| The Age of Instability: The Global Financial Crisis and What Comes Next |
| David Smith, Profile Books, 2010, 304 pages, £15. |
| It was inevitable that the turbulent events of the last two years should have stimulated the publication of an array of associated literature designed to record and explain them. The range to date has been wide, from Gillian Tett’s early and skilful Fool’s Gold to Michael Lewis’s entertaining The Big Short, with a number of more conventional works for general audiences in between. The Age of Instability is therefore a late addition to an increasingly crowded field. As such, it may seem superfluous. However, it is not. |
| Economists are familiar (or should be) with the unfolding history of the credit crunch and its underlying causes. That is not true, however, for those who are further from the complexities of the financial scene. To them, it is still largely seen as a domestic issue, the product of unwise government behaviour and the iniquitous incompetence and self-seeking behaviour of the bankers. This appears to be the belief in all countries, not just the UK. The international dimension, and with it the fundamental contributions of globalisation and deregulation are not appreciated. In this book, David Smith sets out to correct this widespread misunderstanding, and place the crisis in perspective. |
| He does so by setting recent events in a broad historical context, starting in 1989, a year which “set in motion many of the forces that were to give rise to nearly two decades of stability and rising prosperity,” such as the ending of the Cold War, the opening of China to inward investment, and (slightly later) economic reform in India. This opening context allows him to give a picture of subsequent trends in the global economy. This is in turn used to provide a background to the developments which led to the recent crisis. The latter are put in place chapter by chapter, rather like a good episode of Morse. They cover the Asian Crisis of 1997/8; the Long Term Capital Management rescue of 1998; the hidden weaknesses of the apparently successful economic policies pursued in the UK and US from 1997 to 2006; the development of the subprime problem; the emergence of shadow banking; the failure of Northern Rock; the collapse of Bear Stearns; and finally the end of Lehman Brothers and the attempts to contain the subsequent potential meltdown, including the return of Keynesianism. The narrative rhythm then changes, and the final quarter of the book is devoted to a discussion of the failure of most economists to predict the crisis, the changed structure of the evolving global economy, and its possible long term consequences. |
| The result is impressive: very fluently written, extensive in its detailed understanding, and authoritative. While critical of several of those in authority – he is clearly unsympathetic to Mervyn King’s belief in the danger of moral hazard – the author is also scrupulously fair (including to Alan Greenspan, who has been an easy target for others). And although presumably aimed primarily at the general market, he has written a volume which is also of potential value to professional readers. |
| Donald Anderson |
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