Foolproof

August 17, 2015
Ip, chief economics commentator for the Wall Street Journal, takes on the well-intentioned but flawed impulse to completely safeguard oneself from disaster. In his opinion, the universal urges to achieve success and seek safety often lead to failure and danger. When peril is recent or vivid in memory, people are more cautious: for example, Wall Street brokers who have not gone through a crash are likely to take more risks, and often return better results, than those who have. But the longer the time between one danger and the next, the less urgent the drive for caution. Ip ties many of the catastrophes of the last 10 years to this phenomenon and suggests that the world’s increasingly interconnected transport, finances, and communications also have increased risks. He sees the impulse to “make things bigger and more complicated” as one that conflicts with the urge to ensure safety. The best solution would be a happy medium between safety and risk, but humans have consistently failed to find this balance. Tackling subjects that include forest fires, Paul Volcker’s economics, and savings vs. debt, Ip entwines economics and psychology to show how to “maximize the units of innovation we get per unit of instability.” This is a thoughtful, entertaining read for those interested in the inner workings of global risk management.

August 1, 2015
Societies and economies "are not inherently stable," writes Wall Street Journal chief economics commentator Ip (The Little Book of Economics: How the Economy Works in the Real World, 2010) in this eye-opening book about risk-taking and crisis. The author contends that our successful quest for safety and stability is constantly undermined by increased risk-taking and greater dangers, and he believes "we are going to have to re-examine" the premises as well as their results. Miami's growth as a population center, like the buildup of the Jersey shore, has increased the dangers associated with storms, but governments continue to justify their existence and claim to deliver both economic and political stability. Ip insists that as progress occurs, there is also "an equally irrepressible drive to make things bigger and more complicated." In addition to discussing finance and economics, the author references natural disasters and efforts to make what we do safer-e.g., effects of anti-lock brakes and hard helmets for footballers. For him, there is a trade-off between the benefits and their unintended consequences, and the author discerns a pattern: the safer we feel at any time, the closer we may be to greater risk and danger (see how the widespread use of antibiotics has reduced their effectiveness). Ip argues for a nonideological approach employing prudence and carefulness, and he explains what he identifies as a dichotomy between "engineers" and "ecologists." Engineers believe man will find solutions to any problem. Ecologists, like those who thought forest fires should be allowed to burn themselves out, think things should be left alone. Ip locates similar tensions within government, economics, and finance. He wisely advocates taking "the best of both" while exercising restraint "and not ask[ing] too much of them." A provocative challenge to the tendency to elevate ideology over thoughtfulness. The author amply shows how "stability is blissful, but it may also be illusory, hiding the buildup of hidden risks or nurturing behavior that will bring the stability to an end."

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