Review of Daniel Altman’s Outrageous Fortunes
Daniel Altman’s book Outrageous Fortunes is consistently smart, engaging, and counterintuitive. Ambitious in scope, it discusses several important forces shaping the global economy over the next few decades.
Very long-term thinking has two characteristic pitfalls. As the Village’s deficit obsession shows, sometimes panic over a distant threat can derail attention to much more pressing ones. There’s also little accountability for long-term prognosticators. A lot can happen between now and 2030, and as Philip Tetlock has shown, media and academic elites rarely lose visibility or credibility in the wake of even grotesquely wrong predictions. The futuristic novel can be a much safer place to conjure up ensuing decades.
But unlike speculative fiction, or the slightly less speculative macro-predictive fare of a “Megatrends” or “Bold New World,” Altman’s book is grounded in a deep engagement with current economic dilemmas. His analysis works on two levels. First, for a self-interested investor, it’s good to be aware of the long-run influences on productivity and power that Altman outlines. For example, his discussion of the new colonialism demonstrates both the short-term profits and long-term risks that arise when countries like China and Saudi Arabia start buying rights to agricultural land and other resources in poorer places. He also challenges conventional wisdom on disintermediation, making a compelling case that certain middlemen and arbitrageurs can only gain from market integration.
Outrageous Fortunes also succeeds as a work for wonks, taking its place in the often noble genre dubbed by David Brin the self-preventing prophecy. As Altman puts it, “a frequent goal of prediction is to alter the future – to warn of impending danger so that it can be avoided.” The book describes many impending dangers, including increasing inequality driven by global warming, accelerating brain drains, and an enormous financial black market that is developing outside of traditional financial centers. Altman’s description of that black market is particularly acute, and worth discussing in some detail.
Altman observes that “the last two decades witnessed the greatest expansion in financial markets the world has ever seen. At the heart of this expansion was the proliferation of derivatives. These are securities that are neither equity like shares in the company, nor debts, like government bonds. Rather, they are gambles; contingent on something the world is not yet know, like the future price of oil, whether a company will go bankrupt, or even the weather” (178). Despite the proliferation of derivatives contracts, and the exponential growth of their notional value, regulators have failed to develop even the most elementary methods of assessing the risks they pose. More ominously, the very wealthy individuals and entities who play this market threatened to decamp for less restrictive settings whenever the possibility of regulation is broached.
Mainstream legal and economic discussions of finance tend to accept this dynamic as an inevitable outcome of globalization. However, Altman traces the trends to their logical conclusion: an “offshore migration of sophisticated” traders toward websites that, like ships that fly under a flag of convenience, allow you to “bet on the future values of thousands of stocks, stock indexes, commodities, treasury bonds, and currencies– all without holding any of the underlying securities” (194). As he notes, these platforms could be tremendously destabilizing; unless there is a massive bailout, “a crisis in the financial black market will leave investors with virtually no protection against a total collapse.” We frequently hear from financial experts that only banks with some governmental guarantee need to monitored and regulated. Altman suggests that failures in the offshore world could wreak havoc in nation states.
Altman believes that there is an alternative: much more intense monitoring of the global financial system by national and international regulators. Outrageous Fortunes features other pragmatic approaches toward addressing pressing global problems. The book is a must-read for those interested in the long-term future of their jobs, communities, and global economy.