Book of the Year
WASHINGTON, D.C. — As I perused Sunday’s New York Times best-seller list, I wondered whether it might be topped by the newly published "The World Is Curved: Hidden Dangers to the Global Economy — The Mortgage Crisis Was Only the Beginning" (Penguin Group (USA), 305pp, $26.95) by David M. Smick, a Washington-based international financial consultant who also is editor and publisher of the quarterly "The International Economy."
I had thought that with almost everyone personally concerned about the global financial meltdown, readers would seek a cogent explanation, which Smick gives them. Instead, first on the nonfiction best-seller list for the second straight week was the memoir of actress Tori Spelling. In fact, "The World Is Curved" did not even make the list.
Nevertheless, I consider it the book of the year, when so many people are watching their life’s savings diminish daily and want some explanation and some outlook for the future.
In the interest of full disclosure, I am a close friend of Smick’s, who gave me an early draft of his book and asked me to edit it. I did so, and he incorporated some of my suggestions. The finished product is a very different work than my edited manuscript, however, which was a fast-moving memoir of a financial consultant traveling from one world finance center to another to advise government officials and central bankers on whatever the current crisis was. The hardbound version is a serious study of the incredibly complex world of globalization, with all its benefits and all its pitfalls.
Smick’s title, of course, calls to mind the fabulously best-selling "The World Is Flat" by New York Times columnist Thomas Friedman.
Friedman’s paradigm for his metaphor is the Indian accountant making his living in India doing tax returns for Americans, indicating that the world truly is flat. Smick’s metaphor is more complicated and also far less reassuring.
Smick tells of his luncheon in Washington with his friend John Desperes, who had been foreign policy adviser to Sen. Bill Bradley. Smick quotes himself as telling Desperes that "in the financial world nothing happens in a straight line. Instead there is a continual series of unforeseen discontinuities — twists and turns of uncertainty that often require millions of market participants to stand conventional wisdom on its head. In the financial world, nothing much seems to happen in a straight line."
"What you’re saying, Desperes replied, is that the world is not flat. The world is curved. We can’t see over the horizon."
As a result, our sight lines are limited. It is as if we are forced to travel down an endless, dangerously twisting and turning road with abrupt steep valleys and risky mountainous climbs. We can’t see ahead. We are always being surprised, and that is why the world has become such a dangerous place.
The market system, Smick writes, "because of its size and complexity is unbelievably fragile. It is a house of cards that could come tumbling down for any number of reasons. That won’t necessarily happen, but politicians and policymakers need to be careful. They need to start caring about things that never much mattered to them before" — such as savings-fixated Japanese housewives.
"After all, what do we really know about what is about to unfold in China, which has an economy that even its own leadership cannot fully understand?"
Smick asks the question heard everywhere: "What do we make of a world financial system that one minute appears to be performing beautifully and the next acts as if the world is coming to an end?"
"One minute the cybernetic (computer) revolution has transformed the economy into a veritable global wealth machine, as stock markets around the world soar to new highs, the next moment markets plummet. People then read newspaper stories suggesting the value of their home may soon be less than their mortgage. They discover that their family’s life savings — even their cash in supposedly ultra-safe money market funds — could soon go poof in the night."
Financial experts in Washington, asking the same question, have been seeking a "smoking gun" that would answer it. One group of former government officials and regulators recently thought they had found it in a relatively obscure 2004 ruling by the U.S. Securities and Exchange Commission that eliminated a mandatory "haircut" requiring investment banks to reduce their capital holdings. Smick rejects that answer as simplistic, contending there can be no "smoking gun" in a global economy as diverse and complicated as it is. He considers the SEC action to be inconsequential.
Smick is an unabashed globalist who supplies convincing data that globalization has brought world poverty to unprecedented lows. He contends that poverty will drop even more unless the politicians interfere with nostrums such as protectionism.
Indeed, as dangerous as the curved world appears, Smick seems to fear even more what the politicians might do to kill the goose that lays the golden eggs.
Smick was a pioneer in the early supply-side movement as chief of staff to Rep. Jack Kemp and once ran unsuccessfully for Congress as a Republican. But he never has been much of a partisan, and in 2000 actively supported former Sen. Bill Bradley of New Jersey for the Democratic presidential nomination.
Aside from his abhorrence of protectionism and his understandable apprehension of what politicians might do, "The World Is Curved" is free of ideology. It is a revealing look at the dangerous economic world that we all face today.