2010 Books of the Year

The New York Times Book Review recently came out with its 2010 Books of the Year, and it is not surprising that my list didn't quite match up with theirs. It's not altogether easy for me to come up with a definitive list as I only get to read 25-30 books a year, but during 2010 there were some good ones. My reading is disproportiately nonfiction. Generally, to absorb and appreciate long, complex novels you have to devote large chunks of uninterrupted time to them, and that is hard to do with full time work, a spouse, children and all the other accoutrements of adult lilfe. Nonetheless, I did try my hand at some contemporary fiction this year and came up with a couple beauties. Here are my recommendations for the best books of the year in 2010.

NONFICTION

We are living in the aftermath of the worst financial catastrophe in a couple of generations, and I have gobbled up books on the topic. I read 13 Bankers, Too Big To Fail, In Fed We Trust, and a number of others (although I managed to miss The Big Short by Michael Lewis which received great reviews). It is not surprising that my nonfiction book of the year and runner up focused on this topic. My nonfiction book of the year was This Time Is Different by Carmen Reinhart and Kenneth Rogoff. This is a copiously researched book that studied financial panics across time. This is not an easy read. It overlays quantitative analysis and historical analysis, and its approach is very thorough. Of course, you need to be a bit of a data junkie to fully appreciate this book-- a degree from MIT or The University of Chicago is helpful. But if you can wade through it, you will have a much better understanding of how the U.S. financial system and economy ran into a wall. The punchline is that the kind of crisis we experienced is infrequent in U.S. history, but not uncommon worldwide. They follow certain patterns and take a long time to recover from. They show that, "banking crises almost invariably lead to sharp declines in tax revenues...on average, during the modern era, real government debt rises by 86 percent during the three years following a banking crisis." Sound familiar? And they eerily predict the next leg of this crisis, "In some cases domestic debt is eliminated through high inflation; in other cases, governments default on external debt." Any wonder why many economists are nervous about the current round of quantitative easing? Although laden with charts and graphs and data, This Time Is Different illuminated and put into context our current malaise, and it is deserving of my vote for nonfiction book of the year.

The runner up and a close second was Fault Lines by University of Chicago professor Raghuram Rajan. Fault Lines connects the dots between the widening gap between rich and poor in the U.S. and the financial meltdown. Rajan sees the radical loosening of credit and real estate boom as a deliberate attempt on the part of government to provide the appearance of an improving lifestyle in the face of stagnant and falling wages in lower income brackets. As the world bid up the wages of highly educated, highly skilled wages, it depressed those at the lower end. By liberalizing credit (and creating the housing bubble) through Fannie, Freddie, CRA and FHA, people at the lower end of the spectrum were able to improve their lot in life. Until the bubble burst. Rajan is true to is free market Chicago roots, "A forced equalization of wages that disregards the marginal contributions of different workers will deaden incentives and lead to a misallocation of resources and effort." However, Rajan does not marginalize government and is not blind to the strain on society and policymakers that the growing gulf between rich an poor is causing. He offers no magic bullets, but places a large emphasis on fixing our horrendous K-12 education system. Overall, Rajan presents an interesting synopsis of the roots of our current financial crisis and deserves to be one of the best books of 2010.

FICTION

My vote for fiction book of the year goes to David Mitchell's The Thousand Autumns of Jacob De Zoet. The book takes us to 1799 to a trading post of the Dutch East India company in Japan, and the tightly controlled and monitored intersection between East and West. While Japan permitted a limited amount of trade, it restricted the import of religion, culture and mores. The protagonist is a young clerk that seeks to build his fortune there, but gets tangled with a Japanese woman and the issues that cause friction between cultures. The book is richly textured, meticulously researched, and a joy to read. It also points out why the Kindle has not yet taken over my entire life. This book has a beautiful cover and binding and textured pages and reminds us that reading remains a sensual experience, even in the electronic 21st century. I highly recommend that for this one at least, you skip the Kindle version and buy the book.

My runner up in fiction is Man in the Woods by Scott Spencer. While it received mixed reviews generally, I liked it. I'm a sucker for stories that involve a life changing random event that you could easily see yourself responding in the way the protagonist does. In this case, the main character Paul Phillips stumbles upon another man with his dog while on a walk in the woods, and the man begins to brutally abuse his dog. Phillips intervenes and a fight ensues and in the scuffle, Phillips kills the dog abuser. Because Phillips knows that he cannot use self defense as a defense- he was defending the dog, he does not report the incident to the authorities. Man in the Woods reminded me of Deliverance-- the killer was morally justified in his actions, but the authorities probably wouldn't see it that way, and that sets up the tension that permeates the book. I liked Spencer's book very much, especially the nature writing and was one of the best books I read this year.

Happy Holidays, Happy New Year, and happy reading.

First Love

This is the first weekend that I have not attended a football game in person since late August. The withdrawal symptoms are starting to set in. Christmas is but a couple of weeks away and it is four months until I can attend my son's spring game at Columbia University in New York.

This year, I was able to attend most of my son's j.v. games as well as the Columbia varsity games (although they finished a quite unspectacular 4-6). In addition, I attended several high school games, a Division III playoff game in which the son of a friend of mine was playing, and a game at The University of Chicago on a weekend on which the university honored Jay Berwanger on the 75th anniversary of his being awarded the Heisman Trophy. This doesn't count the games I caught on T.V. or streaming video.

Some families are police families. Some are military families. Ours is a football family. My son is playing in the Ivy League and his two cousins are playing in DII and DII respectively. I played DIII football as did my brother. Both of us were captains and all conference in college. Our other brother played high school ball with me and blocked for me when I was a senior and he was a sophomore. I have told my son on several occassions that I have loved the game of football longer than I have loved his mother (carefully noting that I didn't say MORE than his mother, just longer). My uncle played football, so this is our third generation in the game. When we first got married, my wife made me vow not to push my son into playing. Despite my best attempts at being as neutral as Switzerland, the game found him. He was 6'2" and 245 lbs by the time he was in 8th grade, so it didn't take much for a mutual attraction to develop.


What is it about the game that is so consuming? Why do we love it so?


There are, I think, several reasons. First, is the unique nature of the contact. The hitting is intense and violent. It takes a certain amount of physical courage to tackle a 230 lb fullback running at you full tilt or block a blitzing linebacker. Not anyone can do it. I remember a really fast kid from the track team that came out for wide receiver one year in college. He did great for the first three days when there was no contact. He ran by defensive backs and caught several touchdown passes. But after the first day of hitting, when someone cleaned his clock after he caught a pass, he turned his gear in. It wasn't for him.

Second, the game is usually outdoors in the elements. You play in the heat. You play in the cold. You play in the rain. You play in the snow. There is something primordially gratifying about that. Now that only a small percentage of our society works outdoors, there is something about being in the elements, and having the weather be part of the game that takes us back to our boyhoods.

Third, it is a tribal experience. I believe there is something basically tribal about men. It is part of our genetic coding. And even if there are people on your team that you don't particularly care for, you need to put those differences aside and figure out how to cooperate to get a job done. And along with tribalism, it is egalitarian. Race, religion, wealth, what your daddy did and your family's standing are irrelevant on a football field. All that matters is your ability and willingness to commit and work hard for the team. Once you are in the huddle, there is a unique bond of brotherhood that forms, and I suppose it is not unlike a unit in the army. These bonds often last a lifetime. Last summer, we organized a reunion of my college football team and guys came in from all over the country to attend (one travelled from East Timor). Many of us had not seen each other in 30 years, and it was amazing to see us pick right up where we left off.


Fourth, it is of finite duration. Unlike many other sports--golf, tennis, even basketball or baseball, football ends at the age of 21 or 22 for most guys. There are no pickup games and flag football bears no relation to real football. Most players are aware that your playing days are short, and that awareness concentrates the mind. It is a microcosm of life itself. We know that it will end someday, and the game teaches us that we have to enjoy the moment, for there will come a time when we can't play anymore.

Finally, it is a uniquely American game. While the NFL has attempted to expose Europe and Japan to football, it has not really caught on. The object of the game is to go the full length of the field and score-- symbolic of Manifest Destiny, so I don't think the Europeans really get it at a gut level. It is a complex game. Underneath the violent surface is a game as elegantly strategic as chess. It is strength, power and violence. But it is also move and countermove. Jab, feign and attack.


But what I like most about football at the high school and college level is that it captures our youth at its very best. The papers are full of stories about kids getting involved in drugs and gangs. But football catches them at their very best, striving to be the best at something.

Recently, football has been at the center of some controversy, and many are wondering aloud if the game's survival may be at stake. Concussions and head injuries are making it harder to justify the sport. Cris Collinsworth, former NFL player and analyst wondered out loud if he wants his kids to play. Last year a Penn player that committed suicide was found to have a brain injury resulting from the repetitive hits. More reports are surfacing about ex-NFL players developing dementia at higher rates than the general population. Those are serious issues, and more research needs to be done. Hopefully, this risk can be dealt with through rule changes and better equipment.

Despite the risks, it's a great game and I can't wait for spring ball.

Hope

"Steady, but not spectacular growth," was the prognosis of Raghuram Rajan at the U of C Booth School of Business Forecast Luncheon this week. This forecast was remarkably consistent among the forecast offered by three economists-- Erik Hurst, Randy Kroszner, along with Rajan. As we struggle to pull ourselves off the mat from the worst downturn in a couple of generations, we are finally beginning to see some sunlight.

Kroszner, former member of the Federal Reserve, credited Ben Bernanke for keeping us out of a 1930's like depression and is perplexed by the criticism that has been leveled at Bernanke as of late. "No good deed goes unpunished in Washington," noted Kroszner. He further expanded on Truman's aphorism that "if you want a friend in Washington, buy a dog," to "if you want a friend in Washington, buy 2 dogs because one will turn on you." While we will have steady growth next year due largely to business investment and productivity growth, Kroszner believes it will be subdued because of tax uncertainty and government spending that is 2% higher than the 50 year range.

Rajan was the most guarded of the three. He believes that political risks are increasing, and that gridlock is not good with a deficit at 10% of GDP. Europe, he said, is an example of what happens when politics breaks down. He agreed with Kroszner that the Fed did a great job of averting a catastrophe in '08, but is worried about QE2 and its potential for igniting inflation.

Perhaps the most interesting comments were given by Erik Hurst, who presented data to suggest why the recovery will be slow. We are building back assets after a deflation in real estate and equity assets. This recession is fundamentally different than the big recessions of '74 and '81-82. Unemployment has huge variations. Not surprisingly, states that participated in the real estate boom and subsequent rollback (FL, NV, AZ) have the highest unemployment rates. All of these construction workers and other workers related to real estate will need to be realloccaed. He asserts that it took 6-10 years to draw these workers into real estate related industries and will take time to work through.

Most sobering, Hurst noted that each country that has experienced a real estate boom and bust throughout financial history has experienced no real recovery in housing for a long time. Hurst projects that housing will experience no greater than a 0-1% growth for a decade.

The good news is that we appear to be poised to crawl out from under The Great Recession. The bad news is that we appear to have learned little from the crisis. Tim Geithner envisioned a continued large role for the government in housing. Fannie, Freddie and CRA still survive. Financial reform did not effectively deal with the "Too Big to Fail" and we are a month away from year end and we don't know what taxes will be like in 2011.

Someone asked the panel who the chief spokeperson was for the free enterprise system. There is no one of the stature of Stigler, Hayek or Friedman. But Hurst noted that those giants had largely won the argument and today's position is more nuanced. There is much broader consensus today that there is some role for government but it needs largly to ensure that incentives for the proper allocation of capital need to be reinforced.

It's too bad that, with respect to residential real estate, government permitted those incentives to go horribly awry.