The World Is Curved

Hidden Dangers to the Global Economy

by David M. Smick

Portfolio, 272 pp., $26.95

Feel free to disagree, but for my money the best anecdote in this entertaining and informative guide to the international economy comes near the end, when the author likens the United States of America to an obese Italian woman named Maria.

Let me explain. The author, David Smick, is a well-traveled, well-connected financial consultant who has journeyed to Rome, among other places. It was in the Eternal City in 1989, Smick writes, that he dined with "an important strategic Italian financial adviser"--or ISIFA for short--and "at least two dozen" other people, including the ISIFA's wife, Maria. Maria was a homely bambina. Smick tells us that she "was carrying at least an extra eighty or ninety pounds." Also--and this is important--she didn't speak English.

Late in the evening, after many glasses of wine, the ISIFA rose to deliver a toast. Maria, gazing upon her successful husband from the far end of the table, beamed with pride. What happened next was, well, horrible:

Our host, her husband, continued [in English]: 'And now we must toast Maria, the most beautiful flower in the desert.' Maria beamed more upon hearing her name, but the guest sitting next to me, an Italian investment banker, whispered, 'Oh boy, here it comes,' as if he had witnessed on other occasions what was about to take place. 'To Maria,' (she beamed some more), the host said again as everyone raised his glass, 'my wife, my rare gem. To Maria THE PIG!'

Smick was aghast. And yet the ISIFA kept calling Maria a pig, and Maria kept smiling, as she had absolutely no idea what her cruel husband was saying. Eventually, Smick continues, the "bizarre, perhaps even offensive," episode concluded. But he took from it a lesson. It was not that rich guys can be--and I mean this in the nicest possible way--insufferable little jerks; Smick probably knew that already. The lesson he drew was that "Maria is America--overloaded with debt, self-doubt, and self-absorption--and, more important, unable to communicate its message to the world." The United States, as they say, has "issues."

And what issues! America's twin budget and current account deficits (the government spends more than it takes in, and the value of the goods coming in to the country is more than the value of the goods going out); the rising price of oil; the weakening dollar; the mortgage and credit crises; rising protectionist sentiments--the list goes on. Smick has a knack for explaining these economic problems in everyday language. His is a friendly authorial presence. The book reads like a pleasant conversation at a cocktail party. The topic of the conversation--what's going on outside the party--is not so pleasant, however. Not pleasant at all. Actually, it's frightening.

The fundamental problem is simple. What we call globalization--free trade, international capital flows, relatively pro-market public policies worldwide--has led to unprecedented prosperity. But the engine of globalization is an international banking and financial system that is subject to frequent turbulence. Fortunes rise and fall overnight. Jobs appear and vanish with astonishing speed. The very hint that authorities lack confidence in the system can cause a panic. No one is entirely in control. And that means no one is entirely accountable.

"Today's world economy," Smick writes, "bears a striking resemblance to the integrated markets and overwhelming prosperity of the period from 1870 to 1914." Look how that turned out.

The World Is Curved is a discursive book, ranging from Tokyo to Martha's Vineyard, from European Central banker Jean-Claude Trichet to the decidedly non-European New York senator Charles Schumer. The attentive reader will quickly grasp two key themes. The first is that the so-called information economy is imbued with ignorance. A lack of transparency rules. "[I]n the new global economy," Smick writes, "this crazy ocean of global liquidity has not only increased the number of unknowns but also re-arranged their relationships and relative importance." What you don't know really can hurt you.