Page 58 - Phonebox Magazine February 2010

Bubbles and Wisdom
There are those who reckon that the economic shenanigans of the last two or three years were just bad luck; that we suffered a perfect storm.
Some rewind the clock beyond that. They go all the way back to the 1997 Asian crisis and say that it’s all down to bankers; that we haven’t punished them for their errors, so therefore they keep repeating them.
Others go back even further, to 1929, and see parallels with today.
In a new book, Bubbles and Wisdom, co- written by Olney author Michael Baxter in conjunction with Kenn Herskind the story starts a tad earlier than that.
This is probably the only popular economics book that makes a connection between the credit crunch of today, and the extinction of the dinosaurs 65 million years ago followed by the rise of the mammals. It is probably also the only popular economics book to take a look at our first big risk, the move down from the trees; or our first big conflict, the economic war with Neanderthals. And there’s stuff about Ancient Sumer, Greece, and Easter Island. There’s no small amount about the economy behind the Great Wall, including the time before the Wall was even built.
Lots of economics books talk about bankers and monetary policy, and look towards them to explain the excessive crowd behaviour that causes bubbles.
By contrast, the heroes of Bubbles and Wisdom include Charles Darwin and Socrates. The entrepreneur has a starring role, and Alexander the Great and Genghis Khan play bit parts. Isaac Newton makes an appearance, although, in Bubbles and Wisdom he is one of the villains.
There’s writing about bankers, too, and economists, such as Keynes, Schumpeter and Thomas Malthus, not to mention a fair degree of cynicism about the housing market too.
The big snag, or so goes the book’s main hypothesis, is that we evolved to live a hunter-gatherer lifestyle in small communities that rarely came into contact with other human groups. In this environment we did indeed deserve the nomenclature Wise Man, or Homo sapiens. Today’s world is a lot different, and that’s why we have bubbles.
So crowds can get it wrong, but not just with regards to the economy. The errors we make when acting as part of a community are the stuff that the falls of civilizations are made of.
But we are lucky. Crowd behaviour is frequently irrational, but it is not always destructive. The spirit of the Blitz helped win the Second World War; the mourning when Diana, Princess of Wales, died showed how crowds can care.
We are lucky for another reason: we can be ingenious.
Today we need geniuses, risk takers and the bold, because without them we are in trouble.
Did you know, 5.8 per cent of
the people who have ever
lived are alive today. With a
population explosion like the one we are currently experiencing, we risk seeing the formation of a new bubble which could make the credit crunch seem like a picnic.
But then again, presumably 5.8 per cent of the geniuses who have ever lived are alive today, too.
It all boils down to wisdom, that’s to say the wisdom of this Internet age, to exploit the harvest that the global community can create, and to pick out the wheat from the chaff.
Bubbles and Wisdom is not just economics, it is also history and psychology and anthropology and evolutionary science. It’s entertaining too, and thought provoking.
Bubbles and Wisdom costs £12.95. It is available locally in Words or over the Internet. It is written by Michael Baxter founder and editor of Investment and Business News, and Kenn Herskind, the CEO of financial research company, Defaqto.
You can find out more at www.bubblesandwisdom.com
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58 Phonebox Magazine