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Best Business Books 2011: Economics

A Dismal Outlook?

(originally published by Booz & Company)

Michael Spence
The Next Convergence: The Future of Economic Growth in a Multispeed World
(Farrar, Straus and Giroux, 2011)

Jeff Madrick
Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present
(Knopf, 2011)

Sylvia Nasar
Grand Pursuit: The Story of Economic Genius
(Simon & Schuster, 2011)

It’s been a good year for economics books. Autopsies on the economic crisis of 2008 continued to tumble out in 2011, some of them quite compelling. But it is clearly time to look to the future, and a spate of notable books describing the changing profile of the global economy did just that, including World 3.0: Global Prosperity and How to Achieve It, by Pankaj Ghemawat (Harvard Business Review Press, 2011); The Post-American World: Release 2.0, by Fareed Zakaria (W.W. Norton, 2011); and The Globalization Paradox: Democracy and the Future of the World Economy, by Dani Rodrik (W.W. Norton, 2011).

Other books, which were partially eclipsed in the rush to reset our horizons, explored interesting topics outside the center ring, including The Price of Everything: Solving the Mystery of Why We Pay What We Do, by Eduardo Porter (Portfolio/Penguin, 2011), and The Economics of Enough: How to Run the Economy as if the Future Matters, by Diane Coyle (Princeton University Press, 2011). All are worthy books.

But three of this year’s economics books are especially good. One — The Next Convergence: The Future of Economic Growth in a Multispeed World, by Michael Spence — looks forward, providing what is likely to be a durable framework for thinking about the global economy. The other two — Jeff Madrick’s Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present, and Sylvia Nasar’s Grand Pursuit: The Story of Economic Genius — look backward, in compelling, insightful, and highly readable ways.

From G-7 to G-20

Spence’s The Next Convergence, my choice for the year’s best business book on economics, starts with simple arithmetic: China and India represent about 40 percent of the world’s population. Their combined GDP is growing at an annual rate of 7 percent or more; India is perhaps 14 years behind China on the curve. Their growth will slow in another two or three decades, as they finish the process of converging with the present-day industrial countries. By then, they will have become economic giants.

Indeed, Spence calculates that the world will have a global GDP that is four times as great as what it is now. But what kind of a world will a US$240 trillion global economy create? That is the question Spence seeks to answer in this book.

A considerable deepening of economics has taken place during these last 40 years, a process in which Spence has been an active participant. In 2001, he shared a Nobel Prize for contributions to the economics of information. By then he’d been drawn off into university administration — including nine years as dean of the Graduate School of Business at Stanford University. In the middle years of George W. Bush’s presidency, when Deputy Defense Secretary Paul Wolfowitz was posted to the World Bank with the goal of rethinking its agenda, Wolfowitz turned to Spence as an honest, independent broker of ideas whose views would be of interest to leaders of nations all around the world.

Thus began the Commission on Growth and Development, an ambitious project designed to bring senior political leaders and policymakers from 18 nations (such as Zhou Xiaochuan, governor of China’s central bank, and Montek Singh Ahluwalia, deputy director of India’s planning commission) together with the world’s leading economists (Robert Solow and Robert Lucas, for example). For four years, the commissioners traded visits to one another’s countries and elicited expert testimony, building a cautious case for openness and trade. Unfortunately, their report fizzled after Wolfowitz was forced to step down over an impropriety. Spence, however, soldiered on and produced this compelling tour d’horizon based on his experiences as chair of the commission — a view more or less from the quarterdeck of the global economic system. Except, Spence says, that there is no proper quarterdeck — at least not yet.

It used to be so simple. At the end of World War II, there were the industrial countries with 750 million people — 15 percent of the earth’s population — and there were another 4 billion people living in poverty, divided about equally among the Communist nations, a Second World determined to catch up, and the Third World, whose very name implied a bleak distance from the others. Yet already in 1945, the seeds of change had been planted. For 30 years Japan led the way; then, soon after the death of Mao Zedong in 1976, China abandoned autarky and set out to join the world economy. It was not long before underdeveloped countries gradually became less underdeveloped and emerging nations became newly industrializing ones, until, suddenly, there were the BRICs (Brazil, Russia, India, China).

The latest phase of global growth and development accelerated dramatically after 1980, but why? Certainly, shorter lines of communication had something to do with it. Spence devotes a chapter to the advent of the computer, spawned during World War II, and the Internet. By 2011, he writes, 4.5 billion people — two-thirds of the world’s population — had cell phones.

Many problems arise from these different growth rates. Some have already become clear, as Spence outlines in a series of chapters: financial imbalances, pressure on resources and the environment, the continuing attenuation of middle-class jobs and incomes in Europe and the United States. These problems lead to major questions: Can Western economies continue to find new sources of growth? Can the environment stand a fourfold increase in the ranks of the wealthy? Will there be enough food and fuel? What about climate change? Are there other kinds of social and cultural brakes that may slow or even fracture the prospects for global growth? What if every important nation feels it must have its own banking, agricultural export, automotive, and aerospace industries? If everyone tries to do the same thing, it won’t work.

Spence has something interesting to say about each of these questions; offers additional observations on the internal dynamics of China, India, and Brazil; and still devotes a quarter of the book to an examination of the financial crisis and its aftermath. The fact that The Next Convergence covers so much ground means that it has little time for the folksiness and redundancy that make for easy reading. The payoff is coherence — the argument of the book fits together as tightly as the formal models that Spence once built for a living.

As for globalization, Spence thinks that the benefits of open trade have been oversold, and its potentially adverse distributional impacts too easily brushed aside. So for the next few years, expect a volatile world, he says, especially given the magnitude of recent economic shocks. Once the advanced countries regain their confidence, however, he predicts that the dynamism of the developing countries should produce a strong new wave of expansion — and bring us back to the problems of multispeed growth.

None of the associated problems will be satisfactorily solved without the advent of new forms of cooperation, says Spence, starting with the Group of 20, the finance ministers and central bankers of 19 nations and the European Union. There’s nothing especially controversial about that: Economic growth in the past has always occurred in parallel with the development of new political, legal, and regulatory institutions, and mostly through trial and error. Whether the evolution of governance will keep pace remains to be seen.

Lapsing into the sparse lingo of game theory (which helped him win his Nobel Prize), Spence ends The Next Convergence by writing, “This is a cooperative game on a giant scale we are trying to learn how to play, a complex one because of the asymmetries among the players. The chances that asynchronous moves and separate agreements on distinct issues will lead to a fully cooperative outcome are very low. More likely is a non-cooperative outcome with attendant suboptimal results and instability. A bumpy road to a new and not very attractive normal.” His superior description and analysis of those high stakes are the main reasons to read this book.

A Rorschach Test

Whereas The Next Convergence peers 40 years into the future, Age of Greed looks back over 40 years of the American past. It is a page-turner that, through a series of profiles of financiers, politicians, economists, and central bankers, presents a powerful polemical history. And it’s all true, as far as it goes. In this, Age of Greed resembles a famous issue of Institutional Investor published in 1987 that contained capsule stories of 50 celebrated financial entrepreneurs. Yet Jeff Madrick, the book’s author, like the editors of the glossy money manager fan mag, keeps you on your toes, asking yourself what he’s leaving out. Like liquor and candy, strongly emotional presentations take you only so far, but that is no reason to eschew them altogether.

Madrick’s proposition is that an age of greed began in 1970, when various Roosevelt haters, John Birchers, devotees of Ayn Rand, and economic ideologues of the Mont Pelerin Society (chiefly Milton Friedman and Friedrich Hayek) began to gain influence. Their movement gathered force until, with the election of Ronald Reagan, the gates burst open and the barbarians flooded through to put the nation on “an unfortunate, tragic path from which it may not be possible to turn back.” Thus, the book is divided into two parts, “Revolution,” up to 1980, and “The New Guard,” about those who took over after the barriers had been battered down.

What makes the book so entertaining is that each life Madrick offers is highly interesting on its own. Who knew that Walter Wriston’s father had been president of Brown University, or recognized that the young banker had drawn a bead on the Glass-Steagall Act practically from the beginning of his career at First National City Bank, today’s Citi Group? (He was 28 when he began lending to Aristotle Onassis.) Who understood the utter centrality to the 1980s of lawyer Joe Flom, to whom Madrick assigns a riveting chapter? Or the common denominator — scale as strategy — that Ted Turner, Sam Walton, and Steve Ross employed to build their businesses? Tom Peters, Jack Welch, Michael Milken, Alan Greenspan, George Soros, John Meriwether, Sandy Weill, Ken Lay, Jack Grubman, Angelo Mozilo, Jimmy Cayne, and Richard Fuld — they’re all here. And to Madrick, they are all undeniably greedy, for something or other.

Yet, as readable as the book is, there is something unsatisfying about it. Madrick is, after all, a paleo-liberal. He edits Challenge magazine and writes regularly for the New York Review of Books. Perhaps that’s why you won’t find President Barack Obama’s famous acknowledgment of Reagan’s role as a transformational president anywhere in this book. And there’s no Cold War. Madrick notes that the American mistrust of major institutions — government, religious, business, and educational — accelerated during the Vietnam War, but says nothing about the rhetorical and ideological effects of the United States’ successful competition with the former Soviet Union. Nor does the rise of China figure in the story. There’s no Bill Gates, either — no sense of the pervasive technological change that has been the background to so much institutional and social turbulence. And several characters whose careers would have lent fiber to his account are missing: Bruce Henderson of the Boston Consulting Group, Ronald Coase of the University of Chicago, Michael Jensen of Harvard Business School, and, for that matter, former House Speaker Newt Gingrich.

It’s commonplace for political sentiment in the U.S. to swing back and forth between private involvements and public purposes, but Madrick doesn’t give much credence to that view. He thinks events covered in the book may be irreversible. But my hunch is that political change is already in the works and that Age of Greed could impart roughly the same kind of momentum to that change as Gustavus Myers’s History of the Great American Fortunes did in the muckraker movement a century ago. In any event, Madrick has created a wonderful economic Rorschach test.

Lords of Economics

A couple of years ago, Liaquat Ahamed’s Lords of Finance: The Bankers Who Broke the World (Penguin Press, 2009) became a resounding bestseller. If you liked that story — about four central bankers whose efforts to maintain the gold standard dominated the years after World War I until their efforts finally came undone in the Great Depression — you’ll love Grand Pursuit, for Sylvia Nasar has done something similar. (See “Sylvia Nasar: The Thought Leader Interview,” by Rob Norton, s+b, Autumn 2011.)

In Nasar’s first book since A Beautiful Mind (Simon & Schuster, 1998), the best-selling biography of math genius John Nash, she turns a long-ago adventure into a compelling story for the present day. It is about a handful of economists who, in the long century between 1848 and 1960, transformed the discipline from a counsel of despair into “an instrument of mastery.” The story’s heroes are Alfred Marshall, Irving Fisher, John Maynard Keynes, Friedrich Hayek, and Joseph Schumpeter; its villains are Thomas Robert Malthus and Karl Marx.

The story unfolds in three acts of economic narrative that Nasar labels Hope (1843–1911), Fear (1914–1939), and Confidence (1945–2007). In 1848, Europe tottered on the brink of revolution. Malthusian reasoning about the tendency of the human population to outstrip its food supply dictated harsh terms for relief of the poor. Charles Dickens is a surprising entrant here; his much-loved A Christmas Carol, from 1843, with its images of plenty, turns out to be a tract against economic pessimism. Journalist Henry Mayhew wages a spirited campaign in London’s Morning Chronicle to persuade political economy to “take some little notice of the claims of labour” and provide higher pay and better working conditions. But not until Alfred Marshall (and others) took up the cudgels was new life breathed into a faltering discipline. “Before 1870 economics was mostly about what you couldn’t do,” Nasar writes. “After 1870, it was mostly about what you could.” World War I, with its shocking carnage and cruel aftermath, leading 15 short years after its outbreak to the Great Depression, cast the world into despair — but not Keynes or his great rival, Hayek, who in the 1930s both experienced periods of intense creativity. In their very different ways, they led the developed nations into the sunlit uplands of postwar prosperity. (Brief chapters on Paul Samuelson, Joan Robinson, and Amartya Sen conclude the book.)

Grand Pursuit is clearly meant to buttress Keynes’s famous claim that “the ideas of economists and political philosophers…are more powerful than is commonly supposed; indeed the world is ruled by little else,” but I am not so sure Nasar makes the case. Her worldly philosophers often look more like rubberneckers sallying forth periodically to observe and rationalize the concrete achievements of the world’s more practical sorts. The rising living standards that Marshall sought to explain owed more to the makers of the Industrial Revolution and the public health movement than to readers of his Principles of Economics. Lloyd George surely derived more inspiration from Otto von Bismarck, who invented the modern welfare state in the process of unifying Germany, than from Fabian Socialists Beatrice and Sidney Webb, who cofounded the London School of Economics. Recovery from the Great Depression stemmed more from preparations for World War II than from any deliberate application of Keynesian principles. And the Marshall Plan that helped Western Europe clamber back to its feet had more to do with President Harry Truman’s experience in World War I and Soviet Communism than with any reading of Hayek or Keynes. That doesn’t mean economists were useless, rather that it took somewhat longer for their investments to pay off. A grand pursuit indeed!

Nasar’s book is unlikely to become a movie (A Beautiful Mind did). But, in her telling, the lives and times of economists make awfully interesting reading.

There are books you read for work and books you read for pleasure, and there is a world of difference between the two. Work books are those you feel you have to muscle through in order to understand the changing world, and you do the reading when you can. Pleasure books are slower, longer reads, to be savored during summer vacations or night after night before bed in the winter. Spence is the work reading; save Madrick and Nasar for your leisure hours.

Author profile:

  • David Warsh is the proprietor of, an independent economics journalism site. He covered economics for the Boston Globe for 22 years and is a two-time winner of financial journalism’s Gerald Loeb Award.
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