The clue to this book is the question mark at the end of the books title. The book is almost a plea, how do we fix the mess the world economy is in? This book doesn't offer a solution, a fact acknowledged by the author early in the book. Instead it is a description of the many ways in which both the global and UK economy are a mess and how we got there.
I found this book eye-opening as it revealed the many flaws in the global economy, many of which I was unaware of. The perverse way in which the richest economies are borrowing vast sums of money from poorer economies was one such flaw. This book made me realise just what a mess we are in and how far we are from resolving this in a way which does not cause more damage.
The journey to this point was well explained. But it seemed to me a long series of events which could be considered the law of unintended consequences in action. For example, financial innovation created new products which should have reduced the risks taken when investing or lending money. But the actual effect of these products was to obscure the risks being taken to such an extent that nobody fully understood what risks they were taking. Being unaware of the risks being taken encouraged more risks to be taken because many financial institutions were simply unaware of the fact they were taking risks.
Another example is the banking rules. These were biased towards banks holding supposedly low-risk assets. But some assets were classified as low risk because their risks were obscured (see above) and so the rules encouraged the banks to hold assets whose risks were not known.
Robert Peston made his name during the credit crunch. He was a well known journalist before this but only within his area of expertise. The
Northern Rock story started his road to wider fame as he broke a series of stories as the crises unfolded. Yet he himself admits to missing the big story. He describes the first occasion he started worrying about the risks being taken was when he was interviewing the manager of a large city trading floor and the manager couldn't explain what they were doing in a way that he could understand. Peston worried that if he couldn't explain to a business journalist of many years experience, then did he really understand what they were doing? And if he didn't how could his bosses? But Peston didn't really follow this up, which he now regards as a mistake.
For me the biggest lesson I'll take from this book is just how far we are from resolving the current crises. It made me realise that I really don't know what the UK government is doing to resolve the crises. They talk about re balancing the economy, but I've no idea how they intend to do this or what their vision is for a rebalanced economy. Is this because the measures needed are going to be painful in the short-term and take many years to see any benefit? The government can't really plan past the next election though. Perhaps if the government laid out a plan for where we are going we could judge their progress fairly. I think some leadership is missing here.
Reading this book has also made me reassess my opinions on a few subjects. I'm a believer in the welfare state, that the government should support those who are unable to support themselves (either temporarily or permanently) through no fault of their own. But the book contrasts the low savings rate in the UK with the high rate in China and points out that the high rate in China is because they have to save for a rainy day. In the UK we have a generous welfare state which will support you if, for example, you lost your job. But if you have savings, this is taken into account and the support could be reduced. This discourages savings, which has knock-on effects in terms of the money available for the banks to lend for investment. So is this good for the economy? Does the welfare state discourage savings which in turn reduces investment, which then leads to fewer jobs and so more people in need of help? I'm not sure.
I would definitely recommend reading this book. We have a long way to go both in the UK and globally. If we all understood how we got here we may be in a better position to fix the mess that Robert Peston does such a good job of describing.