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.People always find reasons why things are different -- the Internet has changed everything! -- but, you know, things are always different. Some things don't change, though, like the impossibility of anything growing at 20% per year forever.
Monday, July 5, 2010
While I'm on the subject of focusing excessively on the present, a new book is out showing that in every financial boom for the past several centuries people have said the same things about why this boom was different and would last. Economists Carmen Reinhart and Kenneth Rogoff want economists to focus on real data from the past, rather than theoretical models: