The storm

Vince Cable is the chief economic spokesperson for the Liberal Democrats, and his lucid explanations of the credit crunch and overall current parlous global economic situation has seen him well sought after by mainstream news media outlets. For good reason -- his analysis has been proven spot on.

In his book, The Storm: The World Economic Crisis & What It Means, Cable reviews both distant and more recent economic history to put the current situation in context. This includes a chapter on the surge in commodity prices in 2008. Here, his professional experience as a chief economist for Shell provides credence to his arguments.

Cable does his best to present the intricacies of international finance and macroeconomics to the lay reader, but having some education in economics does no harm, e.g. appreciating the difference between a trade balance and balance of payments.

My favoured sections were towards the end, when Cable suggests some actions for the way forward:

Central bank monetary policy to deal with asset prices as well as inflation (a la Irving Fisher; the Swedish experience)

Remove mortgage tax relief (USA) (reduce over-borrowing) and business interest tax relief (UK) (reduce excessive leverage)

Replace cash salary bonuses with stock with delayed redemption

Agreed international accounting standards and reporting (greater transparency)

More challenging is Cable's suggestion for a new multilateralism that places Asia "at the heart" of the world economy.

Indeed, The Economist published an excellent article that described the role that China's gigantic trade surplus had in flooding the American financial markets with funds needing investing ("When a flow becomes a flood" 22/1/2009)

Cable calls for a New Bretton Woods, hosted in a place like Singapore, with key participants the USA, China, Japan, the eurozone, and India.

Part of Cable's motivation is to prevent economic nationalism, or "state capitalism", which encourages protectionism under numerous guises, including "economic security". Cable isn't predicting a repeat of what happened in the 1930s interwar years, but he repeatedly paints an ominous picture of what a failure to properly address the current issues could mean.

Cable has an enduring faith in liberal markets producing wealth and prosperity, which includes public services, and implores with policy makers to take the appropriate actions to ensure this remains the case.

My criticism would only be that I wished Cable had presented more detail on his own suggested actions, as well as on what he would deem as best practices around the world. Perhaps that's the scope of a future volume.