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Ian Robertson (West Vancouver, Canada)

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Spooky Action at a Distance: The Phenomenon That Reimagines Space and Time--and What It Means for Black Holes, the Big Bang, and Theories of Everything
Spooky Action at a Distance: The Phenomenon That Reimagines Space and Time--and What It Means for Black Holes, the Big Bang, and Theories of Everything
by George Musser
Edition: Hardcover
Price: CDN$ 21.67
29 used & new from CDN$ 18.57

1 of 1 people found the following review helpful
4.0 out of 5 stars The Surprising Implications of Quantum Entanglement, Dec 27 2015
The spooky action to which Musser's title refers is the entanglement of subatomic particles, whereby what happens to one is instantly reflected in the other, regardless of the distance separating them. The phrase is borrowed from Albert Einstein, who proposed the speed of light as a constant and an absolute, with nothing able to exceed its speed. How then to explain simultaneous actions, regardless of the distance separating them, with information seemingly travelling faster than the speed of light? ' spooky? ' or perhaps the result of our still incomplete understanding of the forces and structure of the universe?

Scientific American magazine contributing editor George Musser takes this topical real world problem - in mid-2015 scientists at the Delft University of Technology gave the strongest proof yet of its spooky existence - and uses both quantum mechanics (micro-scale) and Einstein's General Theory of Relativity (macro-scale) as bases from which to work. Musser works forwards (mostly) and backwards (for historical context and to incorporate Newtonian mechanics), and highlights the ongoing difficulty physicists face trying to unify the micro and macro forces into a single theory, and then adds newer theoretical frameworks to advance his narrative. Using both the foundational theories and the newer ones, Musser hypothesizes explanations for the spooky action, including that space itself may be an artificial construct, and that two entangled particles may not actually be separated by distance; that what appears to us as distance or space might be a construct in the same way that life is a construct founded upon basic laws of physics - not inconsistent with foundational laws, but not an essential part either.

The concepts are mind-bending, and to help us understand Musser makes ample use of analogies, including a recurring flipped coin to illustrate how aspects of entanglement work. He weaves amusing anecdotes throughout, and recounts in a lively fashion the various historic and contemporary physics debates. But given the many moving parts, including the competing and complementary theorems, more diagrams or frameworks would have been helpful - at the very least chapter sub-headings as a roadmap.

This small request - for a more comprehensive roadmap - highlights a larger and perhaps intractable issue; that the subject matter doesn't easily lend itself to Musser's target audience. Authors such as Brian Greene (The Elegant Universe: Superstrings Hidden Dimensions And The Quest For The Ultimate, The Fabric of the Cosmos: Space, Time, and the Texture of Reality) use a strong scientific framework in their presentation and assume a certain level of science comprehension in their analysis. Others, such as Carl Sagan and Stephen Hawking, use the broadest of scientific frameworks (and lots of pictures and diagrams!) in their presentation, and for the most part omit any analysis - perfect for a mass audience. Musser is a capable writer, and like Sagan and Hawking he identifies and explains well the issues for a lay audience; unfortunately his theoretical explanations quickly drift from the desired orbit.

For those with a good scientific background and the willingness to wade through the early chapters' slower pace, the second part of Musser's book provides readers with the latest thinking on some of the most challenging problems in physics.

How To Really Ruin Your Financial Life and Portfolio
How To Really Ruin Your Financial Life and Portfolio
by Ben Stein
Edition: Hardcover
Price: CDN$ 29.95
22 used & new from CDN$ 0.01

4.0 out of 5 stars Stein Way is Music To Investors' Ears, Dec 31 2014
It's a rare self-help book that engages both neophytes and experts, and still less common one that actually prods both to better results. Journalist, financial commentator, and polymath Ben Stein does this in two ways: first, by focusing on what’s most important - highlighting our human foibles, which unchecked will drive us to financial ruin; and second by delivering his message with brevity and wit.

Using reverse psychology, Stein exhorts readers to run wild with their bad habits. Among other things, he tells us to: avoid a plan; take the advice of all ‘experts’ on television; assume trends will continue forever; borrow to invest; trade frequently; and trade foreign exchange. Each chapter/topic is short and funny. The book ends with 29 very short sub-chapters about how to ruin our lives more generally.

In his chapter on trading frequently, Stein mockingly directs readers to get stock tips from cable newscasters. “They are brimming over with tips and gossip that if acted upon speedily will make you rich. CNBC is free in most parts of America. It is like owning an oil well or a huge natural gas shale deposit. Just watch it, pay attention to it, and trade like the dickens.”

Stein is right to tease us. We are all drawn naturally to the flashing lights of the business news. And those good looking men and women behind the news desk must know Wall Street’s secrets because they're telling us things we didn’t know, and they’ve made a lot of money themselves by … well, convincing us to watch the show’s advertisements.

Win Ben Stein’s Wisdom, and buy this book.

Money and Power: How Goldman Sachs Came to Rule the World
Money and Power: How Goldman Sachs Came to Rule the World
by William D. Cohan
Edition: Paperback
Price: CDN$ 14.40
22 used & new from CDN$ 14.40

1 of 1 people found the following review helpful
5.0 out of 5 stars The Definitive Story of Goldman Sachs, Dec 31 2014
Goldman Sachs (GS) has become iconic, attracting both superlatives and expletives. To members of Wall Street they are the pinnacle; to Rolling Stone Magazine they are “a great vampire squid wrapped around the face of humanity.” According to business author William Cohan, “The firm’s inexorable success leaves people wondering: Is Goldman Sachs better than everyone else, or have they found ways to win time and time again by cheating?” Cohan answers in a comprehensive, compelling, and insightful book that lets readers know where the firm has innovated and excelled, and where it has misstepped, entered into conflicts of interest, or simply lost its way.

Far more to-the-point than Charles Ellis’ long-winded (and almost sycophantic) book, The Partnership: The Making of Goldman Sachs, each major character is introduced with a short biography Neither does Cohan have an axe to grind like Greg Smith in his 'tell-all' autobiography, Why I Left Goldman Sachs: A Wall Street Story. Without either of his fellow authors' baggage, Cohan is more objective and provides valuable perspective on Goldman's ethical lapses and regulatory trouble.

For example, in telling Goldman Sachs’ history Cohan explains the investment trusts that were popular in 1929 - at the height of that stock market bubble – and then draws parallels to the both the 2008 sub-prime shenanigans and to centuries old events such as the South Sea bubble, illustrating that both investors’ herd mentality and the investment banks’ complicity are time-honoured traditions.

The first one hundred years of Cohan’s book focuses on the rise of GS, the (good) relationship they had with their clients, and their increasing stature amongst their peers, but from subprime onwards, it is a story of profit and antagonistic or conflicted relationships. With a shift of this magnitude, it’s no surprise that Smith chose to air his views publicly.

Cohan writes at length about the inner workings of Goldman’s subprime mortgage machine which, along with Andrew Ross Sorkin’s Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the FinancialSystem--and Themselves (which focuses on the government and central bank’s roles) and Michael Lewis’ The Big Short (which highlights the outsiders who would bet against and profit handsomely from the machine's output), gives an excellent understanding of the 2008 financial crisis. It is almost surreal to read Cohan’s play by play of Goldman trader Fabrice Tourre’s (‘The Fabulous Fab’) coordination of the ABACUS structured products that then became part of The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History.

Despite Goldman’s reputation for having turned a profit on the subprime mess - at times betting directly against its clients - it's interesting to read of the internal confusion that reigned at the firm. Goldman, however, was able to take action. As Cohan writes, “… even if Goldman Sachs had a conflict, and even if they were the first to cry wolf, it seems all of the other Wall Street firms just stared at the wolf, ignoring it, and blaming Goldman Sachs for calling it a wolf. Goldman Sachs was the only firm to run from the wolf, even though that wolf was a frankenwolf created by their own sheep herd.” Reading about Goldman’s internal conflict with clients and external competition with peers makes one wonder how the crisis might have played out had GS not had such large financial incentives in creating sub-prime products and then later in betting against them.

Cohan has written the definitive book about Goldman Sachs, leaving readers to judge for themselves whether it is the pinnacle of finance or a vampire squid.

Happy Money: The Science of Happier Spending
Happy Money: The Science of Happier Spending
Offered by Simon & Schuster Canada, Inc.
Price: CDN$ 11.99

4.0 out of 5 stars Money Well Spent, Dec 31 2014
Verified Purchase(What's this?)
Most financial guidebooks tell us how to make more money, but academics Elizabeth Dunn (UBC) and Michael Norton (Harvard) tell us something different: how best to spend the money we have.  Their answer is delivered in five chatty chapters, each with a central point to help us spend smarter and become happier: 

Buy Experiences
Make It A Treat
Buy Time
Pay Now, Consume Later
Invest In Others

In the first chapter the authors tell us that experiences, even somewhat negative experiences, are looked back upon fondly, while material goods produce some fleeting pleasure but very quickly become immaterial to our happiness. This point is central to their book. In the third chapter they offer ways to increase free time - but careful here, some time savers can actually increase stress - and then suggestions about how best to spend that newfound free time. Prefaced by a bit of their trademark chatty humour, Dunn and Norton write, ”If you awaken happiness researchers in the middle of the night and ask them to tell you (quick!) what matters most for human well-being, you'll get the same response: get the hell out of my house.  After they calm down, though, we're pretty sure they'll agree on the answer: social relationships."  Buy experiences, and use your time to socialize with (or help) others.

Happy Money has a light-hearted style and made me laugh out loud at times. It is also based on rigorous research and each point is well footnoted.  The real power of Dunn and Norton's book is that it assembles such a broad range of academic insight into a well organized, focused and easily digestible whole.  It's not difficult to find suggestions about how to spend our money - advertisements surround us - and there's no shortage of research tidbits or highlights in the media, but without first the filter and second the framework supplied by the authors, it is difficult for the average person to sort the information into something useful.

Full marks.  

Why I Left Goldman Sachs: A Wall Street Story
Why I Left Goldman Sachs: A Wall Street Story
by Greg Smith
Edition: Hardcover
Price: CDN$ 22.49
24 used & new from CDN$ 1.34

4.0 out of 5 stars Author Lifts Curtain to Financial Muppet Show, Dec 28 2014
Greg Smith startled the world not by resigning from Goldman Sachs (GS) - others have left, too - but by publishing his reasons in a New York Times OpEd piece. The public earth-scorching attracted the world’s attention and stirred some very public debate, so it was natural he attempt to leverage his notoriety and press his point further in a book. Smith is a good writer and captures in captivating detail both the mechanics of new recruits’ indoctrination into GS, and the firm’s strong but declining client-focussed culture.

The book begins with the author’s university years and his recruitment to Goldman Sachs. It is plain that he has joined a firm with a strong culture of serving clients, and this is Smith’s central point: that the culture he was hired into has been lost. Through Smith’s recruitment/development/advancement we learn about many of GS’ evolving business practices, including:
* how amazingly quickly colleagues on the trading desk recover from their mistakes by shifting unwanted positions to others, including clients. (Little has changed, it seems, in the quarter-century since Michael Lewis’ Liar's Poker);
* the rise of co-investment activities (which muddy the investment bank’s advisory role); and
* the continued evolution of profit centres in investment banking, including the shift from banking to trading (often against clients), which accelerated under current CEO Lloyd Blankfein’s leadership.

Unfortunately, while the author’s journey is both informative and interesting, the book has two substantial failings. First, Smith fails to reflect on the appropriate role of GS in the financial services industry. It is the conflicts inherent in their newer (and more profitable) business activities that are eroding the firm’s culture. Over time this failure will relegate the book to ‘interesting but minor memoir’ rather than ‘critical exposé’. Second - and this isn’t Smith’s fault - the book feels as if it has been very strongly edited by lawyers; sanitized to the point of … well, missing the point.

With the benefit of a couple of year’s hindsight, the firm’s cultural nadir appears actually to have been Smith’s NY Times article, in particular his headline generating claim that former colleagues referred to clients as “Muppets”. I learned from one of Mr. Smith's colleagues, who worked on the same floor as him, that after the original article’s publication GS went to extraordinary lengths to uncover instances of employees engaged in unsuitable behaviour, including use of the term “Muppets”. The partnership, it seems, still takes its culture and image seriously, despite what Mr. Smith might claim.

In a fortunate coincidence of timing, Smith’s book covers the ten or so years subsequent to Charlie Ellis’ GS retrospective, The Partnership: The Making of Goldman Sachs, and despite their substantial differences in style (Ellis’ book is long and exhaustive) and central point (Ellis is fawning), the two complement each other well. Combined they allow readers to see a much longer trajectory of innovation, profit growth, conflict of interest, and lost direction. A better place to start, though, would be William Cohan’s excellent Money and Power: How Goldman Sachs Came to Rule the World, which is comprehensive, insightful, reflective, thought provoking and entertaining.

The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk
The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk

4.0 out of 5 stars Intelligence Driven By Analysis Rather Than Philosophy, Dec 26 2014
Neurologist William Bernstein is an unlikely guide to experienced investors with both this comprehensive book and his excellent efficientfrontier website, but he succeeds admirably, perhaps in part because he is a Wall Street outsider with a keen eye for data viewed through a skeptic’s lens.

The Intelligent Asset Allocator - more than a dozen years old now - is very well organized, building logically from broad foundational concepts to practical advice for investors, with an helpful concluding section on further investment resources. Bernstein starts with a clear discussion of risk and return, and then outlines the theoretical (in particular the work of Fama & French) and actual behaviour of multi-asset portfolios. He then covers market efficiency and concludes with practical and precise (he prefers Vanguard whenever possible) recommendations of how best to invest.

Bernstein’s premise is clear from the opening pages, “Asset allocation is the only factor affecting your investments that you can actually influence.” He cites asset classes such as money market, short term bonds, long term bonds, emerging market stocks, and the value and growth options within domestic, foreign, and small company stocks. He notes both the unpredictability of their returns and that past performance is not necessarily a predictor of future performance (at least not over an investor’s time horizon), but nonetheless recommends different asset mixes based on these historic returns and their correlations. How can he not - it’s the central point of his book - though as Bruno Solnik observed “diversification fails us when we need it most” (i.e. in a market crash).

Though Bernstein is careful to highlight the inherent uncertainty in markets and that some of his analysis or recommendations are based on probabilities rather than facts, the book may still leave readers with the unrealistic impression of a paved road to financial success. In fact, it’s closer to sailing to a destination, unsure of the winds and weather, and of our ability to withstand them. As financial weatherman Nassim Taleb has noted, one hundred year storms seem to appear in markets with surprising frequency. To Bernstein, who is very comfortable with a spreadsheet, the forecast is perhaps too analytical and not philosophical enough.

Though much has changed since the book’s publication - it was written before the advent of fundamental indexing, and the number of Exchange Traded Funds (ETFs) available today is as large as the number of individual stocks - its principled approach ensures it stands the test of time well. Mr. Bernstein’s more recent publications are more philosophical and thought provoking, but knowledgeable investors would be hard pressed to find a better, more practical and comprehensive guide than The Intelligent Asset Allocator. An updated edition to include his recent work would be very welcome.

The Partnership: The Making of Goldman Sachs
The Partnership: The Making of Goldman Sachs
by Charles D. Ellis
Edition: Paperback
Price: CDN$ 19.49
25 used & new from CDN$ 3.36

4.0 out of 5 stars Ellis Tells The Partners' Story, Dec 26 2014
Charles Ellis has written the definitive history of Goldman Sachs, relying on candid insight from dozens of the partnership's current and former leaders. In many ways the firm’s history parallels that of Wall Street, as Goldman Sachs (GS) was either a leader or near the forefront in the development of many practices: advisory services; trading desks, block trading, proprietary (prop) trading, private client services, prime brokerage, commodities trading, forex, hostile takeovers, and of course the benefit of a truly global footprint. Readers will learn about the dozens of leaders who shaped GS, how they strove for excellence in all areas, and how and why our modern capital markets have developed. What they will not receive however, is any policy perspective on whether or not investment banks should undertake some of their activities at all - a glaring omission given the book’s length and detail.

Goldman Sachs is unquestionably the pre-eminent investment bank today, and Ellis’ admiration comes across in his text. He unabashedly chronicles the significant steps in its evolution, noting disagreements and differences in style within leadership circles, but never stooping to malign individuals. When the firm or partners find themselves offside with New York DA Rudy Giuliani, Ellis highlights the impact on the firm, its operations, and its strategic direction, but he neither moralizes nor impugns an individual’s character. In one notable instance Ellis actually rises to the defence of a former partner, methodically dismissing both the charges of New York DA Rudy Giuliani and the shoddy journalism at the time by James Stewart, who later added insult to injury by immortalizing his mistakes in his classic book Den of Thieves. In short, those looking for character assassination, muckraking, and an expose on the moral failings of Wall Street will have to look elsewhere, including William Cohan’s excellent Money and Culture: How Goldman Sachs Came to Rule the World, and Greg Smith’s highly edited (censored?) Why I Left Goldman Sachs.

Though Ellis doesn’t highlight them, careful readers will see some of the potential conflicts as they develop. For example, there is a short passage on an agreement between GS and British company Woolworths whereby GS would keep the price of Woolworths’ stock above a certain level, something that would be unthinkable in today’s public markets. Similarly, the realization by GS leadership that information from unrealized management buy outs (MBOs) could subsequently be used to help outsiders undertake leveraged buy outs (LBOs) would appear to cross a line, as would the development of proprietary trading (i.e for GS’ own benefit) while simultaneously executing clients' trades on an agency basis. With respect to the then new field of asset management, Ellis notes “[The major underwriting firms] were definitely not in the investment management business, and they were, back then, explicit that being an investment management would be a clear conflict of interest. But that simple … policy could not hold up once Wall Street discovered how very profitable the asset-management business really was.” Much gentler words than Rolling Stone Magazine’s Matt Taibbi’s description of GS as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” but with a similar message; if an activity can make money and it’s not illegal, it will be considered.

The book is littered with names that will resonate outside the walls of the partnership and Wall Street - Hank Paulson, Robert Rubin, Robert Merton, Fisher Black, John Meriwether, Jon Corzine, and Lloyd Blankfein - some of whom are celebrated for further achievement, some for subsequent spectacular failure, and some for both. Even though GS’ early leaders’ names have largely faded from common parlance, their achievements are still easily recognizable - for example the underwriting of Ford’s 1956 IPO (which subsequently sank about 25%) - as are the achievements of more anonymous groups such as the mortgage backed bond group who belatedly realized that their investments had an embedded option and a feature known as convexity, and that changes in interest rates would impact homeowners’ refinancing activities. Perhaps a bit esoteric, but it has subsequently been taught to all CFA Charterholders and it is not uncommon to find reference in more detailed economic and business writing.

The Partnership: The Making of Goldman Sachs is a worthwhile contribution to the history of Wall Street. A bit long and dry for casual readers, the book should be read by those with an interest in Goldman Sachs (new GS recruits, prospective GS partners, and those working for competitors), and by those with an interest in the development of investment banking and finance.

Family Matters
Family Matters
by Rohinton Mistry
Edition: Paperback
Price: CDN$ 18.73
32 used & new from CDN$ 0.01

5.0 out of 5 stars Outstanding Writer Tells Why Family Matters, Dec 26 2014
This review is from: Family Matters (Paperback)
Seven years after his outstanding and incredibly moving novel A Fine Balance, Mistry returns to Mumbai and weaves readers into the lives of Nariman Vakeel, a 79 year old retired professor, and his family. As the tapestry takes shape a complex thematic pattern emerges of aging, death, family, religion, politics, and duty. A truly immersive book; fantastic on every level, and a must read for lovers of literature.

Like a long, sinuous shot in the opening scene of a movie, Mistry plunges readers into 1990s Mumbai. No sooner do we have our bearings, though, than the family intrigue begins. Nariman’s health is in decline. He lives in the comfortable surroundings of his familial home, Chateau Felicity, along with his stepchildren Coomy and Jal. It is a situation Coomy resents, however, and when he suffers a fall she uses it as an excuse to move him to her stepsister’s - Nariman’s natural daughter’s - smaller and more cramped two bedroom home.

Nariman's biological daughter, Roxana, her husband Yezad and two young boys (Murad and Jehangir) live a short distance away, and his arrival brings out both the best and worst in their family. It strains their finances, cramps their space, and puts demands on their daily routine, and it precipitates some poor choices - especially by Yezad’s - with disastrous consequences. Paradoxically, though, the family treat’s Nariman with a humanity that was lacking at his step-daughter’s, and he is happy there.

Family history is unveiled bit by bit via daydreams, recollections and dialogue, which adds context to the present day’s unfolding events. Mistry’s strong writing skills foster a sense of intimacy with the family, even as we simultaneously get caught up in the sweeping vastness of India and its culture and current events. Through the omniscient narrator we watch family members make their choices, understanding that forces far from their control and events far in their past have led to each decision point. Nariman, for example, drifts into a daydream and we learn of his past - “his ill-considered liaison with that Goan woman” - but with that behind him, he had agreed to settle down. “That Goan woman,” his true love, happened to belong to the wrong religion, and his parents forbade the liaison. Although Nariman later ended up a good father to his unappreciative step-children, Mistry guides readers to ponder the implications of India’s religious, political and social barriers.

In addition to his exceptional character development, Mistry is a master of symbolism and evocation. For example, shortly following Nariman’s relocation from Coomy and Jal’s home to his Roxana’s place, he is disoriented from a sleep and turns his head to look “for the familiar bars on his window, and saw his grandson’s cot instead.” His family home had been a prison, but his daughter’s home - despite the emerging strains - was full of nurturing and life. As with King Lear, who Nariman at one point compares himself to, it is the simple acts of love that endure in family matters, while self-serving actions lead to tragedy.

Family Matters is an excellent addition to Rohinton Mistry’s prize-winning bookshelf (shortlisted four times for the Man Booker Prize), and is storytelling at its literary best.

The 100-Year-Old Man Who Climbed Out The Window And Disappeared
The 100-Year-Old Man Who Climbed Out The Window And Disappeared
by Jonas Jonasson
Edition: Paperback
Price: CDN$ 12.73
46 used & new from CDN$ 0.57

5.0 out of 5 stars Disappear into 100 Years of Adventure, Dec 26 2014
I purchased Jonas Jonasson’s book because I had heard it was good, because it had a captivating title and enticing but simple cover sketch, and because it was a modest length and therefore likely to be read cover to cover, even if it didn’t live up to the promise of my rigorous analysis. Sometimes - as on Disneyland’s pitch black Space Mountain roller coaster ride - not knowing what to expect enhances the ride, and Jonasson delivers a rollicking series of twists, turns and sharp corners spread out over 100 years (no surprise there) and a vast geography (to say more might spoil some of the surprise).

Unsurprisingly, the book begins with the hundred-year-old man climbing out his window, after which a series of unlikely events quickly transpire to hook the reader. Characters are introduced via their chance meeting with the hundred-year-old man, and their quirky backgrounds are explained with just enough detail to bring them to life, but with a humour and brevity that keeps the focus on the unfolding story. The protagonist is 100, after all, and one had better not dawdle when time might be short.

As with the best oral storytellers, Jonasson's main aim is to hold the audience's attention via the storyline.  The book's dedication sums up his goal well.  “No one was better at captivating an audience than Grandpa, when he sat on his favourite bench telling stories, leaning on his walking stick and chewing tobacco. ‘But Grandpa … Is that really true?’ we grandchildren would ask, wide-eyed. ‘Those who only says what is the truth, they’re not worth listening to,’ Grandpa replied.”

Jonasson learned much at his grandpa’s knee, and he introduces a second set of characters – well-known historical figures – in the hundred-year-old man's backstory. For them of course no introduction or background is needed, but they add an element of the fantastical and introduce a second plot-line that careens its way from 100 years ago into the present day and the 100-year-old man’s decision to climb out the window.

Just as characters are humorously drawn but serve primarily to advance the plot, fine details about the setting are spare, mostly adding humour rather than rich detail. For example, an aside about Iranian-British relations in the mid-twentieth century tells readers, “Oil provided fantastic wealth to both England and Iran. Mainly England, if truth be told, but that was only fair because Iran's sole contribution to the project was cheap labor – and of course the oil itself."

The book is an unusual blend of styles: with the humorous plot twists of a John Irving novel; a blend of fact and fiction as written by James Clavell or Ken Follett; the irreverence of Woody Allen; and a central character whose life resembles cinema’s Forest Gump, so grab a seat on the bench beside Jonasson as he tells a tale well worth listening to.

Capital in the Twenty-First Century
Capital in the Twenty-First Century
Price: CDN$ 31.56

1 of 2 people found the following review helpful
5.0 out of 5 stars A Capital Contribution to Economics and Public Policy, Nov. 19 2014
Have you wondered if "the dynamics of private capital accumulation inevitably lead to the concentration of wealth in ever fewer hands?" Many have, though until now most have answered the question based on either their station in life (I worked hard to get here / I can't seem to get ahead...) or their political views (government should stay out of citizens' lives / government should play a redistributive role and should help people who fall on hard times....) Thomas Picketty, a French economist, attempts to answer the question definitively, using rich but previously untapped historical data - data which has been long available as economic snapshots, but which he links together to form for the first time an illuminating and comprehensive time series.

Picketty spent fifteen years assembling the data for use in his longitudinal study, and though the longest series are for England and France, Picketty includes additional countries, such as the US, Germany, Japan, Italy, Australia, and Canada, as statistical records become available. The central conclusion drawn from the data is that capital grows more quickly than the broad economy (in economists' terms `r > g'), so those with capital - either self-made or inherited - maintain a natural and ever-widening gap over wage earners, who seldom are able to save enough to ride the capital growth train upwards.

The book is a curious mix of primary research and broad conclusions, directed at both professional economists and a lay audience. It is long - just under 700 pages including tables and notes - and divided into four sections: Income and Capital; The Dynamics of the Capital/Income Ratio; The Structure of Inequality; and Regulating Capital in the Twenty-First Century. The first three sections are an expansive discourse of the data, some underlying theory, and the logical economic conclusions that can be drawn from the data. The fourth section offers prescriptions for policy makers' consideration, including a global tax on capital, an estate tax, higher progressive income tax rates, and some consideration of the role of public debt in the distribution of wealth. Lest lay readers fear the book is too technical, there are only two short equations in the book, and Picketty explains both well.

The first equation (First Fundamental Law of Capitalism) links a country's capital stock (excluding human capital) to the flow of income from that capital. If we know the capital/income ratio, we can also determine the portion of per capita income from labor and from capital. For example, Picketty tells us that the average wealthy country had a per capita GDP in 2012 of about 30,000 Euros, with about 21,000 from labour and 9,000 from capital. Of course, some receive far more than 9,000 from capital, and many receive nothing - even having a negative income from capital once rent and other payments are considered. What is true as an average for the aggregate economy can produce wildly different incomes from capital amongst the populace - a much wider distribution (i.e. concentration) than could ever be true for income from labour.

The second equation (Second Fundamental Law of Capitalism) relates the capital/income ratio to the savings rate and the growth rate. "A country that saves a lot and grows slowly will over the long run accumulate an enormous stock of capital (relative to its income), which in turn can have a significant effect on the social structure and distribution of wealth." In other words, "in a quasi-stagnant society, wealth accumulated in the past will inevitably acquire disproportionate importance." A very thought provoking equation for economies such as Japan and Western Europe where growth has slowed significantly and the average person has access to neither current wealth nor to significant growth opportunities.

Picketty explores the importance of both equations, including the evolution of capital and labour over time and their role in a modern economy. He includes some wonderful literary references (mostly Jane Austin and Honoré de Balzac, though with other literary and even some contemporary pop culture references), which highlights the central points for readers without a background in economics.

With the theory and history established, Picketty examines its impact, including the inequality of labor income, the inequality of capital ownership, and the conundrum of merit and inheritance. For example, Picketty spends a full subchapter on inherited wealth, and after examining the historical data he notes that "... it is almost inevitable that inherited wealth will dominate wealth amassed from a lifetime's labor by a wide margin, and the concentration of capital will attain extremely high levels - levels potentially incompatible with the meritocratic values and principles of social justice fundamental to modern democratic societies." An interesting conclusion in light of the two equations noted above. Inheritance tax policies vary both amongst countries today and within a country over time; Picketty shows that the choice each makes has an impact on the dynamics of inequality.

Picketty also highlights the concentration of wealth (the share of a nation's wealth that the richest 10% or 1% own) over time. Compared to other points in history the US now has a particularly high concentration in the hands of the wealthy, which Picketty shows is in part due to the very generous pay of the top wage earners today. Top executives in the US, and to a lesser extent Britain, now earn such outsized wages compared to the average worker that they have leap-frogged into the capital class eschewing their historic role as part of a broader continuum of wealth distribution and instead ensconcing themselves at the rich end of a barbell. Slow economic growth or not, a very small subset of labour has found a way to beat their economic odds.

Those on the political right might be dismissive of the book - it's just a few sentences into the Introduction that the author references Karl Marx - but the work is so robust and comprehensive that they ignore the analysis at their peril. To be sure, Picketty uses Marx as a bit of a touchpoint, with sympathy for his sentiment but a critical eye to the areas he either ignored or got wrong. And while some of the author's array of policy prescriptions to counter capital's natural advantage will be anathema to current capital coddlers, they bear consideration because an ever-widening gap between rich and poor is unstable, and instability also threatens the monied class.

Like economists Galbraith and Hayek, Picketty writes with an engaging style, and his inclusion of occasional charts and graphs highlights the data and supports well his conclusions. The book is aptly titled, for it is about the role of capital in society, but if Picketty had chosen to emphasize the book's prescriptive fourth section, he might have chosen to call it "Stabilizing and Unstable Society", echoing economist Hyman Minsky rather than Marx. Like Minsky's seminal work thirty years earlier, this book takes some effort to read, but unlike Minsky's it is written with a lay audience in mind. An important work that will reward persevering readers, and that inevitably will add rigor to policy debates in all countries.

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