Friday, September 19, 2008

Book review: The Credit Crunch

It was like listening to Riders On The Storm on a rainy, thunderous night. If there was ever a right place and time for a book, it was this.

In The Credit Crunch, author Graham Turner lays out a chronology of the current economic disaster and attempts to explain its causes via a study of British and American credit and housing markets over the past few decades. The book is an easy read; I imagine the writer must have gone to great pains to make such a complex issue intelligible to laypeople.

At a superficial level, one striking feature of the book which adds immensely to its minimalistic feel is that while there are 75+ charts in the book, nearly each one of them is a simple time-series represented by a line chart. No area, bubble, pie, or scatter tamasha for you - Turner illustrates everything that matters from US housing delinquencies to Japanese domestic wholesale prices via rudimentary line diagrams (he deserves five stars, if not a Nobel prize, for just this achievement; you have to hate statistical researchers and their ways to empathize with me).

The book is supposed to focus on the credit crisis in the US and Britain, but it spends considerable print on the Japanese collapse of the 80s and 90s, which the author thinks is an indicator to what is going to befall the US and British economies.

The most interesting part of The Credit Crunch is, of course, where it lays the blame for the crisis. To my utter disappointment, Turner unhesitatingly acquits the much-maligned bankers and fantastical lending practices that seem to be everybody's first guess as the cause. Instead, he puts overinvestment, globalization, free trade and politicians' unquestioning support of economic-growth-at-all-costs in the dock. According to him, free trade and the unceasing outsourcing of production led to loss of jobs, decline in incomes, and unprecedented rise of debts. He stops just shy of portraying the mess as a manifestation of the labor-capital struggle.

Thomas Friedman's The World is Flat is still on my bookshelf, and I cant help remark how different the books are - Friedman had made a hard sell of globalization in his book.

The author is undoubtedly a keen Keynesian, and you will find many parts of the book revolting if you are not one. In a (rather lengthy) discourse on the Japanese crisis, Turner goes to undeserving lengths to defend Keynesian policies that Japan had adopted; I wasn't aware before, but it seems obvious from the ferocity of the defense that Keynesian ideas got a bad rep during the Japanese crisis because of their role in exacerbating it. He argues, rather too simplistically and fallaciously in my opinion, that governments' tinkering of markets certainly works, they only have to get the timing right.

Overall, the book is timely and decently-written, so is worth a read, though it would help to also read some other less prejudiced commentary alongside to round your understanding of the subject. At critical points, The Credit Crunch tends to slip into being an exposition of the author's own beliefs.

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