Monday, October 4, 2010

Revisionist History

. Monday, October 4, 2010

As part of an anti-Summers invective, the maker of Inside Job drops this:

Starting in the 1980s, and heavily influenced by laissez-faire economics, the United States began deregulating financial services. Shortly thereafter, America began to experience financial crises for the first time since the Great Depression.


I've got no problem with complaining about Larry Summers or his record, but let's not distort history to make the case. This is a slightly weaker version of a similar argument Krugman made awhile back:

[T]here were no systemic crises from 1934 to 2007.


I smacked that down good and hard at the time, as did Daniel Davies, who also provided a list:

If we’re going to include things like the First Baring Crisis and the Panic of 1893 (which were big news at the time, but by no means earth-shattering), then I can give you a list. Even using a selective criterion of only crises with significant US involvement (ruling out the Nordic, French, Spanish and Japanese banking crises), we have the following list …

2007 – current crisis
2002 – Enron/Worldcom/Global Crossing crises
2000 – dot com bust
1998 – Asia/Russia/LTCM crisis
1994 – Tequila crisis
1991 – commercial real estate crisis
1987 – Black Wednesday
1985 – Savings & Loans crisis
1982 – LDC debt crisis
1975 – New York City bankruptcy
1971 – Collapse of Bretton Woods
1970 – Penn Central commercial paper crisis

As far as I can see, things were pretty stable between 1934 and 1970 (give or take the odd war), but that in the era of floating exchange rates it’s been very unusual to go seven years without a crisis and the modal gap looks closer to three years than four.


And as Thomas noted a few days ago, until 2008 banking crises had become less and less frequent in the "age of deregulation", which is itself a bit of a misnomer. As appealing as it might be, the deregulation-caused-crisis narrative is just not very well substantiated.

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