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Book Review by Zac Lindsey: This Time is Different

  • June 6, 2024

Editor’s Note: This is the sixth book review we are publishing as part of our Get Paid to Read contest. Last week, we published Where Good Ideas Come From by Steven Johnson, which was reviewed by Tomasz Artur Mielniczuk.

This week, Zac Lindsey reviews This Time is Different by Carmen M. Reinhart and Kenneth S. Rogoff. Zac is a marketer who leverages anthropology and ethnohistory to explore business and economic trends. He resides in Quintana Roo with his family.


This-Time-Is-DifferentIf you’ve already read “Extraordinary Popular Delusions and the Madness of Crowds, “This Time Is Different: Eight Centuries of Financial Folly” provides the math to back it up. It’s not as much of a pop economics book as most books about financial panics and crises often tend to be. I wouldn’t recommend it at a party, but investors in special situations are savvy by necessity, so it’s the perfect fit for Asif’s site.

In the work, Carmen M. Reinhart and Kenneth S. Rogoff discuss historical data on sovereign defaults, banking crises, exchange rate crises, and inflation crises stretching back centuries. The authors say their book is more data-driven and less narrative than most other books on the subject. This is true, but the data constructs its own narrative: In the lead-up to almost every financial crisis, there is a mentality that “this time is different,” when in reality, “we’ve been here before.” 

A great example is a newspaper article from early 1929 that discussed how different investing in 1929 was compared to the buzz around the Mississippi Company in the 1700s: “Facts,” we are assured, “eliminate the hazards of speculation.”

Unsurprisingly, governments and banks alike did (and do) their best to obscure data related to crises they caused through bad debt management, but the data Reinhart and Rogoff managed to collect is incredible. It represents an exceptional amount of work and proves something important: Because historical data is so spotty, many crises have gone overlooked or forgotten. When economists in the past made claims about the frequency of these sorts of events, their data was incomplete, to say the least. 

This is especially true in domestic debt crises. Domestic debt often represents a significant portion of a country’s debt, especially in developing nations, yet most researchers haven’t explored it. Banking crises linked to domestic debt often spiral out into larger crises, so understanding the effects they have is essential.

Even dollar-linked domestic debt like the debt incurred by the Mexican government in the 1990s can have huge consequences. In that case, the authors suggest, if it hadn’t been for IMF assistance, the Mexican government might have defaulted on external debts as well, turning a crisis into a catastrophe. The authors’ discussion of domestic debt was certainly a high point of the book. 

The one part that fell short, though, was their discussion of the 2008 crisis. Released in 2009, the book came out too soon to contextualize the crisis–not all the chips had fallen. That’s not the authors’ fault. But if you’re well-versed on the 2008 crisis, you can skip this section, as it’ll be information you already know. 

Despite this weakness, the data the authors collected makes this book worth it. What’s more, Reinhart and Rogoff uploaded Excel files of all the figures and accompanying data on Harvard’s website. This treasure trove is a geek’s dream, and you may find yourself calculating the average annual total of ducats loaned to the Spanish crown between 1599 and 1679 or some other niche subject. It’s a great way to feel like a participant in the authors’ hypothesis. 

You might even find mistakes, or use the data to develop hypotheses contrary to the ones presented by the authors. There is an Amazon review that claims a PhD student uncovered a serious data error. I couldn’t find any backing for the reviewer’s claim, but I’m sure there are mistakes. It’s a lot of data. In fact, the authors acknowledge the possibility of data errors when they note how fuzzy the data is around situations like internal debt crises. 

I think that’s okay since this is not a guidebook to investing. You won’t find advice like “if a P/E value is X, the crisis is over.” That said, if you invest in emerging markets, you will especially be interested in the red flags the authors list, the ways governments choose to incur debt. There are also some general truisms an investor might find useful–for example, political disunity is not great for the economy, and the authors suggest that it was no accident that 2008 was an election year. 

Another interesting fact: Since World War II, it’s taken about 4.4 years on average to get out of a recession, but rebounds in the housing market take six years. However, these numbers should be taken with a grain of salt when it comes to putting your money to work. Japan experienced seventeen consecutive years of declining housing prices, so if you were investing using six years as a hard rule, you would have been in trouble. For me, the takeaway isn’t that 4.4 years is a magic number, but rather that economic crises require patience to survive. 

More than just offering direct investing advice, This Time Is Different is of interest for its general economic lessons. If you’re interested in historical crises like I am, this book is an absolute must-read to explore the details of both well-known and forgotten crises. Moreover, investors who don’t care about loans to the Spanish crown can also benefit from it. The main reason for an investor to read this book is to remember the dangers of logical fallacies in investing. 

At the end of the day, as the authors say, the “most expensive investment advice ever given in the boom just before a financial crisis stems from the perception that ‘this time is different.’” This book is a fabulous reminder to invest as though maybe it’s not different after all.