The advertisement warns of speculative financial bubbles. It mocks a group of gullible Frenchmen seduced into a silly, 18th-century investment scheme, noting that the modern shareholder, armed with information, can avoid the pitfalls of the past. “How different the position of the investor today!” the ad enthuses.
It ran in The Saturday Evening Post on September 14, 1929. A month later, the stock market crashed.
“Everyone wants to think they’re smarter than the poor souls in developing countries, and smarter than their predecessors,” said Carmen M. Reinhart, economist, University of Maryland. “They’re wrong. And we can prove it.”
Like a pair of financial sleuths, Reinhart and her collaborator from Harvard, Kenneth S. Rogoff, have spent years investigating wreckage scattered across documents from nearly a millennium of economic crises and collapses. And they have manually entered their findings, digit by digit, into spreadsheets.
Their handiwork is contained in their recent best seller, This Time Is Different, a quantitative reconstruction of hundreds of historical episodes in which perfectly smart people made perfectly disastrous decisions. It is a panoramic opus, both geographically and temporally, covering crises from 66 countries over the last 800 years.
The book was published last September, just as the US was coming to grips with the crisis. It argued that the crisis was a rerun, and not a wholly novel catastrophe. So far, 100,000 copies have been sold.