Book review: This Time is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth S. Rogoff.
This book documents better than any prior book the history of banking and government debt crises. Most of it is unsurprising to those familiar with the subject. It has more comprehensive data than I’ve seen before.
It is easier reading than the length would suggest (it has many tables of data, and few readers will be tempted to read all the data). It is relatively objective. That makes it less exciting than the more ideological writings on the subject.
The comparisons between well governed and poorly governed countries show that governments can become mature enough that defaults on government debt and hyperinflation are rare or eliminated, but there is little different in banking crises between different types of government / economies.
They claim that international capital mobility has produced banking crises, but don’t convince me that they understand the causality behind the correlation. I’d guess that one causal factor is that the optimism that produces bubbles causes more investors to move money into countries they understand less well than their home country, which means their money is more likely to end up in reckless institutions.
The book ends with tentative guesses about which countries are about to become mature enough to avoid sovereign debt crises. Among the seven candidates is Greece, which is now looking like a poor guess less than a half year after it was published.