crude terms their sheer number crunching ability eventually gives them an unbeatable advantage. The success at the chess board is in large part a result of quantitative advances in IT.

Some argue we are now moving in to a period where qualitative changes are being made. It may be that the scale of quantitative change leads at some point to a qualitative change but different approaches are being made to the development of algorithms such that machine learning becomes self sustaining. It is the difference between programming a computer with chess moves on the one hand and enabling the computer to learn how to play chess itself. When this is combined with natural language communication some very impressive results ensue.

One of the most impressive of these is mentioned in many of the books. It is Watson, another IBM supercomputer, which managed to beat two champions of the American TV show Jeopardy in 2011. Jeopardy is an altogether different game from chess. It does not have an easily programmed set of rules. It is based on cryptic, natural language questions which may involve humour, slang, high culture, popular culture, deliberate red herrings etc. There is no straightforward set of basic moves you start from or algorithmic rules to move forward with. The Jeopardy victory was great publicity but the remarkable capacity of the machine was not developed to win a TV show.

Immediately after the show Watson was launched as a diagnostic tool in the health industry. By 2013 it was helping diagnose health issues and design patient treatment plans at major medical facilities in the US. IBM see Watson as having a wide range of applications based on natural language information requests. It is now starting to be used by companies to review business strategies. And for the avoidance of doubt I do not mean making sure their budget numbers add up. I mean taking a view about what products should be launched when, and where R&D expenditure should be made. Of corse Watson is not the only game in town.

Eureka is a programme which was set to work out the mathematical equations which explain the  motion of two pendulums, one dangling from the other. A fiendishly difficult problem, according to those that know about these issues, and incomprehensible to those of us that did woodwork. According to Ford the programme, “…only took a few hours to come up with a number of physical laws describing the movement of the pendulum – including Newton’s Second Law – and it was able to do this without being given any prior information or programming about physics or the laws of motion.”

The implications of this level of machine learning for the professions has been analysed by R Suskind and D Suskind in their rather academic, but non the less interesting book “The Future of the Professions”. In broad terms they see robotics and automation as mainly impacting on manual and administrative jobs. However software is now set to have the same transformative impact on professional jobs.

susskindIn true academic form they begin by carefully defining what a profession is and the model of the relationship between professionals and society. The definition talks about a body of specialist knowledge; admission through the gaining of credentials; a regulatory framework and a set of common values.They then identify the problems that the current model is experiencing. Economic issues of affordability, technological challenge in the manufacture and distribution of knowledge and a growing suspicion that professional knowledge is used to blind people with pseudo-science at the behest of those with economic power etc.

One of the most interesting parts of their work is the review of what is already happening. They systematically review, Health; Education; Law; Journalism; Management Consulting; Tax and Audit; Architecture and …Divinity! What is already happening is shocking but Susskind and Susskind make the same chessboard point. Technological innovation is on an exponential path and it will have the kind of transformative impact on the professions that digitalisation has had on the music industry.

Ford’s work reinforces the same points that automated sports coverage and news articles are starting to appear regularly, if not always identified as such. Precedent searches for law practices, journal reviews for doctors, automated diagnostic programmes are all examples of where technology is starting to make inroads. Whilst currently the focus is mainly on the effective analysis and review of vast quantities of data. It is replacing the need for some of the more routine middle class functions in the legal and health professions. It is a moot point whether a computer will take Silk but each year the possibility of this happening is becoming greater. Even if this never happens, a huge number of middle class jobs are at risk over the coming years, put that together with the more mundane jobs that are going and the economy looks set to need fewer and fewer people.

It is usually at this stage in the reviews of IT and AI progress that people start mentioning Luddites and the need for us to learn from history. The point is made that 300 years ago circa 90% of the population worked in agriculture. Now it is something less than 1% in the UK. As productivity in agriculture increased other opportunities opened up for the workforce that was thus “freed up”. Another, oft quoted, example is the development of the internal combustion engine. When this replaced horses millions of jobs were lost in breading, maintaining, and  cleaning up after them. However, millions of new jobs were created in the production, distribution and maintenance of cars. Given all this we should not worry too much about the IT revolution automating existing jobs, this will “free up’ labour to move into new jobs that will surely emerge.

Ford is not so sure about this, and neither am I. As computing power becomes ever more powerful and also ever cheaper robots will become ever more flexible and may well be able to take on whatever new jobs are created. There is a qualitative difference between previous technological revolutions and the current IT based one. Previous revolutions, brought about by general purpose technologies such as steam, electricity and the internal combustion engine, have been about introducing a source of brute power which humans use to magnify their efforts. Initially IT did something similar magnifying our physical capacity so that, for example, highly automated Amazon warehouses could replace a huge amount of manual labour. However IT also magnifies our intellectual power, indeed in terms of the storage, retrieval and manipulation of data machines have far exceeded man for decades. Whether at some point machines cross the Rubican of consciousness is in some ways irrelevant. There are millions of sedentary jobs which currently middle class workers do which are at risk. The internet of things linked to a machine which has the capacity to have a natural language “conversation”, whether they understand that in some conscious sense or not, means enormous amounts of intellectual work will disappear as far as humans are concerned.

Ford certainly feels we are moving into a new economic paradigm where substantial numbers of people will be redundant in the very strong sense that there labour and intellect is not needed, not just by a company or an industry but by the economy as a whole. This concern is shared by another interesting writer on the subject, Ryan Avent in his book “The Wealth of Humans”.

Avent disagrees with the view that the digital revolution is radically different from what has gone before. He argues the economic process is very much in line with what happened in the industrial revolution. At that time society had to make a trade-off between “…new and improved goods, services and experiences at lower costs in exchange for social and economic disruption.” (my emphasis) Avent looks at the continuities of economic processes between the industrial and the digital revolution. Specifically he looks at the concept of scarcity and how that determines cost. He sees, like Ford and others, that labour is becoming more and more abundant. In this context labour “finds itself settling for a shrinking share of income – and is increasingly irrelevant in the taking of important economic decisions.”

Given that labours bargaining power in the economy is limited and it no longer has the power of trade unions to artificially boost its scarcity to increase its bargaining power, it has to turn to aventpolitics to protect its position. If the existing political elites do not seem to be responding then it is increasingly likely labour will turn to “…radical political movements that offer the possibility of political expression and economic power.”

Avent charts the way the economy has evolved over the past few decades, and how, what he terms, social capital has increased in value. He defines social capital as “contextually dependent know-how, which is valuable when shared by a critical mass of people.” He makes the point that 80% of the value of Standard and Poor’s 500 companies is now “dark matter” or “the culture, incentives and tacit knowledge that makes a modern company tick.” In other words an enormous proportion of value is created socially. At a national level social capital is within institutions like, the rule of law. However, the rule of law isn’t a thing, it is an emergent property arising out of the willingness of a citizenry to accept certain processes that substantiate the rule of law in practice. As Avent sees it, the benefits of the collectively created social capital of the digital economy are going increasingly to the owners of financial capital. Further he thinks that “… this mismatch is a source of significant economic trouble.”

I started this article with an analogy about the geometric progression of computer power. We are now entering the second half of the chessboard and thus the pace of change in relation to AI, machine learning and robotics is likely to be even more spectacular than in the past. There is another issue that is picked up in some of the books above and illustrated by a story, again possibly apocryphal, about a visit by a trade union official to a modern Ford Motor plant. The official is being taken around by Henry Ford Junior. Mr Ford is extolling the virtues of the robots which produce the cars without the need for food breaks, trips to the toilet or holidays, 24/7 and 365 days of the year. The never complain or argue for higher pay. At the end of this paean for the robot the trade union official turned to Mr Ford and asked. “And how many cars do they buy?”.

During the enclosure movement it was said that sheep ate men. Some think now that software is eating men. I hope new jobs do come and they are like the physically and socially sustaining jobs that emerged in the post-war trente glorieuses. Jobs that enabled people to have a reasonable standard of living and a sense of their own worth as part of society. I have my doubts however and think Avent is probably right when he comments on how the the global economy has evolved in recent years  and concludes”…the hardest part in finding utopia is not the figuring out of how to produce more. We’ve managed that. The hard part is the redistribution.”


The Second Machine Age, E Brynjolfsson & A McAfee. Norton Press 2014.                                   The Rise of the Robots, M Ford. Oneworld Publications 2015.                                                             The Future of the Professions, R Susskind and D Susskind. Oxford University Press 2015.      The Wealth of Humans, R Avent. Allen Lane 2016



Makers and Takers – Rana Foroohar

Ms Foroohar is a Time economic columnist and CNN global economic analyst who has written one of the most scathingscreen-shot-2016-10-31-at-15-14-50 books about the American finance industry I have read. It addresses the process of financialisation, a process as ugly as its name. In essence it is about the transformation of the banking sector from something that sustained Main Street businesses in a solid, if slightly boring way, to something which now dominates and, more importantly, sucks the lifeblood from the very businesses it previously supported.

One point which is worth stressing from the outset, Ms Foroohar is not anti-capitalist. She is one of a growing number of people who are supporters of free market capitalism but who are very concerned with the way it is evolving. As she states at the outset, Ms Foroohar is “…not in favour of a planned economy or a move away from a market system. I simply don’t think that the system we now have is a properly functioning market system.”

She begins by considering the way finance has expanded dramatically over the past 40 years and particularly how it has shaken off the shackles of post 1929 depression. One example is emblematic of the way banking has moved away from a highly regulated sector is a piece of legislation called Regulation Q. This prohibited banks from paying interest on current accounts and controlled the level of interest that could be paid on other accounts. Its purpose was to “prevent banks from competing too vigorously with one another … which might in turn push them into the sort of risky investments that had precipitated Black Tuesday in 1929.” The aim of this and other regulations like Glass Steagall was to ensure banking remained a “safe boring utility”.

This regulatory framework remained robust and effective throughout the 30’s, 40’s and 50’s. In the 1960’s however things began to change. Ms Foroohar illustrates the shift of the sector through the history of National City Bank which ultimately became CitiCorp, the classic too big to fail bank. Specifically she charts the career of Walter Writson the Chief Executive of Citibank/Citicorp from 1967 to 1984, one of the most influential commercial bankers of his time. In essence he wanted to move banking out from being a low risk, low profit, highly regulated sector to something much more glamorous.

Writson’s actions, in terms of challenging regulation, dreaming up increasingly complex products to get around the rules, increasing the leverage of the bank and changing the compensation structure were things that would be repeated across the sector undermining the commitment to regulation so that bit by bit it was repealed with Jimmy Carter deregulating interest rates (Regulation Q) in 1980 and then critically Bill Clinton repealing Glass-Steagall in 1999.

The result was an explosion in banks turnover and the development of increasingly sophisticated financial products and derivatives. This led to increasing  profit levels which in turn drove a series of behaviours to protect and develop those profits which were more or, increasingly, less legal. Even the activities which were perfectly legal changed the risk profile of banking and its relationship with the businesses it was supposed to be encouraging and generated enormous systemic risk which exploded in 2007/08.

Whilst the inherent risks of fractional reserves and complex debt instruments like Collateralised Debt Obligations, made famous by the credit crunch, are important, the less legal side of the industry should not be overlooked. It is a staggering fact the  industry paid £139bn in fines between 2012 and 2014 for: rigging Libor, insider trading and a great deal more (and of course this is just banks within the USA in a 3 year period!). In the massively profitable finance industry however the view seems to be that fines are simply another cost of business.

Over the period that the finance “takers” were in the ascendancy at the same time the business “makers” were under attack. The growing importance of finance was leading to the development of what some have called “quarterly capitalism”. This meant that stock price was everything and it had to move upwards every quarter. The heroes of shareholder value, like Jack Welch of General Electric (Manager of the Century according to Fortune magazine), came to be seen as the models for business leadership. These were people whose interest in engineering was more financial than mechanical. Ruthless cost cutting, getting rid of jobs and reducing investment in R&D to feed the ever demanding stock market.

Those businesses which did not employ the right staff to do this internally were targeted by what used to be called corporate raiders but are now more politely called “shareholder activists”. These individuals, like Carl Icahn, buy sufficient shares in companies to replace existing management with more aggressive mangers who will take the “hard decisions”, cut cost and increase shareholder returns. They may also sell off valuable assets or break up the company to extract value.

This might be seen as the kind of process that Schumpeter described as “creative destruction”, getting rid of the dead wood. However, a growing body of evidence suggests that the stripping out of value is actually undermining the economy not making it more efficient. Evidence is emerging that private companies, i.e. those that have not gone to the market and become public have better track records of investment in R&D, staff and capital and more critically long term profitability.

Public corporations are bizarrely now borrowing to fund shareholder dividends and share buy backs thus artificially pushing up the value of the remaining shares. Why borrow to do that? Like Apple, to avoid having to bring the massive pile of cash from profit you have made abroad back to the States where you would have to pay tax on it.  According to Foroohar corporations have invested around 10% of every dollar they borrow into their company and 90% into shareholder payouts. This means the role of stock markets has reversed. Instead of wealthy individuals investing in new productive capital, rather, companies have been making payouts to the wealthy individuals. This might be morally objectionable but more importantly it does not provide for sustainable capitalism. This is cannibalistic capitalism, its eating itself.

Over the years another phenomenon has emerged consistent with the old adage, if you can’t beat them join them. GE probably the most significant engineering company in the world, decided the finance department should become a profit centre. It created GE Capital which was to all intents and purposes a bank but not registered as one. Not just any bank, in 2013 the Financial Stability Oversight Council declared GE Capital to be a systemically important financial Institution and thus subject to Federal Reserve oversight. What could have made them come to this snap decision? Because in the 2007/8 crash it was bailed out by the American taxpayer to the tune of $139bn.

Ms Foroohar’s book explores the way “financial speculation is playing a greater and greater role in fueling volatility in commodities…”.  Since 2000 there has been a fiftyfold increase in dollars invested in commodity linked index funds. Several things are pointed to as having pushed this: Goldman Sachs creation of a commodity index fund; deregulation of commodity markets; the credit crunch that scared people out of stocks; and the $4.5bn QE exercise. This financialisation means that businesses now have to compete with their banks for commodities. If this sounds weird it’s because it is and one example makes the point.

Goldman Sachs bought up thousands of tons of aluminium which it then controlled the supply of. By doing this of course they were able to control the price and thus increase the value of their investment and any commodity trades that they had done in relation to aluminium. Whilst this was an issue for Coke Cola, in that it put up the price of their cans, the wider speculation in commodities had much more significant effects.

In 2003  big investors were putting $13bn into commodity index trading, by 2008 it had risen to $260bn. Over the same period the price of 25 commodities including cattle and heating oil increased by 183%. When asked whether institutional investors were contributing to food and energy price inflation the unequivocal answer given by Michael Masters, a hedge fund manager was “Yes”. This means speculators were gambling with products that meant people ate or starved, and many starved.

Ms Foroohar addresses the fact that many of the people and institutions that have been involved in this process of financialisation have benefited spectacularly with astronomical reward packages and profit levels. She goes on to review how they spend hundreds of thousands of dollars to avoid paying tax on their enormous earnings. She also looks at the phenomenon of the “revolving door”. This is the process whereby elected officials and appointed civil servants, charged with regulating the financial sector, move into their posts from the very sector they are regulating and move back into the sector when they retire from public life. She suggests the opportunity to sit on the Board of a large financial institution may colour the view of regulators whilst they are doing their job in the public sector. Whether this is true or not is increasingly beyond the point. Many Americans think it is true and that is what matters.

Financialisation is  one, if not the, most significant trends that has occurred over the past 30-40 years. Ms Foroohar’s claim is that it has sucked the lifeblood out of Main Street America, undermined investment in innovation and productivity and thus the future of the nation. Putting finance back in its place will not be easy. It means empowering the makers which would involve a genuine and major shift of power. Ms Foroohar sets out a sensible programme of reform. My concern is that people rarely give power back it is usually taken from them and the result of that is not always sensible. Lets hope this time it will be different.


Takers and Makers: The Rise of Finance and the Fall of American Business: R Foroohar. Crown Business 2016

Hillbilly Elergy

This is a timely look at the viability of the American Dream. It is an autobiographical account of one hillbilly’s transition from a “broken home” childhood in a lower-working-class family, into a graduate of Yale Law School. I place “broken family” in inverted coma’s because the book challenges the glib labels that are placed on people and experiences. If this book does one thing it takes you into the complexity and contradictions of life amongst the poor white communities of the United States.

img_1542This is an insiders’ take on what it is like to live in a family where fierce loyalty and random neglect coexist. Where love and hate are two sides of an indivisible coin. Where parental violence is commonplace and serial relationships are the norm. Where a mother will demand a urine sample of her young son in order that she can pass a random drug test at work.

The author paints a picture which captures the ambiguity of the strengths of hillbilly life with its strong commitment to family and national loyalty. It describes how these strengths carried to extreme convert family loyalty into blood feuds and patriotism into a deep distrust of outsiders. Whilst the book is very much focused on the detail of the lives of individuals it is set against the economic backdrop of the migration of hillbillies from the poorer regions of Appalachia to places like Ohio, Indiana and Michigan.  The context is one where poor white Americans leave areas of decline to escape poverty and look for a new life in the industrial heartland of America being built just after the last war. This economically driven dislocation had its costs and casualties although the question is raised to what extent these were caused by the dislocation or were inherent in the codes of honour and double think of some existing aspects hillbilly life in the Appalachians.

Despite the fact his mother had a succession of partners and an addiction to prescription drugs, and despite the fact that she would occasionally threaten serious violence to her son and daughter, the author recognises that he was lucky in having a maternal grandmother and grandfather (Mamaw and Papaw) and a sister that provided points of stability, a permanent refuge and unconditional love.

Reading the book you feel the author would certainly have struggled had it not been for the unsentimental but solid support of his grandparents. He recalls how Pawpaw would spend hours helping him with his maths and taught him that, “…lack of knowledge and lack of intelligence were not the same. The former could be remedied with a little patience and a lot of hard work. And the latter? Well I guess you’re up shit creek without a paddle”. His Mamaw would always open her home and heart to him when he needed respite from his mother, even when she was in her seventies.

This is the same Pawpaw who had spent a large part of his early married life drinking and fighting with his wife Mamaw who herself was reputed to have killed a man. These are rough diamonds, at times, very rough. There is no sentimentality in this book, but there is an underlying theme of redemption. No one is all evil. People do good things even if most of their life they do the wrong thing. And most of the time when they do the wrong thing it is without either malice or forethought, and mostly to their own detriment. But to understand all is not to excuse all. Whilst the author records  Pawpaw recognises the extent to which he as failed his daughter in the past and is therefore in some sense responsible for her shortcomings as a mother this does not absolve her of all responsibility.

The ambiguity of reality is everywhere in this book. His mother, who he had, at best, a tempestuous relationship with, reinforced within him the view that education was important, taking him to the library and getting him a library card. She may not have nurtured it and created the best environment for it to flourish but she inculcated the benefits of learning into what was clearly a receptive mind.

A real strength of the book is the balanced and clear focus on the stresses and strains of life in poor families. Families where aspiration is a job not a career, where education is girlie, where arguments replace discussion and where fights replace arguments. Where the most innocuous of slights can become the subject of blood feud and where contradictory beliefs can be held, and fought for, without apparent hypocrisy.

The book has been picked up in the US by many on the right who claim it shows that individuals need to accept responsibility for their own failings.  The author may well be a patriot, he may well vote republican, he may still cling to the American Dream, but he has a clear view that the Dream is something that is getting harder and harder and that for folks from his background tantamount to impossible. Whilst he does argue strongly for personal responsibility, he also recognises the social, economic and psychological forces that weigh down upon and shape peoples actions. He does not offer easy solutions. He raises difficult questions and does so with an empathy and personal understanding for those that face the dilemmas of poverty.

His focus is on the cultural and personal issues, which undermine the Dream. This might be seen as a rerun of the “culture of poverty” thesis, which focuses responsibility for poverty on the communities that are poor. They are trapped in a culture of their own making which keeps them in poverty. I think his view is more subtle than this. I think he sees the interplay between the loss of employment in the rust belt and the decline into drugs and alcohol abuse and all that goes with that.

What he does do is wrestle with where one draws the line on personal responsibility. Whilst he recognises that not everyone has a Mamaw or a Pawpaw in their life he does not accept the view that people are simply the product of their environment and cannot be held to account personally for their decisions.

There is a touch of the Ayn Rand rugged individualism about his position. At one point he talks about the fact that his Mamaw could not leave bicycles locked up out on the porch for fear they would be stolen, or that someone had to sell his mothers house because he could not rely on his neighbours not to wreck it,  or that his Mamaw was afraid to answer the door to a neighbour who pestered her for money for drugs. He goes on to say, “These problems were not created by governments or corporations or anyone else. We created them and only we can fix them.”

Whilst some of us think there are things which governments and corporations do which directly contribute to these problems, it is a mechanical mind that thinks this is not tempered and mediated through real individuals making real choices which carry moral responsibility. Clearly, there are massive differences in the life chances of individuals and the author speaks very eloquently about the different environment, nay world, that “the rich” inhabit, a world full of social capital, and an understanding how to use it. But he also never loses sight of individual choice.

What is indisputable is that the author provides an intimate and clear-sighted view of what it is like to grow up in a family which has little money and a lot of uncertainty in the richest country in the world. He also describes the intimate stresses and strains of moving from a lower working class background to a solid middle class future. The constant fear of being “found out”, of discovering at university that a mistake had been made and your entry grades confused with someone else’s. If you have any experience of that transition the authenticity of the book will shine through.

Early in the book he says he recognises that he is a “hill person”. He goes on to say “So is much of America’s white working class. And we hill people aren’t doing very well.” This is certainly true and I suspect is part of the explanation for the popularity of Trump. I recommend this as an interesting and timely take on the life experience of poor white Americans.

JD Vance. Hillbilly Elegy: A memoir of a Family and Culture in Crisis. William Collins 2016

The Hidden Wealth of Nations

Recently read a really interesting book on the issue of the moment following the leaking of the Panama papers. It is by Gabriel Zucman and in a very concise and clear 116 pages sets out the scale of the problem of tax havens, how they operate and what might be done about them.

He estimates on a conservative basis that some 8% of personal financial wealth amounting to $7.6 trillion is held in tax havens. By way of comparison the UK’s total GDP is about $2.5 trillion. Also this does not take any account of income that is hidden by corporations.

Zucman looks at the history of the growth of private banking in Switzerland at the centre of much of the operations that utilise other tax havens to make as opaque as possible who owns what and where it should be taxed. He addresses a number of myths about Swiss banking and illustrates that any reform predicated on the goodwill of the bankers is doomed to fail as it has done in the past.

He goes on to contrast the European Union’s Savings Tax Directive (STD) which he believes to be essentially flawed with the United States approach through the Foreign Account Tax Compliance Act (FATCA) (where is that final T?). Whilst FATCA might not be perfect it is having an impact and has much to recommend it.

Essentially if banks do not themselves let the US tax authorities know what holding US citizens have in their overseas accounts then the US will impose a 30% tax on all interest and dividends payments from the US to that bank. They can also levy substantial fines. To ensure bankers apply FATCA they encourage whistle blowers to let them know of abuses. What is more they pay them handsomely. Bradley Birkenfield an ex-employee of UBS was paid $104m for revealing the non-compliant activities of his former employer.

Whilst FATCA is a real step in the right direction Zucman identifies three other things that should be done on a global scale to address the problem of very wealthy people hiding their wealth from the tax man.

Firstly, he proposes a worldwide register of wealth that would be a public record of the beneficial owners of stock, share and bonds and ultimately all derivatives. In fact national and regional registers of stocks and shares already exist however they are private documents. By bringing them into a single, public register it would make visible the financial wealth of all individuals.

Secondly he recommends that sanctions against tax havens should be proportional to the losses that they impose on other countries. This is in essence what FATCA does with banks. By doing this the economics of being a tax haven break down.

Finally, he recommends that international taxation agreements should be amended for corporations. In essence this would mean taxation of multinationals should derive from their consolidated profits. So if Starbucks sells 50% of its products in the US and employs 50% of its people there and has 50% of its plant then it should pay 50% of its tax there. This gets around the issue of having transfer-pricing arrangements where subsidiaries, providing services based in tax havens, charge large fees to the US subsidiary thus reducing its tax bill their, shifting it to the lower rates in the tax haven.

It would also address the nonsense that a company like Apple with $500bn in the bank borrows money in the US to pay dividends because if it repatriated the profits from abroad they would be subject to tax.

Others have suggested that individuals should have a strict liability to inform the state of all their wealth and income. If they fail to do so and thus hide wealth from the state then they forfeit the right to state protection for that wealth. If it is found then 100% of it is immediately confiscated, and to assist the process anyone who reveals the existence of the wealth can claim 50% of it as a bounty. I do like something that is clear and simple.

We have had years of fine words about what we are going to do about tax evasion and tax havens it is time something started to happen. The governments seems to have two responses first “well Labour did nothing about it”. So what. Labour aren’t in power. Second, the Prime Minister has been spearheading the issue in Europe. Well the tax deals done so far with large multinationals suggest he might want to get his spear out over here.

The first step might be to appoint a few tax inspectors to replace those that have been made redundant since the government came to power. They are an unusual part of the government machine in that they bring in vastly more in tax than they cost. Surely austerity demands we maximise our income. What business, even one wanting to save money would sack people collecting more than they coast to employ?

If the MP’s expenses scandal was anything to go by, the press will probably have more interesting revelations to bring out of the 11m+ documents over the coming days and weeks.

Now is the time to push our politicians to do something significant about tax havens and tax evasion. If you want to get a good overview of the issue in a short but well argued book this is it.

The Hidden Wealth of Nations: The scourge of tax havens. G Zucman. The University of Chicago Press. 2015.

The Rise and Fall of American Growth

This is a work whose central thesis is relatively straightforward but of immense significance not just for the United States but also for the rest of the world. In essence Mr Gordon argues that the growth rate of the American economy, which for so long has driven much of the world economy and transformed the lives of its citizens has its best days behind it. This is not because of a loss of entrepreneurial flair or lack of self-confidence. Rather, more substantive structural issues relating to an unprecedented and unrepeatable period of innovation mean that the levels of economic growth achieved over a period from 1870 to 1970 are unlikely to be recovered in the foreseeable future i.e. the next 25 years, or perhaps ever.

The book analyses economic growth in the States over three historical periods, first 1870 to 1940, then 1940 to 1970 and finally 1970 to 2014. For someone who has sat through more strategic planning meetings than I care to remember which have been peppered with phrases such as “the pace of change is unprecedented”, “learn to love change”, “change is here to stay”, it is absolutely fascinating to have pointed out how truly revolutionary was the first of the periods Mr Gordon addresses.

Part one of the book covering the period 1870 t0 1940 considers what people ate, how they dressed, how they got around, what their heath was like, how illness was managed, what their homes were like, how they communicated, and what working conditions existed. Each area is addressed in exhaustive and, one feels, loving detail. The book is a treasure trove of practical illustrations about how America has evolved over the past 150 years.

If we take the homes Americans lived in in 1870, they were lit by candle or paraffin lamp, which was inefficient, dangerous, required significant maintenance, and smelly. Water was provided by wells or other external sources. It had to be brought in and taken out of the home by hand, predominantly women’s. Human waste was deposited outside of the home in pits. Heating and cooking was mainly by open fire and centered on the main room of the home the kitchen/dining/living and occasionally bathing area.

To say life in such a home was “mean brutish and short” may be an exaggeration however compared with the home of the 1940’s not much of one. In a powerful use of language Mr Gordon describes the homes of the 1940’s as having become “connected”. I know that if our home lost its connection to the internet my youngest son would think the world was about to collapse and to be fair I would not be far behind him. However, it would be interesting to see how important the internet connection would be if it had to be traded off against connection to clean, running water, an effective sewage system or electricity.

One of the great things Mr Gordon’s book does is make visible the incredibly transformative function of advances which are now so ubiquitous in developed economies they are “invisible”.

One example from the book is the calculation of what a typical North Carolina housewife had to do to provide the home with water in 1886. She had to carry water 8 to 10 times a day meaning that over the course of a year she toted more than 36 tons of water over 148 miles. Washing, boiling and rinsing a single load of washing would require 50 gallons of water to be brought in and out of the home by hand. Running water and effective sewage were, of course, not just about convenience. Their impact on public health and urban development was immense.

In area after area a similar picture emerges. In 1870 transport was powered by horses or steam trains the internal combustion engine transformed this so that by the end of the period cars, trucks, electric transit systems and, even more spectacularly, airplanes were the norm. The germ theory of medicine and antibiotics extended average life expectancy significantly by reducing the high levels of infant mortality commonplace in 1870. Clarence Birdseye perfected the process of freezing food thus transforming the diets of the population. Electronic communications moved on from the telegraph to the phone to the radio, to the silent movie and by 1939 the release of The Wizard of Oz and Gone with the Wind.

The changes that occurred were overwhelmingly the product of the general purpose innovations of the second industrial revolution specifically the application of electricity to lighting and other uses, and the invention of the internal combustion engine. These reached into every aspect of peoples’ lives revolutionising how they lived.

Many of them were quantum shifts which were subsequently refined and developed but cannot be repeated. The provision of the first motorcar is such a paradigm shift. In the space of a few decades it meant the horse, which had effectively been the only mode of personal transport for millennia, was made redundant. This had enormous implications for areas as diverse as urban design, allowing suburbs to be “invented”, and public health with the removal of literally tons of animal waste from the streets of cities.

The productivity increases of the agricultural revolution and the growing application of steam power to production of the first industrial revolution were supercharged with the inventions of the second industrial revolution leading to the rapid and massive process of urbanisation. In every area productivity was increasing at a spectacular pace and the whole of the environment within which people lived was being transformed.

The Depression and the Second World War threatened all this and there was a fear that after the hot house of planned military production the post war period would lead to a collapse in productivity rates and a return to the stagnation of the 1930’s. What happened could not have been further from the truth. The period from 1940 to 1970 saw the rapid expansion of consumer capitalism as wartime production facilities were turned to peacetime white goods creation.

The era from after the war to the early 1970’s some have labelled as the Great Compression because of its redistribution of wealth transforming blue collar workers into what became, up until recently, the middle class bedrock of American politics. Trade unionism flourished, redistributive taxation with higher rates of 70% and 90% enabled the federal government to investment in infrastructure projects to do things like bring electrification to the South, establish social programmes such as Medicaid and Medicare and mount a war on poverty.

Whilst innovation continued it was largely about the more effective exploitation of the technologies that had been created in the earlier period from 1870 to 1940. Nothing was discovered that had the all purpose transformative power of electricity or the internal combustion engine.

Finally, we move to the era from 1970 to 2014. The story in this era is far less positive. The newly created middle class, who had experienced nothing but growth with living standards effectively doubling every 30 years, began to find their incomes stagnating or declining in real terms. Inequality began to grow and the pace of economic growth began to slow down.

This process was punctuated with the third industrial revolution around information and communications technology (ICT). This had a significant but relatively brief impact on productivity growth in the decade from the mid-1990’s to the mid-2000’s. There is a famous quote by Robert Solow, the Nobel prize winning economist that “You can see the computer age everywhere but in the productivity statistics.” This encapsulates what has become known as the “productivity paradox”, the fact that spectacular improvements in computer technology have had little impact on the overall level of productivity growth in the economy.

In essence Mr Gordon believes the period 1870 to 1940 saw a scale of transformation that is very unlikely to be repeated in the medium term and possibly never again. What it enabled was a period of economic growth unprecedented in human history. The speed of that growth was spectacular but has been in decline for over 30 years. If we take the annualised growth rate of output per hour in the period from 1870 to 1920 it was 1.79% per annum. In the period from 1920 to 1970 it was a very impressive 2.82%, but in the period from 1970 to 2014 it fell back to an average 1.62% per annum and of course this included the decade of growth between 1995 to 2005 associated with the ICT revolution. If this is stripped out the average growth rate in this period is 1.38%.

However Mr Gordon identifies four critical “headwinds” that might undermine even this rate and may mean “the future growth of real median disposable income will be barely positive and far below the rate enjoyed by Americans dating back to the nineteenth century.”

The headwinds he identifies are a) growing inequality which means that increasing amounts of whatever growth does occur is captured by a tiny fraction of the population; b) a faltering education system where the poor enter the system late and at a massive disadvantage leading to their early exit with all the negative career and income implications of this; c) a demographic shift with baby boomers retiring over the next twenty years reducing the supply of labour and increasing the dependency ratio; d) government debt to GDP ratio will inevitably increase as a result of these demographic changes and lead to the need for action in terms of cuts or tax increases to reduce the fiscal imbalance.

Taking account of the potential economic consequences of these headwinds Mr Gordon estimates that real GDP per person may grow at around 0.8% per annum over the next 25 years. This is a third of the rate achieved in the period 1920-1970, and barely half the rate achieved in the period 1970-2014. If the success of Mr Trump is in any way connected with the stagnation of the blue collar / middle class standard of living over the past thirty years what might a future of lower growth and more extreme inequality hold for politics in the States?

Mr Gordon ends his work with a number of policy prescriptions to mitigate the worst of the slowdown in economic growth. These include, a much more progressive tax system, a higher minimum wage, increased earned income tax credits, drug legalisation, improved pre-school education, a move away from the current property tax based system for the funding of education, increased but targeted immigration.

I suspect Mr Trump has not read this book, for if he had I am sure we would have heard the howls of condemnation from across the Atlantic. It is impossible to get across the quantity or quality of information contained within it nor the humane tone with which it is suffused. It is an important book that deserves to be debated widely amongst policy makers on both sides of the Atlantic. If even only partially correct its implications are profound for the economic, social and political future of the United States.

Further, one suspects the thesis has traction in the UK and Europe. This may mean any assumptions about future growth solving the UK’s current fiscal problems may be completely misplaced.

“The Rise and Fall of American Growth: The US standard of living since the civil war.” Robert J Gordon. Princeton University Press. 2016.

Why Are We Waiting?

If you want to read one book on climate change, which provides a balanced and comprehensive overview of the topic this is it. Nicholas Stern has been engaged in the issue for decades. In 2006 he produced “The Stern Report: The Economics of Climate Change” reviewing the economic implications of moving to a low-carbon global economy. The authority of the writer comes across from the start and builds as you read the book, which, for those that did woodwork, is not without its challenges.

IMG_1258The book came out just before the 2015 Conference of the Parties (COP21) in Paris. It set out a new approach to the global management of climate change moving away from top down, legalistic targets to an approach premised more on, effective measurement of emissions, individually set voluntary targets and regular review of these to establish more ambitious ones. In essence this seems to have been a recognition of the political reality that a) the US Senate would block any Treaty ratification and b) many of the emerging economies were unlikely to sign up to something that undermined their economic growth.

The title of the book aims to challenge the current complacency around the issue of climate change. Stern sees the next two decades as fundamental to determining whether the world can create a viable response to the threat of global warming. The reason for this is a combination of demographic, economic and infrastructure changes that are set to occur over the next twenty years.

Demographic projections between now and 2050 suggest the world’s population will grow from something over 7bn to just under 10bn. What is more, 70% of that population will live in cities compared with 50% now. Many of these people will be in the rapidly expanding emerging economies, notably China, whose growth is hugely energy resource hungry.

These mega trends have enormous investment and resource consequences, which, are intensified by the fact that the existing infrastructure of many developed nations is dilapidated and also requires significant investment. This means over the next twenty years there will have to be massive investment in developing new cities and improving existing ones.

How this investment is undertaken and its results will structure the world’s energy demands for the rest of this century and beyond. This is fundamental as the science makes clear we are now close to the limit of CO2 equivalent gasses (CO2e) that we can put into the atmosphere without creating an existential challenge to the future of the human race.

Currently, the world emits about 50bn tonnes of CO2e gasses annually. If we want to constrain the global temperature increase to no more than 2 degrees Celsius we need to reduce emissions significantly. Specifically by 2035 we need to be <35bn tonnes and by 2050 down to <20bn tonnes. Whilst the specific path might vary this level of reduction reasonably represents the scale of the challenge. A challenge magnified of course by the growth in the world’s population and in its wealth.

The book is well documented and provides a brief history of the underlying science relating to the impact of CO2e gasses on global warming. It charts the ups and downs of the international policy response since the establishment of the Intergovernmental Panel on Climate Change in 1988.

The arguments in the book are very balanced. Stern is not one for “sexing up” the evidence. He genuinely believes it speaks for itself. He is meticulous at presenting the positive progress that has been made in some areas. Indeed he thinks this is vital in convincing people the issue is something that can be addressed, as well as must be.

His emphasis, however, is urgency. He explains how the nature of the problem is such that it conspires to undermine effective policy action. Its scale, the risk and uncertainty surrounding it, the delays in consequences and the “publicness” of greenhouse gas emissions all undermine an appreciation of what is a clear and present threat.

The notion of the “publicness” of greenhouse gas emissions is worth a word. By this Stern means it does not matter where the emissions come from, it is the cumulative total which matters, and its main impact will not be distributed on the basis of who has contributed most to the problem. This raises enormous questions of equity given that the largest contributors to the problem to date have been the, rich, developed nations of the Northern hemisphere and, per head, this remains the case. Ironically the, poorer nations in the Southern Hemisphere, who to date have contributed least are those likely to face the earliest significant consequences of change.

It is partly because of this that one, if not the, key theme of Stern’s book is the need to link the issue of climate change and poverty reduction. As he puts it “… the two defining challenges of our century are overcoming world poverty and managing climate change.” If you think solving world poverty sounds a bit idealistic reflect on the following. The current level of global CO2 emissions is 7 tonnes per person. If we want to keep global warming to 2 degrees Celsius this needs to come down to 2 tonnes per head by 2050. Currently China, the largest national emitter of CO2, emits the equivalent of 9 tonnes per person. The United States on the other hand emits 20 tonnes per person.

People living in grinding poverty, or even at standards which are half those of a small minority of the planets population are unlikely to worry about the impact of climate change if those that have been the “winners” to date are not seen to be doing a lot of the heavy lifting. The eradication of global poverty is no longer just a moral issue it is tied to the long-term sustainability of the planet.

There is a technical section of the book which looks at the models used to predict the impact of climate change. Stern feels there are some fundamental flaws to some of these models. He argues, “The basic problem is that they have assumed underlying growth plus only modest damages from big increases in temperature, plus very limited risk.”

Because they ignore some significant “tipping point” risks and issues like potential migration patterns they lead to overly optimistic conclusions. So, for example, some of the models assume 2% annual growth and 20% damages from climate change over time. These end up showing the world to be 6 times better off economically even with 8% temperature increase. So the economy is fine, it’s just that all the people are dead.

The book is written in a very clear and persuasive manner. There are no flights of emotional rhetoric, no avoiding difficult questions. The evidence is laid out systematically and rigorously. Mr Stern clearly believes in the power of rational argument, which is much to his credit. I would be very loath to question his grip on international policy development. If I have one concern it is that he may underestimate the strength and resolution of those with a material interest in rejecting the risks associated with climate change.

Unless there is a massive technological breakthrough on carbon capture and storage the reducing CO2e emissions path set out above is probably the only viable way to limit the increase in global temperatures. The implications of this are that somewhere between 65% and 80% of the known fossil fuel reserves currently in the ground have to stay there. That is a lot of pain. Pain, which would be felt by some of the most wealthy and thus powerful people on the planet. I am not sure how far rational argument will go along that line.

I started by suggesting that if you only want to read one book on climate change “Why are we waiting?” should be it. I would conclude by saying don’t read one book on climate change, read two. Read Nicholas Stern in conjunction with Naomi Klein’s “This Changes Everything”. Stern and Klein have very different views about who will play the leading role in addressing the issue of climate change. For Stern the private sector has to be mobilised. For Klein it is an effective state energised by local activism. Whatever their differences they are both attempting to inject a much-needed level of urgency into the issue of climate change. They both provide insight and illumination. A Kein/Stern synthesis would be tremendous until then the effort of reading two substantial books will not be wasted both are excellent in their different ways.

Nicholas Stern. Why  Are We Waiting. MIT Press 2015