Book Review: Boombustology

For those that have read me for years at The Aleph Blog, this book will impart little that is new.  But, you get a set of powerful arguments in one integrated slim package.

I really liked this book.  The author took a broad view of bubbles, and developed five lenses through which to analyze them:

  • Microeconomics
  • Macroeconomics
  • Psychology
  • Politics
  • Biological (contagion) analogies

This picks up the growth in debt, the misaligned short-term versus long-term incentives, crowd behavior, imitation, political agreement with booms, finger-pointing during busts, etc.

This book integrates the ideas of Keynes, Minsky, the Austrian economists, Soros (reflexivity), and others.  The author was very willing to interact with the view of those that might not fully agree with him, and yet bring out the areas where they do agree.

And the author tests the five lenses on five bubbles:

  • The tulip bubble
  • The Great Depression
  • Japan in the late 80s
  • The Asian crisis in 1997
  • The US Housing Crisis 2006-?

Not surprisingly the crises chosen support the theory.  It would be interesting to see what the author would say on other bubbles, like the South Sea Bubble, the Tech Bubble, etc.

And so the author summarizes his case, and I think he does it well. But then he takes it a step further, and effectively says, “Well, is there an obvious bubble to point out now?”  And so he points out China.  The debts, the manipulation, malinvestment, bad incentives, etc.  You can read it for yourself and draw your own conclusions.

My main verdict on this book is that it provides a firm basis for evaluating bubbles.  I place it behind “Manias, Panics, and Crashes,” and “Devil Take the Hindmost,” but not by much.  To the author: Great job.

Quibbles

I disagree with the idea that booms and busts are a capitalist phenomenon.  Command-and-control economies do have booms and busts — the Great Leap Forward was a boom followed by a tremendous bust.  The effort to plant cotton in the Soviet Union was short-lived, leading to declining yields and destruction of the ecology of the Aral Sea.  There are more examples than this; at least in capitalism, the boom yields some decent rewards.

Who would benefit from this book:

Anyone who wants a better understanding of the boom-bust cycle will benefit from this book.  The author has nailed it in my opinion.  This book will help you to properly skeptical in the next unsustainable boom, and minimize your exposure to the bust.

If you want to, you can buy it here: Boombustology: Spotting Financial Bubbles Before They Burst.

Full disclosure: I asked the publisher for the book, and they sent it to me.

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