Arnold Kling  

Manias, Panics, and Crashes

My Debate with Ian Fletcher, P... Larry Summers on the New Comma...

About the time the first edition came out, in 1978, I read it and also took a course from Charles Kindleberger. At the time, he was in his late 60s, and with his quavering voiced seemed even older.

I wanted to re-read the book, so I ordered the latest edition, which came out in 2005 with Robert Aliber as co-author. I might need to search for an older edition, though, because this does not feel like re-reading the same book. The problem is that the number of major manias and crashes since the 1970s has been so high that tulip mania now gets only a couple pages and most of the text refers to post-1980 events. And, of course, what we now call the financial crisis was still to come!

I have only just started, but I want to share a couple of things. p. 8:

One of the themes of this book is that the bubbles in real estate and stocks in Japan in the second half of the 1980s, the similar the nearby Asian countries in the mid-1990s, and the bubble in U.S. stock prices in the second half of the 1990s were systematically related. The implosion of the bubble in Japan led to an increase in the flow of money from Japan; some of this money went to Thailand and Malaysia and Indonesia and some went to the United States....When the bubbles in the countries in Southeast Asia implode, there was another surge in the flow of money to the United States...

The increase in the flow of money to a country from abroad almost always led to increases in the prices of securities traded in that country as the domestic sellers of the securities to foreigners used a very high proportion of their receipts from these sales to buy other securities from domestic residents...It's as if the cash from the sale of securities to foreigners was the proverbial 'hot potato' that was rapidly passed from one group of investors to others, at ever-increasing prices.

On p.10, there is a box entitled "the big ten financial bubbles." Only four of them pre-date the 1970s. Five of them took place during what we call "The Great Moderation" of roughly 1983 - 2007.

COMMENTS (3 to date)
coupon.clipper writes:

Bryan, this whole series of posts about the value of education is awesome. It'd be very cool if at some point you put together a "digest version" of these posts along with the responses from various other bloggers (e.g. Tyler Cowen). You could even annotate on a high-level the different sub-issues in the debate.

This whole issue of signaling vs. attaining skills is a very overlooked one in economics. On a recent Freakonomics podcast, I heard Levitt repeat the standard claim that education is incredibly valuable. He also attacked the signaling theory by citing a natural experiment from the Vietnam War draft. That'd be a good topic to discuss as well.

Estupidante writes:

Thanks for sharing this post. I am from younger generation and you hinted to me that reading the original verision of the book is worthwhile!

Renzo writes:

I didn't know the book kept getting updated. It's a bit of a pity to find out that these updates are not of the "appended to" kind, but that substitutions are involved, as the coverage of the old manias was delightful. Having said that, perhaps even if less detailed, the broader coverage could allow a better conversation on whether the nature of these events is changing over time. Would you say the book is shifting its weight from history to analysis (without implying that it ever was only the former or that it is now only the latter)?

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