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Book reviews: who's watching the watchmen?
Matthew Partridge reviews three of the latest books on economics and investing, including: how to fix financial regulation; how to invest for dividends; and why it's time economists had a rethink.
By James R. Barth, Gerard Capio Jr, and Ross Levine
Published by MIT Press
Most people seem to think that the global financial crisis was ultimately caused by there being too little regulation. The solution therefore lies in imposing yet more rules. James Barth, Gerard Caprio and Ross Levine beg to differ.
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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In their latest book, they argue that regulators had all the tools they needed to prevent the problems, but chose not to use them. Lacking expertise, hidden from the public, and eager to secure themselves better-paid jobs in the private sector, regulators ended up being more interested in expanding their own power than in keeping the financial system stable.
It's not necessarily an argument that we'd disagree with. The only problem is, what do you do about it? The solution, the authors claim, is to create a new agency, which would shame the regulators into doing their job properly by pointing out their failings.
Leah Spiro of Absolute Return + Alpha points out the obvious problem with this: appointing yet another watchman to watch the watchmen. "A cynic would say that the author's motive is full employment for economists".
However, as Spiro also notes, this "is a surprisingly lively and provocative book about a hellishly complex and staggeringly boring subject". And while the idea of yet another regulator might not be the best way to go about it, she agrees that "the idea of a public early warning system is appealing".
On that point, we'd have to agree. It is amazing that while the US Federal Reserve, for example, holds a huge amount of assets on its books, it still refuses to publish basic statistics on the money supply. More openness can only be a good thing.
By Rodney Hobson
Published by Harriman House
With bond yields at record lows and stock markets performing badly, it's no surprise that dividends are back in fashion. In his latest book, experienced investment writer Rodney Hobson explains how to go about hunting down reliable dividend shares to boost the income from your portfolio.
He starts by explaining some of the basics, such as what a dividend is. He then looks at some of the key ratios that can help you decide whether a share is worth buying. The third section discusses general tactics for investing wisely. Finally, Hobson outlines a strategy that focuses on dividends, using the example of BP to show how things could go wrong.
The book could do with providing more data on the long-term performance of shares with high dividend yields a surprising omission, given that such shares have consistently outperformed the market in the past. Those who already have a reasonable amount of investment experience may also find it a little basic.
However, if you are just starting out, then Hobson's decision to assume little prior stock market knowledge makes this an excellent book for beginners. He also has an undeniable talent for explaining difficult concepts in an easy-to-grasp manner, breaking them down into bullet points.
By Adair Turner
Published by MIT Press
Over the past four years there have been calls for a complete overhaul of banking. Should the same apply to the teaching of economics? Adair Turner, former head of Britain's financial services watchdog, the Financial Services Authority (FSA), certainly thinks so.
Economists need to focus on increasing happiness rather than growth, to pay more attention to inequality, and to accept the market does not always know best. However, this isn't just a question of changing a few theories here and there.
It's about reviewing the whole approach to the subject of economics. In short, "economics has to deal with the world as it is, not as economists have assumed it to be". Part of that involves recognising "the importance of political, philosophical, and ethical issues".
Turner's book is short and to the point, which makes it ideal for both the general reader and economists. While he backs up his views with plenty of data, he balances this with studies that support traditional theories.
However, this admirably honest approach also makes some of his conclusions, especially the idea that "GDP figures are almost useless as a measure of long-term changes in human well-being", hard to justify. And while he rightly attacks economics for making too many assumptions, it's worth remembering that all disciplines, from the humanities to the hard sciences, depend on artificial frameworks.
Publisher's Weekly is correct to say that, "those who find the "dismal science" just too dismal will relish this thoughtful book". However, the changes that Turner seeks are unlikely to take place.
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