On a recent business trip to Baltimore, I found myself unable to socialize with the other meeting attendees. These were people far more experienced than I at technology standardization, who seemed comfortable within the established cliques that are a fact of life at recurring meetings like these, who didn’t seem that interested in carrying out a conversation with me. Partially intimidated by my ignorance of the myriad intricacies of motions and ballots and voting rights and partially put off by their cliqueishness, I spent most of my meal-times alone with a copy of John Kenneth Galbraith‘s A Short History of Financial Euphoria, having failing to read it once before.
On the second reading, I was sustained by a growing interest in investing, which provided me with enough motivation to read about the phenomenon of market bubbles which constitute the primary subject matter of this book. In the short space of about a hundred pages, Galbraith treats the most important market bubbles in history, beginning with Tulipomania of the 17th century and ending with the stock market crash of 1987. It is a cautionary essay written for the general public and until the very end, it remains remarkably lucid, free of jargon, and punctuated by the writer’s mature, benevolent wit. It is the sort of writing that I quietly admired in the books of Bertrand Russell.
Because the book is so clear, it’s message can be easily distilled though Galbraith admits, it is hard to internalize. Firstly, financial instruments do not lend themselves to true innovation. As a consequence, each supposedly new financial innovation happens to be — at its root — a different method of leveraging debt. The public at large seems to have a short financial memory of a few decades at most, and when painful recollections of previous bubbles have faded, it becomes comfortable with incurring the risks of very high leverage, setting the next bubble into motion. For each successive bubble, Galbraith elaborates on which “new” financial innovation set the bubble in motion, how the bubble was sustained, who were the supposed financial geniuses of the era, how the bubble burst, who became the scapegoats, and how the question of what caused the public to speculate was repeatedly ignored. It is quite the eye-opener and I recommend it highly.
Having liked this book, I searched for other written work by Galbraith and interviews he gave at various points in a long and productive life in politics and academia. Preliminary exploration turned up this funny and insightful remark —proximately about the state of economics research, but applicable to other spheres of our lives as well — made in a 1986 interview with an unbelievably young Harry Kreisler:
… I do think that the last 20 years have brought a strong shift back to what I’ve called the “esoteric aspects” of economics — to mathematical expressions in economics, econometric niceties, and a tendency to leave the real world alone. It’s something that in Cambridge we call the “Belmont Syndrome.” Belmont is an extremely comfortable suburb adjoining Cambridge, and the “Belmont Syndrome” is a desire to move from a peaceful, happy life in Belmont to a peaceful, happy life at Harvard, from life to computer and back again, without any disturbance from Ronald Reagan.