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Prodigious and full of gallows humor Oct 3, 2009 (99 of 110 found this helpful)
Rogoff and Reinhart, two very substantive (and, I might add, earnest) economists, have produced a prodigious work which will be read and studied for years. They have gathered mountains of data from primary and secondary sources and reduced it to dozens of charts and graphs, a heroic work in its own right. Their intention, God bless 'em, is to lay out the follies that have led to economic/financial crises over the last eight centuries. Their findings: humans have not learned from past mistakes. The title is ironic and is worthy of Peter DeVries.
The authors say it is "almost comical" that no governments reveal their true financial condition today, nor have they done so in the past. The lack of transparency and the shenanigans that go on behind the curtains contribute, of course, to the human suffering that ensues in crisis after crisis.
One needs to find this book comical if one is not to slip into a permanent depression about the utter failure of national leaders to address shortcomings in national domestic and foreign economic policies in order to avoid systemic crises. No one has, from the 13th century onward, anywhere in the world.
The authors persist in saying that they hope their monumental effort will lead to an examination by policymakers of past mistakes and help them avoid future mistakes. I say, "Good luck with that." In my opinion, this book ranks with the complete works of Shakespeare in illuminating the human condition. Or Bruegel, or Beethoven. It will not bring about change, but it will entertain in a deeply satisfying way.
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A must read Oct 12, 2009 (28 of 31 found this helpful)
As Martin Wolf from Financial Times has written... "A MASTERPIECE"
One of the most interesting things about this books is that it combines a very rigorous research on the topic while keeping it accessible to a large audience. The book is self-contained, with definitions provided along the way, which makes it easy for people with no previous knowledge in economics to enjoy and understand it.
The authors also put together a database without precedents in the area which not only makes their statements much stronger, but also makes a great contribution to the field.
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The empirical counter part to Kindleberger's Manias,Panics,and Crashes:A History of Financial Crises Oct 5, 2009 (63 of 77 found this helpful)
The authors do a good job in demonstrating the highly repetitive,ergodic nature of financial crises over the last 800 hundred years.This book can be regarded as providing additional amounts of empirical support for the conclusions originally arrived at by Adam Smith in 1776 in his The Wealth of Nations (1776,pp.260-340 of the Modern Library (Cannan) edition with the foreward by Max Lerner) , by J M Keynes in 1936 in chapters 12,17,and 22 of his General Theory and by Kindleberger in his original 1978 book,titled Manias,Panics,and Crashes.Smith, Keynes and Kindleberger all concluded that private banker or financier financed/backed speculation was the major culprit in producing the standard process of a bubble,inflated bubble,mania,panic,crash,and then a recession,depression,or economic downturn.
The authors do acknowledge the role of speculation.However,they appear to be trying to downplay this cause while emphasizing the role of government, as far as apportioning blame for the great economic damages that result from allowing the speculative process to proceed unhindered.This makes sense only if it is first recognized that private interests often take control of the government regulatory apparatus.Rogoff is a past supporter of the efficient market hypothesis(EMH).The EMH,now completely rejected ,except by economists who have built their academic careers promoting this Ptolomaic type,artificially created,model , essentially concludes that bubbles are not possible.The EMH directly contradicts not only just the historical record of the last 800 hundred years,but of the last 3,500 years where the main source of speculation was in land and precious metals.
A reader,who has read any of the authors mentioned above, will not learn anything new.However, the additional technical analysis performed by the authors does allow one to conclude that the EMH is simply false,although this conclusion appears self evident from the historical record provided in past works other than this one.Only economists ,concentrated mainly in the economics and business departments at the University of Chicago,were able to delude themselves into believing that bubbles were impossible.The authors should have recognized the vast empirical work of Benoit Mandelbrot who had proven the EMH false back in the late 1950's-early 1960's.
One criticism of the book is that ,while Kindleberger is covered,neither Keynes,Smith ,or Mandelbrot is adequately acknowledged.Another is that the current ,severe theoretical shortcomings in financial economics should have been at least mentioned in the introduction,footnotes,or conclusion of the book.
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A very timely reminder that no country is "too big to fail" Oct 30, 2009 (9 of 9 found this helpful)
When one reads the book, the first impression is the incredible amount of work the authors put into collecting the most comprehensive, as of today, dataset on financial crises and key economic variables for not only developed but also developing countries. This dataset will most definitely be at the heart of future empirical work on financial crises.
It will discipline economists to strive to build more realistic models that are able to reproduce the systematic trends and fluctuations of economic variables around the period of financial crises. As the authors admit to be surprised themselves, not only such systematic relationships abound across time but also across developed and developing countries.
The book is an important reminder that it is easy to live under the illusion that "this time is different" and that developed countries have outgrown severe financial crises. However, as the current financial crisis reminded us the more we lie to ourselves, the less vigilant we are as to potential worst case scenarios.
Finally, speaking of vigilance, the book is not only a thorough description of the past but also hints at a very serious problem many countries including the US would most likely face in the future; namely, the issuance of unsustainable levels of government debt which could have tremendous negative medium and long run effects at a global level.
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Explaining the Second Great Depresson and Its Potential Aftermath Oct 24, 2009 (11 of 12 found this helpful)
Be prepared for a very sobering and complete review of eight centuries of financial crises, complete with charts and graphs that even those who fell asleep in the Macro 101 in college should be able to understand. This book is worth reading in its entirety, but chapters 13 to 17, in which the authors draw important lessons from the 800 years of financial folly for the present course of the "Second Great Contraction of 2007" and its aftermath, make this volume well worth the price.
Also, be prepared for some sobering analysis of the effectiveness of central banks and government policymakers in addressing economic crisis (yes, regrettably, still not very effective even with the benefit of 800 years of history and analysis to draw on). You will learn why This Time is Ultimately Not That Different in so many ways. Ken Rogoff worked at both the Fed and the IMF so he is in a unique position to evaluate the global scope of the 2nd Great Depression in modern history, and it is the very global nature of this event that leads him to conclude that the aftermath with be long-lasting and have profound effects on the global economy for many years to come.
While documenting the fiscal policy response to the Second Great Contraction of 2007, including the massive global government bailouts in the banking sector, Rogoff points out that the size and long-term impact of these measures, while profound, may be dwarfed by the effects on the U.S. national deficit and national debt of reduced Federal tax revenues during the global downturn. With such high levels of debt and limited means to reduce government expenditures to compensate for sharp reductions in tax revenues, the ultimate effect may be a debasing of the U.S. dollar by the Fed, producing a period of increased inflation or stagflation.
The earlier chapters describing periods of hyperinflation, bank and sovereign defaults throughout history are fascinating, leading up to the payoff in the final chapters, in which one can draw one's own conclusions about what course this most recent crisis will take and just as importantly, how policymakers are liable to miscalculate once again. The Federal money-printing presses around the world are in high gear once again, more automated and sophisticated than ancient regal sovereigns clipping coins and extracting gold and silver from the royal coinage to finance their realms.
Proving once again that history doesn't always repeat itself, but it does rhyme.