And if you buy books via our store, you pay the same price as always but we receive a commission from Amazon, so you can help us with our expenses (like Becky’s caviar dinners and private helicopter).

We have also written book reviews for many of these books, which you can find here:

Macrowikinomics book review.
The Upside of Irrationality book review.
The Rational Optimist book review.
The Checklist Manifesto and Work the System book reviews.
SuperFreakonomics book review.
Nudge book review.

If you have any other suggestions for books that make you smarter, feel free to let us know in the comments or by sending us an email!

I went to see him present his book at The Hub King’s Cross recently: how climate change is the new WWII (his comparison) and how it will disrupt the world as we know it. Fair enough. Notwithstanding the fact that he is on a global tour (plane exhaust anyone?) to present and flog a book (printed on paper, indeed), a few points remain unclear to me.

For one thing: his points about markets appeared confused to me. He said he is a great fan of markets – although each time he used the word he felt the need to explain he doesn’t mean the Goldman Sachs, large finance “markets”; is his assumption that his audience does not know what “markets” actually means? In any case he said – and I agree wholeheartedly – that markets will be the solution. People, entrepreneurs, with ideas and energy and a strong belief in their success, will be creating the tools we need to survive in the new world order.

However: he continuously spoke of the need for a “designed economy”. This sounded very close to a planned economy, his repeated example was how during WWII people were told what they would produce and how and to what volume. You wanted to make something different? Tough. But people were willing to do that to serve a common good. What he did not make clear was what is that in between he envisions, that is not an unfettered open market, but is not (I presume given the point above) a fully planned economy.
Is he referring to the current model of “capitalist societies” where we have free markets with some regulation to keep checks? Or, as the example he uses, an economy that is directed from above? And if the latter, how does that allow for the entrepreneurial solution he envisions?

An audience member asked if he saw the solution for the future coming out of China or America. He said as of right now: China, hands down. But: America and Americans have a way of doing a lot very quickly when they realise that is the way the world is going, and so he sees them coming up from behind at the last minute and ultimately setting the example.

Do you share my confusion as to his exact point of view?

There is another point about which I would like to know more, and this is not one of disagreement with his argument, rather one of a genuine need for better understanding. Working on the premise that “The earth is full”, Gilding said that when things get to their worst, the poorest part of the global population will die and the rest of us, in rich countries, will pull through and come out the other end.
On the other hand: the areas with the world’s poor are often the areas most rich in natural resources. China has been buying up huge swathes of land on the African continent for a very good reason, after all. So my question is: is not the poverty and malnourishment in these countries due to mismanagement, rather than a lack of resources? How will this be affected by the envisioned break down of civilisation as we know it? And of course we fall in to the tragedy of the commons area here: is not private ownership of this land for the long term purpose of cultivation a good thing? Is that not the best solution available now?

Overall in his speech I learned quite a lot, if with the remaining question marks. Alas, I confess, I did not buy the book (I am on a Kindle, you see, and live in a paperless world).

The themes of the book are mainly rehashed from Wikinomics. They are explored further and in more depth, but many of the same problems arise, sometimes more often. For example, the book states that with more openness and general access, people are more inclined to help and be helpful. An example of this would be the Huffington post, which employs under 100 journalists but has a roster of thousands of volunteer journalists (the authors see this as a way forward in addressing unemployment, without addressing the potential job losses in journalism or how volunteer journalism won’t pay the bills).

I should specify that the Wiki-idea outlined here is something we believe in fervently. It is a great example of how many people working on the same thing can produce a better result than any one person (or any one restricted group). Of course, The Dumb Agent theory requires these people to work independently and, preferably, for some reward. Crowd-sourcing and mass-collaboration don’t always follow these criteria.

The authors state that more openness and collaboration will bring about more honesty and transparency. They are correct in saying that it is not a good long term strategy to cheat others in this connected world, so it is only logical that people won’t cheat. However, it is not a good long term strategy to cheat others in any world, yet it happens in every industry. There is no reason to think volunteer journalists won’t twist, exaggerate obfuscate or invent facts in order to sell their story.  Paid journalists had more incentive not to and it still happened.

This book also doesn’t mention the many failures in mass-collaboration. Most evident of these was the wiki-search fiasco, which was supposed to supplant Google, but just withered away after a year or so. Wikileaks is mentioned, but obviously before the recent controversies in the news. They state, rightly, that more information encourages more transparency, as well as the expectancy of more transparency (any government agent of the 1950′s would be appalled at how much is being shared in this day and age). The book doesn’t address the potential dangers security breaches can bring about, nor how they can encourage backlashes (the latest leaks came out of Spirnet, which was expanded after 9/11 to encourage more cross-department collaboration, and now risks being restricted again). Not to mention, how Wikileaks seems to have a plethora of documents on the United states, but hardly any information on Iran, North Korea and the like (which could mean personal motivations are behind the leaks, thereby negating the Dumb Agent theory).

The best point about this book (and it is not minor) is that it includes a very thorough list of mass-collaboration at work in all sorts of different industries, from health-care to making cars to education to government to journalism. This is why, if you do not have anything of the sort, it might be worth picking up a copy of this book. With it you will have a list of examples of “wikinomics” at work in each industry. Of course, lists like this can also change, so it might be more useful just to have a website where each of these examples can be found. The book also includes many repetitions and goes further into depth for each example than many might care about. So, since it is a rather long book, it might be more useful to read the introductory chapters, then skip to the chapters pertaining to your area of interest, and then skipping to the conclusion.

You can buy Macrowikinomics here.

This book covers many different topics, from bankers’ bonuses to online dating to cooking to revenge to charity donations. Lately, when reading behavioral economics books, I’ve found much of the information to be duplicate. In other words, an author will mention or build upon someone else’s studies, but add very little that is new. This would give the feel that he or she is merely ‘riding the behavioral economics wave’. This is not one of those books.

Without giving too many spoilers, one of the more interesting sections regards emotions, and how they affect the way in which we make decisions. For example, a terrier left aboard a tanker that had to be abandoned in the Pacific was featured on news channels, leading to $48,000 being spent on its rescue. One might wonder if the money might not have been better spent on humans who desperately needed it. Likewise, the cost of cleaning and rehabilitating each otter after the Exxon-Valdez disaster was $80,000.

Another interesting section had to do with bankers bonuses in finance. Although it does seem like Ariely does not fully understand the motivation behind these bonuses. He quotes Barney Frank in saying “At the level of pay that those of you who run banks get, why the hell do you need bonuses to do the right thing?” Most bankers are in the business solely for the money. They don’t trouble themselves with the “right thing” and they sacrifice much in their lifestyle in order to get the highest paying jobs in the world. That, at the end of the day, is their motivation. The interesting part, however, doesn’t change, in that higher bonuses seem to lead to sub-par results. Ariely attributes this to the pressure, nervousness and distraction that exorbitant bonuses bring, thereby leading people to ‘choke’ and not perform as well. He might want to discuss this with Malcolm Gladwell, and his theories on ‘choking vs. panic’ under stress.

My favorite section was the one on online dating. Possibly because I am still single and find online dating to be a useless distraction. He tended to confirm this, equating utilizing these sites to “understanding how a cookie will taste by reading its nutrition label”. He goes on to say “In fact, without exaggerating too much, I think that the market for single people is one of the most egregious market failures in Western Society.”

In conclusion, although you may have to read through yet another explanation of how the ultimatum game works, or what game theory is, Ariely has many interesting findings to offer, which make it well worth your read.

You can purchase Dan Ariely’s “The Upside of Irrationality” here: http://www.amazon.com/exec/obidos/ASIN/0061995037/dumage-20

As an example, here is a quote:

Today, of Americans officially designated as ‘poor’, 99 per cent have electricity, running water, flush toilets, and a refrigerator; 95 per cent have a television, 88 per cent a telephone, 71 per cent a car and 70 per cent air conditioning. Cornelius Vanderbilt had none of these.

and

The average Botswanan earns more than the average Finn did in 1955. Infant mortality is lower today in Nepal than it was in Italy in 1951. The proportion of Vietnamese living on less than $2 a day has dropped from 90 per cent to 30 per cent in twenty years. The rich have got richer, but the poor have done even better. The poor in the developing world grew their consumption twice as fast as the world as a whole between 1980 and 2000.

Apart from many other similar numbers and statistics, what struck this reviewer most about the book was its focus on optimism. Most books (and organizations and TV shows, etc.) have the need to focus on something negative. This makes sense for the most part; organizations will not get funding if they say things are better now than before. The news capitalizes on talking about the one plane crash, rather than the 500,000 planes that landed safely today. Of course problems are occurring, and it is important to address them. But it is also not good to waste resources on problems or occurrences that might or might not happen, when most of the big occurrences end up being Black swans (as we mentioned already here).

How have we addressed problems thus far? From overcoming the ice age, to building tools, to designing a mouse, it has been mostly through trade. While other mammals found themselves eating, sleeping, hunting and being hunted, gathering, storing, and keeping warm. We were able to divide the chores, so certain people hunted, while certain others cooked. Then certain tribes might have been good at making arrows, and found it fruitful to make a surplus and exchange them for felts from another tribe, who also found it beneficial. The outcome? Our current world is so intertwined that no one person knows how to make a computer mouse (this is reminiscent of Friedman’s example: no one knows how to make a pencil).

So the best way of ensuring progress is through trade and interaction and exchange, of ideas, people, goods, services, etc. As Ridley calls it, let ideas “have sex” and give birth to new ideas.

Buy the Rational Optimist here.

Also, rewatch Milton Friedman’s video, The Pencil, here.

It is an understatement to say that the late 1700’s were a turbulent time in American History. The colonists were fed up with being considered second class citizens and more and more of them were eager to rid themselves of the ‘tyrannical yoke’. The British Crown, in the meantime, saw them as restless rabble-rousers who needed to be clamped down upon.

While all of this is true, and the ‘tyrannical yoke’ was undoubtedly referred to often, it is unlikely any colonist at the time saw it exactly that way. The Colonies felt they had just won the French and Indian war, and were happy to have come out the victors and return to their lives. Back in Europe, however, it was not only called the Seven Years’ war, but the British felt very successful in having kicked the French and Spanish out of North America and thought the American colonies should therefore help pay for the stationed troops.

King George III (who may or may not have been slightly insane) decided to do so by means of the Stamp Act in 1765. This declared that every piece of official printed paper (from newspapers, to magazines, to many documents) in the colonies had to have a royal “Tax stamp” on it, which obviously cost money. While the British saw this as just, the Americans balked at the idea, already foreseeing the end of journalism due to the extra costs.

Then, two years later, came the Townshend Acts, another series of taxes and revenue raising acts. Named after the then Chancellor of the Exchequer (the British version of the Treasury Secretary) there were at least 5 of these acts. The New York Assembly refused to comply with one of them, after which the New York Restraining Act was added on.

The British then created the American Customs Board with the sole purpose of enforcing these Townshend Acts. The board was located in Boston, and its members were so unpopular it wasn’t long before they requested a military guard. Things between local colonists and the military guard got out of hand one day. The spark wasn’t so much idealism as it was due to one of the British Captains not having paid a local wigmaker his fee. Of course, this opportunity was seized upon by many colonists who joined in the shouting and jeering. This chain of events ultimately culminated with the Boston Massacre.

The British Crown decided to repeal all of the Townshend Acts except for the Tea Act. It was argued that at least one Act should remain as a show of British sovereignty. The result was that American colonists decided to boycott tea from the British East India Company. Many of the local tea merchants at this time, such as John Hancock, were also smugglers. Boycotts such as this allowed people like him to smuggle tea from Holland without paying taxes.

Due in part to these smugglers, the British Crown finally decided, in 1773, to do away with any tax on tea and the British East India Company was able to sell tea again to the colonies at a competitive price. This would obviously be seen as a victory for the colonists: all of the Townshend Acts had been repealed and the Americans had succeeded in their boycott. The British had caved in!
Unfortunately, the reality was that the tea coming in from the East India Company was much cheaper than the smugglers’ tea. People started buying the cheaper tea, and the local merchants were underpriced in the process.

This removal of the Tea Tax did not benefit the local merchants, so they decided to protest. They threatened the British consignees (those receiving the British tea) through vandalism, and they organized protests when the British East India Company ships started coming into the harbor. After some weeks of a standoff, the owners of the ships agreed to sail back to Great Britain, but the mayor of Boston did not let them. So on December 16, 1773, Bostonians dressed as Narragansett Indians boarded the ships and threw around 45 tons of tea into the harbor.

Interestingly, getting rid of the cheaper East India Company tea would raise the price of tea for the average American. The fact that this was all done in opposition to a tax removal (and the subsequent loss to local merchants) means that the Boston Tea Party was not in opposition to “Taxation without Representation”, but was actually the United States’ first instance of Anti-Free Trade protectionism.

Order our new Book Bringing Sexy Back to Economics by Clicking Here.

It’s Not as Bad as You Think: Why Capitalism Trumps Fear and the Economy Will Thrive , by Brian Wesbury.

A review will be forthcoming.

Work the System details the long, hard trip Sam Carpenter took through his business and personal life, and how he found himself at the brink of collapse when, almost by epiphany (it seems a divine inspiration the way he describes it), he realizes he needs to create “systems”. These systems turn out to be basically numbered bullet points that are followed to the letter and that are never wavered from. He runs Centratel, whose objective is to provide the “highest quality telephone answering services in the United States”. If you wish to get hired by the company, you must fit certain specifications, adhere to certain principles and pass certain steps, all listed word for word in his “systems”.

I must confess I almost gave up on this book when he was talking about how he realized systems governed everything in this world and we were all part of one big system. It was eerily reminiscent of “The Secret” or some other form of New age fan-dangle. The more I read, however, the more I became convinced of his methods. If a method works, why not write down the steps needed so it is followed each time? Why not let people improve on this? Then, when he starts talking about how to maximize productivity when your brain is at its peak capacity, as well as how to avoid striving for perfection, I started thoroughly enjoying the information offered. If you deal with any form of operations or systems management, try to make it past the first chapter or two regarding his “epiphany”. It will be worth it.

The Checklist Manifesto is pretty much exactly what you expect it to be. It is, however, more convincing than you’d expect not only due to the fact that Atul Gawande is a surgeon, but that he is complaining at the lack of checklists in his profession and praising them in others. On the other hand, those of us who do not know much of the profession might wonder if he is keeping anything from us. Sure, checklists might help, but maybe expertise, resources, luck of the draw, etc. have much more to do with it (his examples of how great doctors can make seemingly elementary mistakes is rather harrowing). He then goes on to talk about other professions. His most convincing examples are in the airline industry. What you realize here is that no mistake has been made in this industry twice. If a crash happens due to a water leak in the fuel tank, you can be sure that same water leak will never happen again for any airline anywhere. Your second realization will be that this is indeed due to checklists. He seals the deal by detailing famous recent landing of Flight 1549 in the Hudson, pulled off to perfection, it turns out, thanks to a checklist.

Just another short point. Once you have read one or both of these books, you start noticing “systems’, “checklists”, “bullet points”, “flow charts” in all operations everywhere. Nick Sarillo, who runs Nick’s Pizza & Pub in Illinois, possibly the most successful independent pizza restaurant in the country, detailed in a recent edition of Inc. Magazine, how he turned his company around:

So what did he do? “I built a system to replace me,” Sarillo says. “I put together a checklist of things that had to be done by 4 p.m., so we could handle the volume. It took about four weeks until it could work without me. Now we’re nailing it.”

Work the System: The Simple Mechanics of Making More and Working Less, by Sam Carpenter
The Checklist Manifesto: How to Get Things Right, by Atul Gawande

To quote Jerry O’Driscoll from ThinkMarkets:

In Keynes’ Treatise on Money (1930), Keynes analogizes (stimulus injections) to a family taking care of a sick child with doses of castor oil, a laxative. “It is as though different members of the family were to give successive doses to the child, each in ignorance of the doses given by the others. The child will be very ill. Bismuth [an antidiarrheal] will then be administered on the same principle.Scientists will announce that children are subject a diarrhoea-constipation cycle, due, they will add, to the weather, or failing that, to alternations of optimism and pessimism amongst members of the family.”

The parallels seem obvious, and so this book should certainly be enlightening. On the other hand, we have mentioned this principle in the past, referring it as the pendulum swinging too far one way and then too far back (once pundits stop seeing behavioral economics as a panacea they will start referring to it as wishy-washy and a waste). I would have loved to have a conversation in this respect with Keynes. Maybe through his book I can.

Full ThinkMarkets article here.

In all fairness, Cassidy does believe that the markets tend to work well, only that they fall far short of what is needed. Of course, he then neglects to explain what exactly is needed, and how much and by whom, but rather talks of the evils of “the market” when it comes to the environment, healthcare, CEO salaries, etc. He seems to forget that the market is comprised of individual players and is not a big monster operating willy nilly (although many would agree with his point of view over ours).

We do give him special mention, however, due to his analysis on Adam Smith’s “Wealth of Nations”. Few, if any, economists, let alone columnists writing about economics, have actually read the WoN and are able to address Smith’s views (such as how he stated banks should not make loans to speculators). For those of you interested in the history of economics, we recommend reading the first part of this book. The rest regurgitates much of the same dribble we’ve been hearing and will no doubt continue to hear.