When voters flock to the polls on November 6th, an issue on many minds will be the economy: its recovery, its future, its influence in the world and the culpability of the Wall Street elite who (according to some) hastened its downfall. Whether giving their vote to Romney and his desire to cut government spending, or championing Obama’s plan to create jobs, Americans across party lines are anxious to leave behind what many consider among the worst financial disasters in any nation’s history.
But if we’re ever tempted to believe that our current economic crisis is a new phenomenon, a quick scan of books on the history of economics will put us right. Sadly, it’s definitely not the first, probably not the last and not even the worst. As philosopher George Santayana wrote, “those who cannot remember the past are condemned to repeat it.” So, we look to these books offering insights on history’s hugest fiscal crises, as well as what we can expect for the future.
Crashes Throughout History
Today’s faltering economy is not the first, nor the worst, but if you read Charles P. Kindleberger’s now-classic book on the history of crashes, you might have at least seen it coming. On the first page, he says it: “Bubbles always implode; by definition, a bubble involves a non-sustainable pattern of price changes or cash flows.” Written in 1978 and now in its fifth updated edition, “Manias, Panics, and Crashes” combines often funny storytelling with mordant takes on speculation, frauds and swindles, booms and busts, and all the other fun things that go together to kill economic prosperity.
Of a more recent vintage, top economists Reinhart and Rogoff’s book on financial folly looks back through eight centuries–800 years!–of banking crises, currency crashes, subprimes, inflations, defaults and debts. Their ironic title neatly sums up their view, namely, that plus ca change, plus le meme chose.
When reading macro accounts of economic failures we can forget that real people are affected on a day-to-day basis in their wallets as well as their pantries. In “Why Nations Fail,” Daron Acemoglu and James Robinson set out to document the experiences of regular folks, and explain why certain places are poorer than others. As just one example, they look at two places with the same name, people, geography, and culture–Nogales, AZ, and Nogales, Sonora, across the Mexican border–and find completely disparate financial realities.
Countries in Chaos
Wiemar Germany in the 1920s
The effects of an economic meltdown can be catastrophic–never more so than what occurred in pre-war Germany. The deepest crisis there came in currency terms: in December 1923, one U.S. dollar was equal to 4,200,000,000,000 marks. Looking closely at that year in particular, Adam Fergusson’s “When Money Dies” shows what hyperinflation and printing money can lead to: a social unrest so profound that it would eventually herald totalitarianism and war.
The United States in 1929
Germany was not the only country struggling with its finances in the ’20s and ’30s. Kenneth Galbraith’s account of the crash of 1929–a book that was first published more than half a century ago and has remained in print ever since–still resonates for its portrait of speculation run amok, inactive government and a trading climate in which people bought things not to invest, but to divest of them as soon as possible.
England in the 1970s
In a somewhat less dramatic fashion, Britain faced an economic meltdown in the early 1970s, documented by Andy Beckett in “When the Lights Went Out.” Though there are disagreements as to its causes–was it rampant union power or rising global oil prices; a natural downturn orchanging governments?–what resulted was a country at odds with itself: The notorious “three-day week” was established, as well as regular power cuts done to save money (memorialized in Morrissey’s song lyric, “power cuts ahead / 1972, you know”). The industrial and economic turmoil paved the way for the eventual ascent of free-marketer extraordinaire Margaret Thatcher at the end of that turbulent decade.
Iceland since 2003
More recently, the European financial malaise was presaged first in two countries not normally associated with economic brinksmanship. The land of Bjork and other active volcanoes, Iceland held a relatively obscure place within the world’s financial history until its traditional emphasis on fishing morphed in the early 21st century into a focus on financial services. The change didn’t work–by 2008, Iceland’s external debt was a cool 50 billion euros, against a GDP of just 8.5 billion euros. Michael Lewis’s account of what happened there, and elsewhere in Europe, makes for riveting and scary reading.
Ireland since 2000
Ireland has traditionally been an agricultural country like Iceland–they farmed while Icelanders fished–but it, too, was seduced in the last decade by the lure of financial services over manufacturing, and the quick fix of boom economics. Like Iceland, Ireland has suffered greatly, with unemployment peaking and the cost of living skyrocketing. David Lynch’s book reveals the human cost for the country in his book documenting the end of what he calls “the luck of the Irish.”
When Walter Laqueur wrote his seminal “The Last Days of Europe” several years ago, he predicted a coming financial and political crisis for the loose federation of European states. His most recent book, “After the Fall,” documents exactly what came to pass: From Ireland and Britain in the west to Greece in the east, and seemingly all points in between, countries are defaulting, struggling to pay their debts, importing too much oil and bailing each other out left and right. The picture isn’t pretty, and we’ll have to wait and see what comes of the common currency and the future of European political collaboration.
The Road to Recovery?
Paul Krugman, Nobel Prize-winning economist, discusses the ongoing global financial calamities in “End This Depression Now!” He argues that it will take political will–and difficult decisions–to fix the world economy. The good news is, should such moves be taken, a “strong recovery” is relatively close at hand.
Former Secretary of Labor under Bill Clinton and bestselling author of “Supercapitalism,” Robert B. Reich has seen the implications of governmental economic policies more closely than most. In his book, “Aftershock,” his view on how we got into this mess is a simple one: too much money is in the hands of the super rich, and the middle class has had to dive into debt to keep afloat. He (surprisingly) goes after Obama’s stimulus package, arguing it didn’t do enough to fix income inequality.
Another former Clinton insider and Nobel Prize winner, Joseph Stiglitz, indicts America for much of the current financial crisis. His book, “Freefall,” excoriates our overweening love of free markets and notes that our response to the global crisis has been haphazard at best. In the end, he argues for a new balance between governments and markets and an end to ideology in economics–we should come up with solutions that fit the needs of people, not the rigors of political point-scoring.