This Time Is Different by Carmen Reinhart and Kenneth Rogoff, Princeton, 463 pages


The authors of this book suggest that the next time the economic juggernaut is sailing high in the water, and you hear a politician, businessperson or economist utter words “This time is different,” be scared, stock up your larder and fill the shed with firewood so that you can survive the imminent financial calamity.

In their comprehensive survey of the last eight hundred years, economists Carmen Rinehart and Kenneth Robert Rogoff provide a detailed picture of the many ups and downs of that period.

These modern-day Cassandras are well qualified to write this book: Professor Reinhart lectures economics at the University of Maryland and often advises the IMF and World Bank, while Roghoff is a professor of economics at Harvard University.

While the book contains serious scholarship with facts, figures and graphs to back up their arguments, the authors have based their financial history upon an impressive database, which covers incidents of government debt defaults and banking crises from around the world.

Behind the statistics is an all-too-human story of willful blindness and hubris, as successive governments have forged ahead with disastrous economic policies that just don’t add up, based on the math that, somehow, two and two no longer equals four, and that the laws of gravity can be suspended.

Ever since the human race developed an economic system based on money and precious metals, there is a persistent and enduring belief that the Philosophers’ Stone exists and that lead can be turned into gold. Even the most learned economist can be caught up in the untenable belief that history tells us nothing, and that this time they have developed an economic system that eliminates risk and offers endless days of blue skies. Nothing could be further from the truth.

In this economic history, the authors chronicle several hundred episodes of financial folly. While the book claims to cover the last 800 years, and certainly does, it concentrates on the period between 1800 and 2009 when the authors uncover over 250 episodes of sovereign defaults and an additional 68 defaults of domestic public debt. This litany belies the comment made by the famed Citibank banker Walter Wriston: “Countries don’t go bust.” Not only can they go belly up, but they do so with monotonous regularity, as the current crisis in Europe amply demonstrates.

Life was much easier in the Middle Ages when kings, who found that they had run up unsustainable debts, simply turned their back and duded their overseas financiers, as England’s Edward III did to his Florentine financiers. French kings had an even better solution. During the 18th century, they simply executed domestic creditors, thus eliminating their debts.

While the authors cover important episodes of economic folly, it is the underlying analysis that makes this book valuable.

If I have any criticisms, it is that this book does not look to the follies of the private sector. There is no mention of Tulipmania in Holland in the 17th century, the South Seas Bubble of the early 1700s or the French speculation around the same time that revolved around the Mississippi Company, which almost bankrupted the French monarchy.

This is not the first book to address the history of economic bubbles. Two of the best are Edward Chancellor’s Devil Take the Hindmost: A History of Financial Speculation (1999) and Charles P. Kindleberger and Robert Z. Aliber’s excellent Manias, Panics, and Crashes: A History of Financial Crises (2005).

For more intimate accounts of previous bubbles, go to Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age (2008) by Anne Goldgar and The King, the Crook, and the Gambler: The True Story of the South Sea Bubble and the Greatest Financial Scandal in History (2004). These books may be light on analysis but provide insights into what happens when human greed keeps company with hubris.

As the world enters another phase of the economic crisis with countries facing unsustainable debts, this book is a salutary lesson to policy makers. But I’m pessimistic that when the next bubble comes around, books like this will have been forgotten.

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