I love economic history books. The book that I am reviewing tonight is different because unlike most economic history books, it is mainly empirical rather than mainly anecdotal.
Don’t get me wrong, one good anecdote can deliver more information than a carefully controlled study. But more often, it is the careful studies that reveal more in their bloodless way.
This Time Is Different takes the reader through the last eight centuries of financial crises globally, subject to the prevalence of available data. Data is more available recently, so the A.D. 21st, 20th, and 19th Centuries get more play than the more distant past. Also, the developed West gets more coverage than the East. This is to be expected. It all depends on who writes down more.
Crises have been far more common than the average economics textbook would suggest. One of the first ideas to toss out of economics should be that markets strongly tend toward equilibrium. My own empirical research in the financial markets indicates that mean-reversion is there, but very weak.
The book has a wide number of disasters that it draws us through, namely inflation/debasement, currency crises, banking crises, and internal and external default.
Now, all of these crises tend to happen more frequently than the modern fat, dumb and happy Westerner would like. Central banking has substituted fewer and larger crises for more and smaller ones.
Regardless, the chapters on sovereign defaults are worth the price of the book. Will defaults be internal, external, or both? A lot depends on how much debt will be compromised through default. If a majority of debt is held externally, foreign creditors should be wary.
This book is needed now because many so-called scholars implicitly assume that the US Government could never default on its obligations. Yes, it would be a horror, but leading nations in the world have defaulted before, and they will do so again. It is the nature of mankind that it is so. Promises happen in good times, and defaults happen in bad times.
The book is listed as 496 pages, but for non-academics the true length is more like 292 pages.
Also, I would suggest to the authors, that there are predictive variables that they have not considered regarding crises. Two variables are growth in debt, and yield spreads. Debt grows like kudzu or topsy prior to crises, and yield spreads are very small prior to crises. As the crisis nears, debt growth slows, and spreads widen a little.
This book is not for everyone. If you tire looking at tables, and prefer more discursive arguments giving anecdotes rather than facts, this book is not for you.
Who could benefit: if you want intellectual confidence that sovereign defaults /currency failures can happen even in the US (note we have had two so far, in addition to many other financial crises), this will give you confidence that you are not a nut. If you want to educate one of your friends who thinks that such disasters are impossible, this is the book for him. Just make sure he is willing to endure a semi-academic book.
If you want to buy the book, you can buy it here: This Time is Different: Eight Centuries of Financial Folly.
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