Crisis as History: Reinhart & Rogoff vs. Galbraith & Mackay

Exciting results; but not reading

My bedside table is a victim of the debt crisis – how else can I explain it being overburdened by Reinhart & Rogoff’s This time is different (2010), Galbraith’s The Great Crash 1929 (1954) and Mackay’s Extraordinary Popular Delusions (1841) ? Reinhart & Rogoff”s book nearly topped the Amazon best-seller list (only beaten by Stieg Larsson), but will it become a classic like Galbraith or Mackay? I don’t think so, even though Reinhart & Rogoff make an incredible important historical argument about national debt crisis, and crises more generally. It turns out that crises happen often – every country it seems has had one or more in recent times – they play out in various ways and there is a lot of novel data and research in the book (!) to prove it. But it’s a pain to read…

I don’t understand why it is so difficult to make an argument simply and clearly. The writing – or possibly the editing – is just poor. Never mind that they make a lot of technical points first, that’s fine; it’s the general structure of the writing which is frustrating. Whenever an argument begins to be developed (and you have to get to chapter 4 before arguments appear) they interrupt the story with two-page text-boxes, unrelated tables or other random elements. All of them valuable in their own right, but none of them in an order that makes much sense. Consider the opening of chapter five on page 68:

We open our tour of the panorama of financial crisis by discussing sovereign default on external debt… (Some background on the historical emergence of sovereign debt markets is provided in box 5.1). Figure 5.1 plots the percentage of all independent countries… [and between 1820-1840s] nearly half the countries in the world were in default (including all

That’s where the page ends… ! The next two and half pages are one long text box, and thereafter the sentence “(including all…” is completed. By the next page we get to see figure 5.1 (promised at the start), but they throw in figure 5.2 for good measure, not that it’s clear what it means yet (Reinhart & Rogoff, 2010: 68-72).

A classic; and great read

It’s annoying. And particularly so, as Reinhart & Rogoff has such an important point to make, with such interesting data. Apparently it took 10 years to write this book. I wish they’d spent some more time editing. There is a reason why Galbraith’s and Mackay’s work not only became standard references in the literature (as Reinhart & Rogoff’s will), but also became classics (which Reinhart & Rogoff’s won’t). The classics are well researched and well written. At times wonderfully so; as with Galbraith’s commentary on how banks are shy to advertise their very efficient operations which actually facilitate speculators liquidity positions and led to instability:

Banks supply funds to brokers, brokers to customers and the collateral [which customers use to leverage stock transactions] goes back to the banks… Wall Street, in these matters, is like a lovely and accomplished woman who must wear black cotton stockings, heavy woollen underwear, and parade her knowledge as a cook because, unhappily, her supreme accomplishment is as a harlot. (1954 [2009: 47-8])

Reinhart & Rogoff has much to contribute with their book. A good read is tragically not one of them, and that may stop its transition from good research into great piece of work. What a shame.

It always ends in statistics


Thanks to a coffee break with Benjamin Mitra-Kahn, I had already heard of this 2007 famous book on the “long” history (millenniums) of economic growth. The book, “A Farewell to Alms” by Gregory Clark, is now discussed in a symposium published in the August issue of the European Review of Economic History. I thought it was a good occasion to know more about this book – the issue is available for free on CUP until the end of the month. I started reading the rejoinder by Clark (or, how to learn about something by the very end of its tail).

Clark answers to the criticisms of three economic historians, McCloskey being one of them. In essence, Clark’s critics say that he is either wrong (like: he contradicts some of Angus Maddison’s figures) , or that what he says is just rewrapped well-known facts. McCloskey adds something else: that Clark commits social Darwinism.

Economic history has a long relationship with biology. Robert Fogel and Stanley Egerman, in their Time on the Cross (1974), already used measurements of protein intake to estimate the well-being of slaves, to reach the conclusion that “biologically speaking”, being a slave was not that harsh after all. The book caused a lot of stir as one can imagine. Paul David and Peter Temin wrote a lengthy review entitled “Slavery: The Progressive Institution?”. Basically, the reviewers had taken the time and effort to study in detail the 2nd volume of Fogel and Egerman’s book, where all their statistical work and various assumptions were compiled. After a very dense study (the review takes 45 pages of the JEH), David and Telmin concluded that fundamental assumptions were biased, and the results flawed.

The “technical statistical discussion” is the direction the debate on Clark’s book is taking: to answer McCloskey’s criticisms, Clark proposes a measurement of the degree of heredity of wealth. His few equations are simple, but they are the promise of surely loooong debates on the correctness of such or such method: Clark also mentions twin studies, another sure sign that economic history is now far behind, with statisticians in control. And if I judge from past intricate heated debates on wealth and inheritance in statistical economics, the result is that after a few ping-pong exchange, the wider audience gets bored and moves on.