Last-minute Christmas gift idea

If you need a last-minute Christmas gift for an economist — or indeed anyone who is interested in the financial crisis — you might want to pick up This Time is Different: Eight Centuries of Financial Folly from your local bookstore.

The book, written by economists Carmen Reinhart and Ken Rogoff, goes back hundreds of years and looks around the globe to show that financial crises really aren't anomalies — when you look at the grand scale of history, there are clear patterns that emerge.

"Our basic message is simple," Reinhart and Rogoff write in the preface. "We have been here before. No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities with past experience from other countries and from history."

I first heard of the book when reading a Globe and Mail article by Rogoff in the summer. Rogoff's article made a lot of sense to me, so I decided to buy a copy of This Time is Different. These are authors that know their stuff. Reinhart was a deputy director at the IMF and the chief economist for Bear Stearns (well before the subprime mortgage crisis). Rogoff is an economics professor at Harvard and a chess international grandmaster.

The nice thing about the book is that the economic theory is relatively straightforward. Their explanations, while sometimes a tad dry, are not bogged down with equations or abstract theories that so often plague macroeconomics. In other words, you don't have to be an economist to enjoy the book.

This isn't Freakonomics, however. Its tone is more scholarly rather than chatty, and there are graphs throughout to illustrate how historical data supports Reinhart and Rogoff's thesis. Indeed, a good portion of the book is devoted to backing up the authors' theories about financial crises by showing historical findings from a humongous data set they compiled. There are also sprinklings of historical anecdotes about financial crises — who knew, for example, that Britain pushed Newfoundland and Labrador to join Canada to avoid defaulting on its debt?

The book does get somewhat repetitive once it starts delving into the data but, I think, this is part of its point. The authors want to drive home that financial crises are not extraordinary — the similarities between them are striking.

This Time is Different is an effort to show how mankind, over the last several hundred years, repeatedly makes the same mistakes when it comes to our financial system. It's not the most exciting read, but it might be the most enlightening for anyone wanting a better understanding of what's happening to global financial markets right now.

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I'd like to take this opportunity to wish my friends and readers a Merry Christmas and Happy Hannukah. I enjoy writing this blog, and I hope you have been finding it interesting to read. I especially appreciate everyone who has taken the time to comment.