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International Finance For Dummies
International Finance For Dummies
by Ayse Evrensel
Edition: Paperback
Price: $21.64
51 used & new from $6.82

2.0 out of 5 stars Strong on History, weak everywhere else, July 11, 2013
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Part IV of this book on the history of different monetary systems is excellent. The author covers proficiently Pre-, during, and Post-Bretton Woods eras. She also does a fair job on the history of the EU and the Euro. That's even though she greatly understates how much fiscal control the Euro Zone exerts on its members as demonstrated by the Austerity programs many of the peripheral countries are currently subject to.

All other parts of the book are far weaker with numerous errors, contradictions, and obfuscations.

Here are examples of obfuscations:

1) Her presentation of the Real Effective Exchange Rate (RER) (pg. 24) is really confusing. It seems that the spot rate for such RER between two currencies would always be 1 by definition. I think the RER is only meaningful when looking at a currency vs a basket of currencies over time. Only the related trend gives you meaningful information. The author does share a graph to that effect on page 26. But, the narrative is not well integrated with the upcoming graph.

2) Chapter 4 focuses in good part on observing exchange rates vs interest rates over time for several currencies. Thus, most of the relevant information is communicated by graphs. Unfortunately, those graphs are so badly structured as to be undecipherable. Instead, the author should have used scatter plots that would readily convey the information.

3) Within chapter 5, covering the Demand-Supply model (to explain change in exchange rates) on page 81 the author provides a classic demand and supply graph that appears very informative. But, it is not when you figure that the consumers and the suppliers are the exact same group of individuals (currency speculators). Once you figure that, the graph is no more than a truism and does not explain anything. This is not the fault of the author but the theory.

4) Chapter 6, covering the Monetary model (to explain changes in exchange rates) is really challenging to understand. I am not sure if it is because of the author or the theory itself. But, there are a lot of strange concepts within this chapter. First, the way money (quantity of real money) is defined it is more like a quantity of physical units rather than "money" as thought off any other way. Related to that, at the bottom of page 96 the author makes a statement that essentially means that the quantity of real money never changes. This does not make sense. Economies do grow over time. On pages 103 and 104, it seems some of the narratives contradict the graphs. On the latter page, the author asks "Why is the parity curve downward-sloping in the exchange rate-real return space?" And, the answer is less than clear. She next uses an example on that same page that contradicts the graph on page 103. On pages 111, she refers to a couple of graphs but seems to get the y vs x axes wrong in her narrative; only to state this was not an error but an intentional rotation of the graph. By then, I figured if I want to understand this model I better look for another reference.

5) Given that the foundational chapter 6 was so confusing, it is challenging to make much sense of chapter 7 that stays on the same topic: the Monetary model to explain change in exchange rates.

Error examples:

1) On page 27, she explains on how to calculate a % change. And, she makes a flagrant mistake. You don't multiply by a 100. Let's say a number of units has increased from 8 to 12. She wrongly calculates it as: [(12 - 8)/8](100) = 50%. But, the correct calculation omits the multiplication by a 100. She makes this error tens of times throughout the book.

2) On pages 172-173, let's say a currency is expected to appreciate by 5% over the next month as observed on the futures market. She calculates that this is a 60% forward premium on this currency calculated as follows: 5% (360/30) = 60%. This can't be right. That's especially the case when she ties this beefed up extrapolated annual percentage with other annual percentages derived from her Interest Rate Parity and Purchase Parity models that have not been wrongly extrapolated the same way.

3) On page 209, she refers to the Depression era starting in 1925. She is four years too early. In the mid twenties, the economy was still pretty robust until 1929-1930.

Contradiction examples:

1) On page 164, the author states: "The Swiss franc is the go-to currency during global economic downturns" only to state within the same paragraph that "Therefore, there's no reason for the Swiss franc to be overvalued." Later, on page 229 she indicates that the Swiss National Bank was forced to intervene to reduce the appreciation of the Swiss franc that were killing Swiss exports. You can see the contradictions here.

2) On page 204 when covering the "bimetallic era until 1870" she indicates that "whichever metal's price was rising, coins of this metal were disappearing from circulation. For example, when the gold price rose relative to that of silver, gold coins were used to buy silver coins and gold coins went out of circulation." On the very next page she states: "In the late 1840s, silver became overvalued relative to gold. Hoarding of silver led to a reduction of gold in circulation." Both cases are associated with gold coins disappearing from circulation. But, the first one is caused by the relative rise of the price of gold; the second one by the relative decline of the price of gold.

3) On page 282, she states that the Demand-Supply model provides acceptable predictions about changes in exchange rates "which empirical studies confirm." She contradicts this statement with her entire presentation on this model within chapter 5, where she indicates that such models have not been effectively predictive. She also states somewhere else that macroeconomics models have failed in predicting exchange rates.

Statistical Analysis with Excel For Dummies (For Dummies (Computers))
Statistical Analysis with Excel For Dummies (For Dummies (Computers))
by Joseph Schmuller
Edition: Paperback
73 used & new from $0.01

1 of 1 people found the following review helpful
5.0 out of 5 stars A great statistics tutorial, guide, and reference, June 25, 2013
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I bought this book because I am currently researching multiplicity or how to test multiple hypotheses. This is one of the trickiest and most interesting areas of statistics. I am an advanced Excel user and a reasonably proficient autodidact statistician. Additionally, I have stuck with Excel 2003 as that is the Excel format I have used for decades and saw no value in relearning Excel from nearly scratch to adapt to the newer versions.

In view of the above, I was delighted in finding this early version of this book (copyright 2005) that demonstrates all the hands on statistical examples in the Excel 2003 version (the version I use!).

As a result, I have learned a ton about multiplicity and how to deal with it. The Excel Add-in has terrible semantics regarding all the ANOVA techniques. For instance to do a Two-Way Between Group ANOVA, you have to use in Excel the ANOVA: Two-Factor with Replication (which actually describes a different method). And, Schmuller does an excellent job of guiding you through Excel's spurious ANOVA semantics.

The book covers a surprising amount of statistics. Once you complete reading, studying, and practicing the examples within this book, you will know a great deal about statistics. The latter should provide an adequate foundation for any upper level degree in social sciences.

Schmuller does an excellent job of outlining how much you can do in statistical analysis without earmarked very expensive software such as Matlab, SAS, SPSS or really cryptic ones such as R. In the end, you will be surprised with Excel's capabilities. Schmuller shows some pretty advanced quantitative methods including: the mentioned ANOVA techniques, probability, and statistical distributions sections. He even shows you how to conduct Monte Carlo simulation with regular Excel! That can save you a ton of money not having to buy another set of Monte Carlo simulation earmarked software such as Crystal Ball or @Risk which would set you back over $1,000.

The Whole Story of Climate: What Science Reveals About the Nature of Endless Change
The Whole Story of Climate: What Science Reveals About the Nature of Endless Change
by E. Kirsten Peters
Edition: Hardcover
Price: $18.81
77 used & new from $3.97

19 of 22 people found the following review helpful
3.0 out of 5 stars A reasonably good book on long term climate variation, June 3, 2013
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E. Kirsten Peters wrote an informative book on this subject. As a geologist, she uses a much more detached, scientific, and nuanced tone than the vast majority of climatologists who have taken a political fundamentalist position on one side of the debate. Thus, contrary to what other reviewers have stated her not being a climatologist is not a liability. It is an asset, rendering her scientific narrative more objective than otherwise.

She explains at length the development of our scientific understanding of long term climate change. She explains the very long term Milankovitch cycles that consist of the equivalent of four seasons that last over 100,000 years. The longest one being the Winter which lasts for more than half of the entire cycle. Meanwhile, the three other seasons are compressed within the remainder of such Milankovitch cycles.

She outlines that other cycles of much shorter durations do contribute to dramatic variations around the main trend driven by the Milankovitch cycles. Those include the 6,000 to 7,000 year Heinrich events associated with the periodic formation of large fleet of icebergs that cool the climate. There are also the 1,500 year Dansgaard/Oeschger events that make the climate warmer than otherwise. The somewhat irregular and staggered combination of the Heinrich events and Dansgaard/Oeschger events have contributed to the Medieval Warm Period from AD 950 to 1250 followed by the more recent Little Ice Age from 1250 to 1850 followed by a naturally occurring warming period to this day. In just a few words, this explains a good deal of the naturally occurring change in our climate's temperature over the past millennium.

Within chapter 11 `Global Warming Discovered' she does a good job of reporting the controversy regarding Michael Mann's Hockey Stick whose mathematical temperature reconstructions were rebutted by Steve McIntyre. She does not take sides. But, instead she lets Edward Wegman, a renown statistician, have the last word. He will confirm that McIntyre was right. This is actually a very interesting episode. If you want to study it further, I recommend the excellent The Hockey Stick Illusion: Climategate and the Corruption of Science (Independent Minds).

In her last chapter, she concludes that the climate change is far more variable, unpredictable, and controllable than what the IPCC reports suggest.

Peters book is good. But, my rating reflects that there is a far superior book on the exact same subject: John Kehr's The Inconvenient Skeptic: The Comprehensive Guide to the Earth's Climate. Kehr conveys at least ten times more visual information than Peters through excellent graphs comparing our current Summer season of our Milankovich cycle vs the previous such Summer over 100,000 years ago, called the Holocene and Eemian periods respectively. He has also several graphs analyzing the very limited impact CO2 has on temperature (because it absorbs only a very narrow range of sunlight's wavelength). He has also numerous graphs on long term insolation trends and energy gaps that Peters hardly touches upon (she mentions related sunspot activity briefly).
Comment Comment (1) | Permalink | Most recent comment: Dec 14, 2014 12:55 PM PST

Thinking, Fast and Slow by Daniel Kahneman (30 Minute Expert Summary)
Thinking, Fast and Slow by Daniel Kahneman (30 Minute Expert Summary)
by 30 Minute Expert Summaries
Edition: Paperback
14 used & new from $388.37

1 of 1 people found the following review helpful
5.0 out of 5 stars A pretty great summary, May 30, 2013
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The original book is 500 pages long. For a studious reader that represents close to 20 hours of reading. In today's time constrained world that is a huge time opportunity cost to commit to the acquisition of knowledge on a single topic that may not be professionally that relevant to the reader. Additionally, how much will a given reader remember of those 20 hours of reading just 6 months down the road? or how about 2 years later? This seems like a huge investment of time with a disappearing return. How about if a really intelligent reader could summarize the book for you and narrating it to you in less than an hour and you could recall this digestible knowledge any time you needed. If you think that is a good deal that is exactly what this "30 minute Expert Summary" is.

I confess I have not read the original book. But, I have been very familiar with many of Kahneman's social experiments. I have read and studied numerous works on behavioral economics. Many of my colleagues had read the book and they gave me numerous excellent "verbals" about it. Additionally, before reading this "Expert Summary" I read a Wikipedia article on the original book. I also read several lengthy excellent Amazon reviews on the original book. And, I also read a pretty outstanding (very lengthy 11,000 words) summary by a blogger who summarizes such books. Given this foundational reading, I felt like I had a pretty good sense of the coverage of the original book.

In view of the above, I feel like the "Expert Summary" did an excellent job of capturing the main themes of Kahneman's original book. And, it was a competitive if not a better source of synthesized information than any of the other mentioned alternatives I had explored. For one thing, it is a bit longer than it sounds. It took me about 50 minutes to read (not the 30 minutes as the title of this series of mini-books entails).

Other reviewers accused this mini-book of being superficial. One reviewer in particular gave the book a very low rating because this mini-book did not mention the WYSIATI concept (which stands for What You See Is All There Is). Those criticisms are misplaced. First, an essay of about 7,000 words (my guess at the length of this mini-book) can't compare with a tome of about 125,000 words (my guess at the length of the original). That's just reality. Additionally, this mini-book even though it did not mention the acronym WYSIATI, it actually covered extensively its many implications including overconfidence, misinterpreting small sample of observations, failing to apply statistics (Bayesian statistics) and jumping to false conclusion, substituting hard questions with easy ones, other errors in quick estimations, etc...

I conclude this book summary delivered on its objective of providing you a good grasp of "Thinking Fast and Slow" in a minimum amount of time. Given our time constrained world, and our hyperactive need to keep up with information, ideas, and new developments this "Expert Summary" series is onto something. Unfortunately, so far they have published very few book summaries. I hope they expand their releases of such summaries quickly as there is a dire need for them.

Teach Yourself VISUALLY Office 2013
Teach Yourself VISUALLY Office 2013
by Elaine Marmel
Edition: Paperback
Price: $18.62
98 used & new from $5.20

17 of 21 people found the following review helpful
5.0 out of 5 stars A very thorough reference, May 29, 2013
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This is not the first "Teach Yourself Visually" guide I have acquired. They are invariably very well done and very helpful. Using computers is ultimately a very kinesthetic visual experience. And, those manuals facilitate your learning through this most natural visual interface.

This book is a quality offering published on heavy glossy paper purposefully maximizing the visual impact. At 430 pages, it has a boatload of information on every major facet of Office 2013.

The book is well organized with 23 different chapters covering the main programs in much details including: Word, Excel, Powerpoint, Access, Outlook and other less familiar applications such as Publisher and OneNote.

In summary, this is a very strong entry in the Office 2013 manual arena.

Psychology Statistics For Dummies
Psychology Statistics For Dummies
by Donncha Hanna
Edition: Paperback
Price: $14.84
61 used & new from $10.84

1 of 1 people found the following review helpful
5.0 out of 5 stars A great intro to both Statistics and SPSS, May 23, 2013
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I am not a psychology student, and I don't use SPSS. Yet, I found this book very interesting for several reasons.

First, it did a very good job at covering a broad spectrum of statistical methods. It allowed me to refresh my memory on the methods I knew, and learn the ones I was less proficient in. The authors conveyed the material in an easily digestible manner which greatly enhances learning. Often you come across similar guides that are hell bent on explaining every method in greater details with mathematical proofs and extensive equations only to lose all readers except the experts in the field who could have written the book. The authors do not fall into this trap. For the ones who care to drill down further on any method you can always compensate the learning from the book with a Wikipedia article on the topic.

Another reason why this book is interesting is as an introduction to SPSS. SPSS is a competitor to R and SAS. But, it pretty much takes deep computer programming skills to do anything with R. Similarly, it requires extensive practice and ongoing training to use SAS. Meanwhile, SPSS is so much more of a mouse-and-click ready to go program. Thus, SPSS has rendered advanced statistical methods far more accessible than R and SAS did. The authors do a good job of conveying the very user friendly interface of SPSS. I recently read an excellent book on predictive analytics, Predictive Analytics: Microsoft Excel, that covered some similar techniques; but it demonstrated it in R. And, you could readily tell how much more complicated R is vs SPSS.

As mentioned, the authors do a first class job at covering a very extensive body of statistics within this manual. However, I did uncover a couple of mistakes. On page 140, fig. 9.1 the graph shows a symmetric Triangular distribution. That's different from a Normal distribution (they meant to illustrate) as shown on page 151, fig 9-12. On page 168, they calculate the Standard deviation between two groups as the average of the two within an Effect Size framework. The correct formula for the "pooled" Standard deviation is the geometric mean of the two groups Standard deviations weighted by their respective sample size. In most cases, the authors' formula, using an unweighted arithmetic mean, will get you a close enough estimation of the pooled Standard deviation. Thus, those are overall trivial matters that do not detract from the overall quality of the book.

Decoded: The Science Behind Why We Buy
Decoded: The Science Behind Why We Buy
by Phil Barden
Edition: Hardcover
Price: $26.81
56 used & new from $16.62

1 of 2 people found the following review helpful
5.0 out of 5 stars Kahneman in the business world, May 11, 2013
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This book captures the business application of the foundational theories of Daniel Kahneman (Thinking, Fast and Slow). Other social scientists that wrote representative leading books to this one include Dan Ariely (Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions) and Richard Thaler and Cass Susstein (Nudge: Improving Decisions About Health, Wealth, and Happiness). This book is filled with numerous psychological experiments and insights sourced by the mentioned four authors. Of the four authors, Kahneman is the main one. Phil Barden's entire first chapter on Decision Science is focused on Kahneman's theory and framework.

Kahneman's framework discloses that our brain has two different decision making modes. The first one is the Autopilot (System 1) that is implicit. It is automatic, effortless, associative, and subconscious. It integrates perception and intuition. It is made for fast, automatic, intuitive actions without thinking. It can process a humongous amount of information quickly. The second one is the Pilot (System 2) that is conscious, deliberate, reflecting, slow. It can process much less information more slowly compared to the Autopilot. The Pilot is engaged whenever we actually think. The Autopilot and Pilot work together. The Pilot and Autopilot have a different neurological basis. The Pilot is headquartered in the cortex frontal lobe at the very front of the brain. The Autopilot is diffused across a multitude of neurostructures within the brain (basal ganglia, amygdala among others) linked to all our senses and emotions.

The Autopilot is crucially important from a marketing standpoint because it manages the majority of perceptions and expectations underlying purchase decisions. Much of the book divulges specific strategies to engage the Autopilot of individuals to turn them into customers.

Besides the first chapter describing Kahneman's theories, the last two chapters (5 and 6) are the most important. Within those Barden educates on how to leverage Kahneman's theories within the business world. Referring to the scientific literature, Barden indicates we have two basic motivational drives: Promotion and Prevention (similar to Fight or Flight). Out of those two main drivers come out six implicit goals: 1) adventure, 2) autonomy, 3) discipline, 4) security, 5) enjoyment, and 6) excitement. Barden captures those six implicit goals in a Decode Goal Map (DGM). The latter is a strategic tool that Barden's employer, Decode Implicit Marketing (DIM), a consulting firm in the UK, developed recently. The DGM is a tool that analyzes ad campaigns, TV ads, product packaging along the mentioned six implicit goals. The DGM captures all those results in a visual hexagon graph reflecting the strength of the marketing signals along the six implicit goals. A marketing campaign is bound to be successful if its DGM profile along the six implicit goals closely fits the profile of the product brand.

Throughout the book I found it surprising how our vision does not work the way we think it does. Our eyes are not a camera. Instead, they interpret visual information in a subjective way that is often flawed. In figures 6.18 and 6.19 two lines seem of different length; yet they are identical. We seem almost blind when figures lack contrast. Within figure 3.21, it is easy to see a "Q" among a bunch of "E"s. But, it is nearly impossible to detect the "F" that is too similar to an "E" for us to see. Within figure 3.4, our peripheral vision appears arbitrarily discretionary (a dot on the right disappears at a certain distance only to reappear as you look closer). Figure 3.3 shows two perpendicular lines of the exact same length. Yet, the vertical one looks a lot longer than the horizontal one. Figure 3.2 shows a thinner and taller bottle that looks like it has a far larger volume than a shorter wider one. Meanwhile, the two bottles have the same volume. In figure 1.7, you see two shades of grey that look very different because of the framing. Figure 1.10, demonstrates visually how the two shades of grey are identical.

Managerial Economics For Dummies
Managerial Economics For Dummies
by Robert J. Graham
Edition: Paperback
Price: $18.98
58 used & new from $0.49

1 of 1 people found the following review helpful
5.0 out of 5 stars Excellent book on a great subject, April 30, 2013
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If you were to design a modern college level core curriculum of 5 classes in critical thinking Managerial Economics would have to be one of them. And, Robert Graham's book is an excellent synthesis on this broad based multi domain subject. This book costs only 1/5th of the cost of a related textbook. But, it covers a great deal of this subject matter.

Robert Graham does not shy away from some of the complexity inherent in the subject. He imparts to the reader the necessary foundation in calculus to move forward. This includes his coverage of the Lagrangian function that entails taking the partial derivative of three different equations and solving them in order to optimize a solution with two constraints.

Graham does an excellent job in covering numerous topics including anticipating risk and uncertainty (and clearly differentiating between the two), game theory, many different aspects of decision making. His "Part of Tens" is stuffed with very useful concepts including the price elasticity of Demand, mutual interdependence, and utility maximization.

Predictive Analytics: Microsoft Excel
Predictive Analytics: Microsoft Excel
by Conrad Carlberg
Edition: Paperback
Price: $26.48
92 used & new from $11.93

11 of 13 people found the following review helpful
5.0 out of 5 stars Great book on the topic, April 23, 2013
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Overall Conrad Carlberg has done an excellent job of covering 9 different quantitative methods related to time series analysis and regression. Carlberg covers methods that are relatively simple such as moving averages and exponential smoothing. He also covers others that are very advanced that few use outside of statisticians such as Principal Component Analysis and Varimax Factor Rotation. But, in all cases he walks the reader slowly and diligently so you get to understand pretty well what those methods are about.

This is a book not only to read, but study (I took 25 pages of notes while reading it over nearly a couple of months), and practice with Excel open and follow his own illustrated examples.

The book also provides some interesting add-ins and support materials available at QUE publishing as indicated within the book. To activate those add-ins, you have to follow the instructions very carefully within the first page of the relevant workbook. I think many reviewers, including myself at first, did not understand how to access the add-ins and thought they did not work or were absent.
Comment Comments (4) | Permalink | Most recent comment: Jan 15, 2014 5:20 PM PST

Austerity: The History of a Dangerous Idea
Austerity: The History of a Dangerous Idea
by Mark Blyth
Edition: Hardcover
37 used & new from $7.83

44 of 52 people found the following review helpful
4.0 out of 5 stars Combines a brilliant critical analysis of austerity with a dissonant view on bank bail out, April 6, 2013
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Blyth shows how the piling on debt in the US was not due to wasteful profligate policy, but instead associated with the bailing out of the private sector, and the banking and financial system. For another excellent coverage of this period see Mark Zandi's Paying the Price: Ending the Great Recession and Beginning a New American Century.

Mortgage borrowers were defaulting en masse, housing prices were dropping like a rock, and the banks and overall financial system were either heading towards insolvency or in a freeze. Without extension of credit and the associated brutal deleveraging of all sectors at once, an economy not only contracts... it just about dies. If the economy is left to its own devices resulting GDP contraction is very severe and unemployment rate can reach 20%+. You are in a Depression. The solution is for the Government to pick up the slack in Demand and counterbalance the deleveraging and contraction occurring in all other sectors with expansive policies. That's an effective Keynesian response. Blyth advanced that's what the US did and it worked. The US is now undergoing a slow and sustainable recovery and has seen its unemployment rate dropped markedly already (instead of heading towards 20%+).

As the financial crisis contaminated Europe through the conduits of complex misrated housing related securities such as MBS and CDOs Europe faced a banking and sovereign debt crisis of its weak peripheral members of the Euro Zone. After, a short and incomplete Keynesian response, the Euro Zone lead by Germany went on a destructive austerity path. European austerity has already thrown the peripheral countries into a long Depression. Greece and Spain's economies have cratered for several years plagued by record unemployment levels of over 25%. Additionally, austerity has not contributed to any reduction in those countries Debt/GDP ratios as Blyth shows on the graph page 38. This is because the denominator (GDP) has contracted faster than the numerator (Debt) has been reduced or written down. This is the classic Debt Deflation conundrum that Irving Fisher had brilliantly exposed back in 1933 (The Debt-Deflation Theory of Great Depressions). Also, austerity policies did not contribute to reducing the unsustainable yields on those countries sovereign debt (see graph pg. 65). It is only once the European Central Bank bought such bonds to do "whatever it takes" to maintain the Euro that such yields have receded.

Next, Blyth goes on a long history of austerity. He presents a twin history.

The first one is an intellectual history that has survived through the times. At the onset, it was derived from interpretation and misinterpretation of the works of Locke, Smith, and Hume. Later austerity was heavily promoted by the Austrian school of economics championed by Hayek. Later, austerity found another champion in Milton Friedman and his monetarism. And, currently it is championed by libertarians, the Tea Party, and the German intelligentsia.

The second history of austerity is how it has worked out in practice from the 18th century to nowadays. And, it invariably exacerbated economic downturns. It is bar none the main cause of the Great Depression. Back then, due to policy constraints imposed by the Gold Standard (not unlike the ones associated with the Euro today) Government felt obliged to impose contracting government policies to curb imports. History demonstrated that the countries that left the Gold Standard first and were able to reverse their restrictive government policies were the ones who recovered first too.

Next, Blyth covers what austerity advocates mention as the demonstrated successes of austerity policies including Denmark, Ireland, Australia, and Sweden resolving their crises in the 1980s and 1990s. But, when Blyth examines the body of studies covering those events "far from supporting the idea of `expansionary austerity' it rather completely undermines it." In each case those economic crises were not resolved by austerity but by initial Keynesian expansive policies. It is only once those economies were shored up that these countries implemented fiscal disciplines. Once the private sector and households balance sheet are robust enough to take on the deleveraging of the government sector; then everything works out ok.

Next, Blyth analyzes some of austerity's most recent "successes" including the recent economic experience of Romania, Estonia, Bulgaria, Latvia, and Lithuania. However, when giving it a closer look he observes that austerity was not successful at all and confirmed one more time its really poor historical record as it contributed to brutal recessions in all those countries followed by subpar economic growth (see graph pg. 174 and table pg. 175).

Blyth advances an interesting idea separate to his rebuttal of Austerity. And, that is that a country to fully recover does not need to bail out its banking sector. He mentions Iceland as a success story. Iceland's three largest commercial banks had assets equal to 11 times its GDP. Those banks were literally too big to bail. So, the Icelandic government nationalized the smaller domestic portion of those banks' balance sheet and placed its much larger foreign portion in receivership. This in essence placed the burden of their bank bail out on British and Dutch depositors who saw much of their savings wiped out. Later, Germany contributed funds so those depositors recovered a few cents on the dollar on their Icelandic deposits. At the time, the Icelandic stock market lost nearly 100% of its value. And, five years later the market is still 94% below its pre-crisis level.

There are a couple of problems with Blyth's letting the banks go strategy. First, just like austerity it certainly can't work if everybody does it; or it can't work if a country of any scale does it. Imagine if Italy or Spain let their banks go. Or if the US had done the same... Oh wait the US tried that on a tiny scale. Remember the Lehman Brothers bankruptcy in September 2008. Well, that's when the entire global financial system froze overnight (spreads between LIBOR and Treasuries jumped from 15 basis points to over 400 basis points). And, Lehman represented only a very small portion of the US overall banking assets. Second, as reviewed above it is unclear how much of a success the Icelandic bank receivership strategy has been. I think it was more like a desperate measure in desperate circumstances rather than a success. By comparison, once the US Government learned its lesson that playing the "moral hazard" card does only exacerbate financial crisis (the Lehman bankruptcy) it quickly bailed out the banks by injecting $250 billion directly into the banks (TARP). Within a year, the banks bounced back and repaid the entire TARP funds plus a profit in the tens of billions to the US Treasury and taxpayers. Today, the US stock market has fully recovered and the US is not plagued by capital controls, IMF restrictions, and other limitations to fully accessing the capital markets. A financial crisis most often needs a lender of last resort to be resolved (be it the Government or a Central Bank). Absence of such a lender, you get continuing financial, stock market, and economic collapses. For more on this fascinating topic I also recommend Charles Kindleberger's outstanding Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics).
Comment Comments (6) | Permalink | Most recent comment: Jan 13, 2015 9:36 AM PST

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