From the London School of Economics' LSE Book Review blog, January 2021:
In Boom and Bust: A Global History of Financial Bubbles, William Quinn and John D. Turner take readers on a 300-year tour through the history of the world’s most significant financial bubbles, aiming to improve understanding of why bubbles happen, their destructive and sometimes beneficial consequences and potential policy measures to help prevent bubbles. Hans G. Despain praises the book as a well-written, entertaining and accessible read that is particularly impressive in providing a predicative analytical framework for theorists, policymakers and investors.
Boom and Bust: A Global History of Financial Bubbles. William Quinn and John D. Turner. Cambridge University Press. 2020.
We are just 21 years into the 21st century and there have already been three major economic crises, each one worse than the one before. The century began with a severe global slowdown in the world’s largest economies of the United States, the European Union and Japan. The slowdown was topped off with the dot-com collapse in financial markets caused by excessive speculation in internet companies. The Financial Crisis of 2008 was even more devastating, destroying incomes, crushing middle-class lives and increasing the number of low-income workers. We are now enduring the third major crisis, accelerated by the economic shutdown caused by the COVID-19 pandemic. Liberal state governments, especially the US and the UK, have addressed the economic hardships ineptly at best. Unemployment remains high, incomes destroyed and an unprecedented number of small businesses have gone bankrupt.
Financial bubbles that often trigger economic crises also seem to be happening more and more frequently. A notable recent example is the cryptocurrency bubbledom. The price of one bitcoin rose from $555 in August 2016 to $19,783 in December 2017; one year later it nosedived to $3,263, and at the end of 2020 it hit a new all-time high of $29,280. During its freefall in 2018, Professor Nouriel Roubini of New York University called cryptocurrency the ‘mother of all scams’ and the ‘mother and father of all bubbles’. The two-year rocky ascent in price has not changed Roubini’s mind.
When financial bubbles pop, they not only destroy wealth, but they can also hurt the macroeconomy. They have devastating consequences for those who did not participate in the activity that caused the initial inflationary boom of the bubble, or what former Federal Reserve Chair Alan Greenspan called ‘irrational exuberance’.
In their brilliant and highly accessible new book, Boom and Bust: A Global History of Financial Bubbles, authors William Quinn and John Turner take us on a 300-year historical tour of the world’s twelve most notorious financial bubbles. Starting in 1720 in the tri-country schemes to finance public debt in France, England and the Netherlands, the book ends in the bubble-riddled 21st century with the dot-com bubble in 2001, the US real-estate bubble in 2008 and the Chinese stock market bubbles in 2007 and 2015. However, this book’s goal is not strictly historical. Instead, Quinn and Turner aim to understand why bubbles happen and to contribute to policy measures to hopefully aid us in ‘devising policies which may prevent bubbles’ and reduce the damage they cause (12).
Quinn and Turner find the conventional explanation of bubbles as the ‘irrational’ behaviour of investors to be ‘unhelpful’ – in fact, ‘almost useless’ for understanding bubble dynamics (11). Likewise, the very term ‘bubble’ is controversial (3). As an alternative analytical lens, they propose their ‘bubble triangle’ framework (4-9).
The ‘bubble triangle’ begins metaphorically by viewing financial bubbles as fires. Fires are destructive and difficult to stop once started. They can also be beneficial to some ecosystems by providing conditions for renewal. Given sufficient levels of oxygen, fuel and heat, a fire can be started by a simple spark. Extinguishing a fire requires the removal of at least one chemical component. In a financial fire the analogue chemical components are, respectively, marketability (the ability of a commodity to be marketed), money/credit and speculation; the spark is from two sources, technological innovation or government policy (8). Quinn and Turner demonstrate chapter by chapter how their analytical framework explains both how financial bubbles begin and how they come to an end. They maintain their bubble triangle framework provides predictive power for future bubbles (210-11)....
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Of the three bubbles, the least known and possibly most interesting was the Dutch marine insurance bubble, the Windhandel van 1720.
So You Are Well Versed In South Sea Bubble Lore, Know Law and the Mississippi Madness But Do You Recall....
