Book Notes: This Time Is Different, by Carmen Reinhart and Kenneth Rogoff

Book Notes: This Time Is Different, by Carmen Reinhart and Kenneth Rogoff
August 15, 2010

I called this “book notes” because it really doesn’t qualify to be called a “review.” These are just my impressions from the book, which I did not read in its entirety. I suggest that you do not either.

Most books about economics are like that. The author is so confused that their text is basically unreadable. Most books are useful as a source of what you could call raw material: facts and bits of narrative about the economic conditions of a certain place and a certain time. From these facts and bits of narrative, you piece together the real story, which is typically quite a bit different than the story in the book.

As a source of raw material, this book is very, very useful, and I do suggest that you buy a copy for your personal economics library, if you are the sort — like me — who has a shelf for such things.

The heart of the book, and its most useful and interesting material, is what amounts to a list of various sovereign defaults and nationwide banking crises in the world — developed and developing — dating back to 1200 or so, although most of the material dates from 1800. There weren’t really “countries” in the contemporary sense until the 19th century, when the great European empires began to break up, led notably by the United States in 1789. Sovereign default goes back as far as there have been sovereigns (kings) borrowing money, however, and the book notes defaults by the king of England in 1340, 1472 and 1594; the king of France in 1558, 1624, 1648, and numerous times subsequent; and the king of Spain in 1557, 1575, and four more times by 1647.

From these statistics on individual countries, the authors compile some interesting aggregate statistics of the world as a whole. For example, you can find, on page 99, that Russia has been in default or rescheduling on its external debt for 39.1% of the time between 1800 and 2008. Greece clocks in at 50.6%. Argentina scores at 32.5%, while Sweden pitches a no-hitter at 0%. On page 72, we find that, in 1840, roughly 35% of all countries were in default or restructuring. This fell to about 18% in 1900. In 1933, this ratio was about 45%, representing about 25% of estimated world income.

This is what I mean by valuable raw material. For example, if you were studying the Great Depression, don’t you think it would be important to know that 45% of all countries were in default on their debt, including Britain, the country which practically invented the government bond, and which apparently delayed or deferred some payments? That would go some ways to explain the sudden burst of tax-hiking around the world beginning with Britain and Germany in 1931, and leading to the U.S. in 1932 with the infamous Hoover tax hike.

The authors also distinguish that the debasement or devaluation of the currency in which debt payments are made constitutes a form of default. For some reason, economists can see this clearly when they are dealing with the 19th century, but if you ask them to apply the same principle to the floating currency system of today, which dates from 1971, everything becomes a lot more confusing to them. On page 176, we find that the Austrian kreuzer lost 69.7% of its silver content between 1371 and 1499; the Bavarian pfenning lost 26% in 1685 alone. The French livre lost 56.8% of its silver in 1303, and the British pense was cut in half in 1551.

Typical of economists today, the authors separate these devaluation events from “inflation” events. “Inflation” is usually measured in terms of “prices”, something like today’s CPI, although for historical studies this usually means a basket of simple commodities like wheat and wood, which is not the same thing at all. On page 183 we find that Korea had inflation of 143.9% in 1787. (You have to love that false precision. How the hell is anyone going to know that Korean “prices” rose 143 point nine percent in 1787?) Between the years 1501 and 1799, France had 20%+ “inflation” in 12.4% of those years. Between 1704 and 1799, Poland had “inflation” of greater than 40% in 31.9% of those years.

Of course, what we really want to know is: what were the value of these countries’ currencies compared to gold? This data is available, from, but it costs some money and would have to be compiled from separate sources. For example, you could have a time series on the value of the British pound compared to gold, and then the value of the Polish zloty compared to the pound, from which you could derive the value of the zloty vs. gold. I would love to see a series of charts along those lines, which show currency values in gold terms and versus major international currencies, along with notes about currency reforms and introduction of new currencies. You wouldn’t need a lot of text, just one page per country. So, if anyone wants a book idea, there you go.

The authors make a few generalizations about how countries end up defaulting on their debt, which is rather confused. But, if you remember that Ken Rogoff was formerly the IMF’s chief economist, you would expect that. They seem to have difficulty distinguishing between a country that simply borrows too much money, and is unable to pay, and a country which borrows in a foreign currency and then suffers a currency event, typically a large drop in the value of the domestic currency.

It would be wonderful to have a bunch of Ph.D students look into, for example, the history of individual countries such as Argentina’s or Russia’s economy and sovereign finances during the 19th century, and do it in a coherent and rational way, looking at the value of the currency vs. gold and major international currencies, the tax system and changes to it, domestic considerations and the international environment in which they operated. Something definitive that could be relied upon, rather than used as a source of “raw material” for someone else to find the real story. This study of history would be much more useful than the typical career track of the today’s credentialed economic babbler, which involes something like: let’s assume that an economy is something like the physics of gases; (mathematical argle bargle); from which we conclude that white is black, up is down, and pigs fly. And — let’s not forget — that governments should spend more money, currencies should float and be devalued periodically, a tax hike is “inevitable,” and that banksters should be bailed out always and forever. I think Niall Ferguson has done a lot recently to revive interest in economic history — which, in combination with some basic theoretical understanding, is the real study of economics. This is probably why Ferguson, although his theoretical understanding is rather weak in my opinion, nevertheless makes a lot of sense these days. Plus, he is incredibly prolific. Studying history — real economies in the real world — gives you an idea of how things actually work, even if you may not exactly understand why things work out the way they do.

From my perspective, this book helps describe the incredible turmoil and disaster caused by unstable currencies, which has swept over countries time and time again. Can you see now why I suggest stable, gold-linked currencies? It also describes why conservatives are continually nervous about budget deficits and ballooning debt, even when governments are far from the point of default. It’s just a bad habit to get into, and the ultimate consequences are dire.

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Dr. Mercola weighs in on the statin drug scam:

The Cholesterol Myth that is Harming Your Health

Summary: heart disease is not caused by cholesterol; statin drugs have lots of nasty side effects; statin drugs don’t reduce the risk of heart disease in a meaningful way.

What cholesterol level is too low? Brace yourself.

Probably any level much under 150 — an optimum would be more like 200.

Now I know what you are thinking: “But my doctor tells me my cholesterol needs to be under 200 to be healthy.” Well let me enlighten you about how these cholesterol recommendations came to be. And I warn you, it is not a pretty story. …

So how did these excessively low cholesterol guidelines come about?

Eight of the nine doctors on the panel that developed the new cholesterol guidelines had been making money from the drug companies that manufacture statin cholesterol-lowering drugs.[ix]

The same drugs that the new guidelines suddenly created a huge new market for in the United States.

Coincidence? I think not.

In my experience, even people who are given this sort of information will continue to take statin drugs like their doctors tell them, and steadfastly refuse to do any more research on the subject. The whole process of coming to their own conclusion is abhorrent to them. They really want to be told what to do.

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BP blowout: More questions. BK Lim has done a good job of diagramming BP’s narrative of what supposedly happened, and also presents his view of what really happened.

BK Lim: DHW blowout CSI — why it could not have happened as reported by BP.
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