This current economic recession, just like the ones that have preceded it, have a lot of people asking who’s fault it is and why it happened. Blame has been placed on the mortgage companies, the banks, the federal government, deregulation, homeowners who overspent, Wall Street traders, etc. A really big-picture view of the whole thing is just that, in a free-market economy, booms and busts are just going to happen. They will happen due to any number of indeterminate, ephemeral and fluky reasons.  These unpredictable reasons then cause a run, which devalues a market and money, or the valuation of something in terms of money, is lost. It’s a two-stage process: the initial reason followed by the run. But it is the run that makes the market fall. Think of it like seeing a bear in the woods. The instinct is to run away, but if you do that he will definitely chase you and tear you to bits; but if you stay still, the bear might pass you by.

The causes, consequences and stories of market runs since the 1987 crash are the subject of Michael Lewis’ Panic: The Story of Modern Financial Insanity. Lewis is the author of Liar’s Poker, a story of his days at Salomon Brothers and a contributor to the New York Times Magazine, Bloomberg and Slate. Panic is an anthology of news reports, interviews, editorials and articles previously published in The New York Times, The Economist, The Wall Street Journal, Fortune, Bloomberg News and other media. The authors of these pieces include Lewis himself, Paul Krugman, Joseph Stiglitz, Jeffrey Sachs, Robert J. Shiller and even humorist Dave Barry. The book is divided into 4 parts: Black Monday 1987; the Southeast Asian and Russian currency crises; the dot-com bust; and the sub-prime mortgage collapse. Unfortunately, Panic’s chronology ends just at the time Bear Stearns was collapsing. Still, the content provided by the previous two decades makes fascinating reading.

Part one of anthology begins with a July 1987 Time article describing the “wild bull market,” and is followed by an excerpt from Lewis’ Liar’s Poker that describes the insanity he saw on October 19th, Black Monday, at Salomon Brothers. The look back to that time is enlightening. I had just graduated from high school the previous June, and although I didn’t pay much attention to the crash itself, I do recall how the times suddenly changed, especially the job market. Part three, the dot-com days, is still fresh in my memory though. Anything Internet was always going to be the greatest thing. A March 2000 Barron’s article, however, listed hundreds of companies that would soon go bust. One that was expected to fail almost immediately was Marketwatch.com, now owned by the Wall Street Journal. Salon.com was soon to follow, as was Amazon.com. CDNow.com looked healthy, though; it is now owned by Amazon. Investors tried, but the truth is that nobody can predict the future. The dot.com crash sorted it out though.

Lewis’ retrospective on runs is like watching a stampede from a helicopter. Panic gives us the benefit of hindsight about some of the rationalized absurdity that causes a market to go amok. The sell-offs that happen when a market falls are perfectly rational at the time because free-markets are not collective or communal and thus every participant must protect himself. As Panic demonstrates, this is the way of things. Sometimes it’s merely a correction, but sometimes, when we run from the bear, it’s a collapse.

This book is an interesting read especially in these times, when the whole world is wondering, is the panic over… or are we just building up to the big one?

I get a kick out of seeing how people respond to various stressful circumstances. Not to be mean, mind you, but simply how they choose to confront a threat or a dilemma, or how they handle a tricky negotiation. Most people are rational and so there aren’t too many surprises. When rational meets irrational, or when irrational meets irrational, the ensuing conflict can be hilarious or horrifying. Most of the time though, it is just a matter of wondering who will do what next.

On a grand scale, this is known as the study of the conflict of strategy. It’s mathematical sister is game theory; the stuff that A Beautiful Mind‘s John Nash won the 1994 Nobel in Economics for his work. Conflict strategy is about human behavior, bargaining and negotiation. In 1960, Thomas C. Schelling wrote The Strategy of Conflict: the book that practically became a handbook for diplomats and was routinely prescribed as a textbook for Political Science majors. Schelling was the 2005 Nobel Laureate in Economics. Although this book was intended to theorize international politics during the Cold War, the principles are as true as ever, and by reducing the players down to an individual or group level, Schelling makes large concepts fairly easy to comprehend.

I bring this book to your attention for its thorough and thoughtful analysis of negotiation and bargaining. Schelling’s discussion about these is some of the most interesting theory reading I’ve ever done. Some of the scenarios include: How does one person make another person believe something? How does one convince someone else that they are not willing to pay more, or accept less, than stated? What are the costs of a stalemate? Might burning your bridges be in your best interest?  What strategic role can communication play when bargaining? Should I get somebody to negotiate for me? These scenarios are paraphrased just to give you the gist; they are rather complex, but well and intriguingly presented.

The last third of the book is directed more towards international politics and is a real playground for international relations junkies like myself. Some topics covered here are: Reciprocal Fear of Surprise Attack; Surprise Attack and Disarmament; Nuclear Weapons and Limited War. As large as these topics are, Schelling brings it down to a scale that is workable and applicable to many business situations. And that scalability, that ability to examine, analyze and disseminate the theory of the strategy of conflict are some of the major reasons that this book is so useful. The discussion of the theory provides for the analysis of both sides of a conflict and makes us aware that sometimes our greatest opponent may be ourselves.

If you got anything out of Sun Tzu’s Art of War, or Nicolo Machiavelli’s The Prince, you will come away from The Strategy of Conflict with a much deeper and thorough understanding of human behavior.

I haven’t been on this planet for a very long time, but I’m astounded by the rate at which technology has advanced. My first ‘laptop’ weighed 23 lbs, my first mobile phone weighed about the same. In just the last 20 years they have become pocket sized, and 20 years before that, neither were even imaginable! Thinking about technology and history, I recently read Dava Sobel’s Longitude, a short, sweet tale of how man finally learned how to navigate the globe.

It’s common knowledge that Christopher Columbus ‘discovered’ America in his quest to find a shorter route to India. Looking at a map one can understand how he thought that was possible: Just sail west. Here’s the rub: Columbus didn’t really know where India was. At that time, only latitude–the east-west parallel lines that circle a globe–had been somewhat accurately measured using the sun. Lines of longitude, however, were a different story. The globe was easily subdivided into 360 degrees, it is a circle after all, but beyond that, one needed to know a baseline longitude and how far one was from that baseline. The sun was useful, but it too was moving east to west. Two methods for determining longitude finally came about in the mid-1700s: A lunar chart and a timekeeping device.

Royal observatories popped up all over Europe to map the moon and stars: Galileo, Isaac Newton, and Edmond Halley all worked on the astronomical (pun intended) challenge. Fringe discoveries included finding the speeds of sound and light, and the theory of gravity.

Meanwhile, Europe’s best clock makers worked on a timekeeping device. Clocks were standard all over the churches and city towers of Europe, but they were way too big to put on a ship; and more importantly, needed constant attention to maintain accuracy. This was impossible to do on a moving ship at sea. Within just a few years of England’s Parliament announcing a £20,000 award for the method or device that solved the longitude problem, an Englishman named John Harrison came up with a clock to be used aboard ships.

Harrison’s creation was unique and might have proven successful, had it been tested by Parliament’s Board of Longitude. In fact, unlike most clocks at the time that were often 5 seconds to 10 minutes off over 24 hours, his clock was off less than one second! He felt he could do better, though. So, he made an even better clock. Again, he didn’t put it to the board. He built another better clock. Almost 40 years had passed and in this time, the moon and stars were nearly completely mapped. His device might have proven superfluous. But, two years later, he built his coup de grace: a much smaller, more portable clock that he finally put forth to be tested. However, his clock would now be tested against the lunar maps, and if that weren’t enough, the very man who created the lunar maps would test the clock!

I’m not going to tell you the end of the story, not exactly anyway. I want to bring your attention to two important morals of the story, though: The first is that excellence can be the enemy of good enough; the second is that following your own convictions will bring you your own rewards. Harrison’s first attempt probably would have won him the prize, hands down. But he had to keep tinkering with it and that set him back while his competitors caught up. He knew he was on the right track, he stuck to his conviction, and thanks in part to his perseverance and genius, our world is accurately mapped, and we have great watches to boot!