They Did Their Homework (800 Years of It)

[groovedaddy]

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 superior 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 Sept. 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,” says Carmen M. Reinhart, an economist at the University of Maryland. “They’re wrong. And we can prove it.”

Like a pair of financial sleuths, Ms. 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. They have wandered the basements of rare-book libraries, riffled through monks’ yellowed journals and begged central banks worldwide for centuries-old debt records. And they have manually entered their findings, digit by digit, into one of the biggest spreadsheets you’ve ever seen.

http://www.nytimes.com/2010/07/04/business/economy/04econ.html?th&emc=th

[Warpy]

1. At last! Silly theories and dense prose might have won prestigious awards

but they too often result in spectactular failure, as they're doing now and as they did back in 1998 when LTCM failed, its co founders having shared a Nobel prize in economics for their formula just a year earlier.

You'd think that it would have taken fewer than 12 years after that spectacular failure added to the current failure that started in 2007 for this stuff to have been repudiated, but those formulas are now driving things like HFT and making billionaires out of bloodless men who head hedge funds.

You can game the system only so long before that part of the system becomes completely depleted and you are facing a spectacular collapse, and that is what economists have been doing for the past 40 years, aided by deregulation and the lack of new regulation covering new financial instruments.

History really is the best teacher and history is telling us that is exactly what is happening now.

[formercia]

2. Human Nature is difficult to factor into a Spread Sheet.

Avarice

Avarice (from Latin avarus, "greedy"; "to crave") is the inordinate love for riches. Its special malice, broadly speaking, lies in that it makes the getting and keeping of money, possessions, and the like, a purpose in itself to live for. It does not see that these things are valuable only as instruments for the conduct of a rational and harmonious life, due regard being paid of course to the special social condition in which one is placed. It is called a capital vice because it has as its object that for the gaining or holding of which many other sins are committed. It is more to be dreaded in that it often cloaks itself as a virtue, or insinuates itself under the pretext of making a decent provision for the future. In so far as avarice is an incentive to injustice in acquiring and retaining of wealth, it is frequently a grievous sin. In itself, however, and in so far as it implies simply an excessive desire of, or pleasure in, riches, it is commonly not a mortal sin.

http://www.newadvent.org/cathen/02148b.htm

[supernova]

3. Have to sign up

appears they lost my registration.

Looks like a great article though.

[snot]

4. Interesting up to a point, but

gives almost no info about their findings -- it's mostly biographical. Note that, apparently based on their findings, they conclude in favor of austerity and Friedmanomics.