Tim Harford: The undercover economist
Writing for the Financial Times stable as I do, you might assume I’m biased. More realistically, as a technical analyst you’re probably going to ask, why on earth have I chosen to focus on this chap, this week? Because he’s good. Quite the media star too, writing for the FT since 2003, four Undercover Economist text books under his belt, a BBC television show ‘Trust me I’m an Economist’ in 2007, and more recently for BBC radio ’50 Things That Made the Modern Economy’.
As you’ve probably gathered, he’s not your average bean counter or wonk, but takes an entertaining, sceptical approach to every day issues in life and business. With exemplary timing, on the 13th January 2018 – printed on a Friday but sold on the Saturday – his column was: Forever blowing bubblemania, with the teaser: ‘As any toddler can attest, it is not an easy thing to catch a bubble before it bursts’.
It kicks off: ‘Prices have reached what looks like a permanently high plateau’, said Professor Irving Fischer a week before the Wall Street crash of 1929. This destroyed his finances and his reputation. He then quotes investor Jeremy Grantham who on the 3rd January said, ‘we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market’, suggesting that despite his generally bearish stance, the S&P 500 might reach 3,500 before a crash occurs.
His best quote is that from Glasgow’s Argus newspaper in 1845, where Charles Mackay – he of the Extraordinary Popular Delusions and the Madness of Crowds 1841 book – said, ‘those who sound the alarm over an approaching railway crisis have somewhat exaggerated the danger’. This turned out to be, ‘by many measures the greatest technological mania in history, and its collapse was one of the greatest financial crashes’, according to bubble scholar Andrew Odlyzko.
I promptly dug out my old copy of his famous book where my version, published by John Wiley & Sons, Inc. in 1996, also contains a separate section, Confusión de Confusiones, by Joseph de la Vega published in 1688. The Foreword by Peter L. Bernstein notes that this is the year when, ‘the English threw out the Stuarts and took the first steps in the establishment of a constitutional monarchy. This dramatic break with the past is the true beginning of the modern era’. He goes on to say that the introduction by Martin Fridson ‘is an integral part of the many delights that lie ahead of you as you read this remarkable history of wealth, cupidity, chicanery, and financial innovation in days gone by’.
I thoroughly recommend.
Tags: Bubbles, Economists, Prediction, Speculation
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