In Boom and Bust: A Global History of Financial Bubbles, William Quinn and John D. Turner take readers on a 300-year tour through the history of the world’s most significant financial bubbles, aiming to improve understanding of why bubbles happen, their destructive and sometimes beneficial consequences, and potential policy measures to help prevent them. Hans G. Despain praises the book as a well-written, entertaining and accessible read that is particularly impressive in providing an analytical framework for theorists, policymakers and investors

Despain, Hans

English

LSE Research Online

Book	Review:	Boom	and	Bust:	A	Global	History	ofFinancial	Bubbles	by	William	Quinn	and	John	D.TurnerIn	Boom	and	Bust:	A	Global	History	of	Financial	Bubbles,	William	Quinn	and	John	D.	Turner	take	readers	ona	300-year	tour	through	the	history	of	the	world’s	most	significant	financial	bubbles,	aiming	to	improveunderstanding	of	why	bubbles	happen,	their	destructive	and	sometimes	beneficial	consequences,	and	potentialpolicy	measures	to	help	prevent	them.	Hans	G.	Despain	praises	the	book	as	a	well-written,	entertaining	andaccessible	read	that	is	particularly	impressive	in	providing	an	analytical	framework	for	theorists,	policymakers	andinvestors.	Boom	and	Bust:	A	Global	History	of	Financial	Bubbles.	William	Quinn	and	John	D.	Turner.	CambridgeUniversity	Press.	2020.Find	this	book	(affiliate	link):	We	are	just	21	years	into	the	21st	century	and	there	have	already	been	three	majoreconomic	crises,	each	one	worse	than	the	one	before.	The	century	began	with	asevere	global	slowdown	in	the	world’s	largest	economies	of	the	United	States,	theEuropean	Union	and	Japan.	The	slowdown	was	topped	off	with	the	dot-com	collapsein	financial	markets	caused	by	excessive	speculation	in	internet	companies.	TheFinancial	Crisis	of	2008	was	even	more	devastating,	destroying	incomes,	crushingmiddle-class	lives	and	increasing	the	number	of	low-income	workers.	We	are	nowenduring	the	third	major	crisis,	accelerated	by	the	economic	shutdown	caused	by	theCOVID-19	pandemic.	Liberal	state	governments,	especially	the	US	and	the	UK,	haveaddressed	the	economic	hardships	ineptly	at	best.	Unemployment	remainshigh,	incomes	destroyed	and	an	unprecedented	number	of	small	businesses	havegone	bankrupt.Financial	bubbles	that	often	trigger	economic	crises	also	seem	to	be	happening	moreand	more	frequently.	A	notable	recent	example	is	the	cryptocurrency	bubbledom.	Theprice	of	one	bitcoin	rose	from	$555	in	August	2016	to	$19,783	in	December	2017;	oneyear	later	it	nosedived	to	$3,263,	and	at	the	end	of	2020	it	hit	a	new	all-time	high	of$29,280.	During	its	freefall	in	2018,	Professor	Nouriel	Roubini	of	New	York	University	called	cryptocurrency	the‘mother	of	all	scams’	and	the	‘mother	and	father	of	all	bubbles’.	The	two-year	rocky	ascent	in	price	has	not	changedRoubini’s	mind.When	financial	bubbles	pop,	they	not	only	destroy	wealth,	but	they	can	also	hurt	the	macroeconomy.	They	havedevastating	consequences	for	those	who	did	not	participate	in	the	activity	that	caused	the	initial	inflationary	boom	ofthe	bubble,	or	what	former	Federal	Reserve	Chair	Alan	Greenspan	called	‘irrational	exuberance’.In	their	brilliant	and	highly	accessible	new	book,	Boom	and	Bust:	A	Global	History	of	Financial	Bubbles,	authorsWilliam	Quinn	and	John	Turner	take	us	on	a	300-year	historical	tour	of	the	world’s	twelve	most	notorious	financialbubbles.	Starting	in	1720	in	the	tri-country	schemes	to	finance	public	debt	in	France,	England	and	the	Netherlands,the	book	ends	in	the	bubble-riddled	21st	century	with	the	dot-com	bubble	in	2001,	the	US	real-estate	bubble	in2008	and	the	Chinese	stock	market	bubbles	in	2007	and	2015.	However,	this	book’s	goal	is	not	strictly	historical.Instead,	Quinn	and	Turner	aim	to	understand	why	bubbles	happen	and	to	contribute	to	policy	measures	to	hopefullyaid	us	in	‘devising	policies	which	may	prevent	bubbles’	and	reduce	the	damage	they	cause	(12).Quinn	and	Turner	find	the	conventional	explanation	of	bubbles	as	the	‘irrational’	behaviour	of	investors	to	be‘unhelpful’	–	in	fact,	‘almost	useless’	for	understanding	bubble	dynamics	(11).		Likewise,	the	very	term	‘bubble’	iscontroversial	(3).	As	an	alternative	analytical	lens,	they	propose	their	‘bubble	triangle’	framework	(4-9).LSE European Politics and Policy (EUROPP) Blog: Book Review: Boom and Bust: A Global History of Financial Bubbles by William Quinn and John D.TurnerPage 1 of 3		Date originally posted: 2021-01-31Permalink: https://blogs.lse.ac.uk/europpblog/2021/01/31/book-review-boom-and-bust-a-global-history-of-financial-bubbles-by-william-quinn-and-john-d-turner/Blog homepage: https://blogs.lse.ac.uk/europpblog/The	‘bubble	triangle’	begins	metaphorically	by	viewing	financial	bubbles	as	fires.	Fires	are	destructive	and	difficult	tostop	once	started.	They	can	also	be	beneficial	to	some	ecosystems	by	providing	conditions	for	renewal.	Givensufficient	levels	of	oxygen,	fuel	and	heat,	a	fire	can	be	started	by	a	simple	spark.		Extinguishing	a	fire	requires	theremoval	of	at	least	one	chemical	component.	In	a	financial	fire	the	analogue	chemical	components	are,respectively,	marketability	(the	ability	of	a	commodity	to	be	marketed),	money/credit	and	speculation;	the	spark	isfrom	two	sources,	technological	innovation	or	government	policy	(8).	Quinn	and	Turner	demonstrate	chapter	bychapter	how	their	analytical	framework	explains	both	how	financial	bubbles	begin	and	how	they	come	to	an	end.They	maintain	their	bubble	triangle	framework	provides	predictive	power	for	future	bubbles	(210-11).Economic	literature	tends	to	explain	the	causes	of	specific	historical	episodes,	while	the	bubble	triangle	frameworkprovides	a	more	general	theory	for	explaining	the	causes	of	bubbles.	In	addition,	although	John	MaynardKeynes’s	herd-like	behaviour	of	investors	and	Hyman	Minsky’s	instability	hypothesis	are	powerful	theories	forpredicting	the	regular	recurrence	of	bubbles,	they	are	less	able	to	explain	why	no	major	bubbles	occurred	from1931	to	1981.	Quinn	and	Turner’s	framework	fills	this	analytical	gap.Quinn	and	Turner	demonstrate	the	power	of	their	analytical	framework	by	examining	twelve	historical	financial‘bubble	triangles’	in	ten	wonderfully	written,	extremely	entertaining	and	exceptionally	erudite	chapters.	They	coverthe	first	bubble	in	1720,	the	Latin	American	mining	stocks	bubble	in	the	1820s,	the	UK	railway	stocks	bubble	of	the1840s,	the	Australian	land	bubble	of	1886-93,	the	UK	bicycle	bubble	of	the	1890s,	the	US	stock	market	bubble	ofthe	1920s,	the	Japanese	stock	and	real-estate	bubble	in	1985-92,	the	dot-com	bubble	of	1995-2001,	the	subprimemortgage	bubble	of	the	2000s	and	two	Chinese	stock	bubbles	in	2007	and	2015.Quinn	and	Turner’s	approach	is	not	to	mine	for	new	historical	data,	but	to	review	the	scholarly	literature	anddemonstrate	that	in	each	episode	the	bubble	triangle	has	formidable	explanatory	power.	Generally	they	find	in	allbubble	occurrences	that	marketability	rises	or	is	already	high,	money	and	credit	are	greatly	expanded	andspeculation	always	ablaze.		In	each	case	they	contend	the	initial	spark	was	either	innovation	or	government	policy.They	further	highlight	that	all	too	often	fraud	and	ignorance	function	to	add	more	money	and	make	a	heatedspeculative	moment	even	hotter.The	series	of	events	in	1720	are	especially	interesting	in	that	they	constitute	three	separate	bubbles.	TheMississippi	Bubble	in	France,	the	South	Sea	Bubble	in	the	UK	and	the	Dutch	Windhandel	represent	the	first,	and	bysome	measures,	the	largest	global	financial	bubble	in	history.	In	each	case,	‘all	three	sides	of	the	bubble	triangle[were]	in	place’	(33).	According	to	Quinn	and	Turner,	propaganda,	fraud	and	government	policy	were	the	spark	(33).The	negative	economic	consequences	were	far	more	severe	in	France	than	in	the	UK	and	the	Netherlands	for	twoprimary	reasons.	A	much	greater	proportion	of	the	French	population	were	exposed	due	to	John	Law’s	currencyschemes	and	the	French	banking	system	was	much	more	deeply	involved	in	manufacturing	and	participation	in	theMississippi	Bubble	(37).	France	experienced	a	deep	recession	and	was	saddled	by	public	debt	and	financial	chaos,prohibiting	France’s	economic	development	and	‘indirectly’	linking	the	bubble	‘to	both	the	French	Revolution	andthe	ultimate	failure	of	Napoleon’	(35).	Meanwhile,	the	UK	and	the	Netherlands’	bubble	avoided	the	severe	economicand	political	consequences.	In	the	case	of	the	UK,	the	South	Sea	Bubble	may	have	been	a	net	positive	becausethe	recession	was	short-lived	and	the	debt	burden	was	significantly	reduced	(36).The	UK	bicycle	bubble	of	the	1890s	also	generated	net	positive	consequences.	Although	the	number	of	new	bicyclefirms	was	unsustainable	and	the	bicycle	stock	bubble	destructive	(98-108),	many	of	the	unprofitable	and	bankruptfirms	quickly	transitioned	into	other	forms	of	manufacturing	(111)	following	the	bursting	of	the	bubble.	Thisaugmented	the	industrial	capacity	of	Britain.	In	addition,	bicycles	provided	health	benefits	to	riders	and	reducedharmful	waste	products	from	horses,	making	pedestrian	activity	safer	(113).It	is	therefore	important	to	appreciate	that	bubbles	can	have	positive	consequences;	nevertheless,	‘not	all	bubblesare	benign	or	socially	useful’	(192).	The	2008	subprime	mortgage	crisis	is	notable	for	its	economic	destruction	(189-92)	and	devastation	of	home	values	(173).	In	the	early	2000s	the	bubble	triangle	was	in	supercharge.	The	fuel	ofthe	crisis	was	the	money	rushing	into	real	estate	following	the	dot-com	stock	crash	in	2001.	The	oxygen	was	thegreat	increase	in	stock	market	activity	from	the	1990s	as	well	as	the	increase	in	middle-class	wealth	and	in	financialinnovation	following	financial	deregulation.	The	heat	was	provided	by	real-estate	speculation	due	to	the	rapidincrease	in	house	prices,	the	financial	media	that	emboldened	real-estate	investment	and	television	shows	thatencouraged	house	flipping	(185).LSE European Politics and Policy (EUROPP) Blog: Book Review: Boom and Bust: A Global History of Financial Bubbles by William Quinn and John D.TurnerPage 2 of 3		Date originally posted: 2021-01-31Permalink: https://blogs.lse.ac.uk/europpblog/2021/01/31/book-review-boom-and-bust-a-global-history-of-financial-bubbles-by-william-quinn-and-john-d-turner/Blog homepage: https://blogs.lse.ac.uk/europpblog/Quinn	and	Turner	contend	the	spark	to	the	housing	bubble	triangle	was	‘political’	(192)	and	to	be	found	ingovernment	housing	policy	that	aimed	at	creating	an	‘ownership	society’	and	reducing	inequality	(186).	Theyunderscore	the	‘unhealthy	symbiotic	relationship	between	property	developers,	banks	and	politicians’	(189).	Moreover,	central	banks	were	‘powerless’	to	prevent	the	boom,	but	powerful	in	clean-up	operations:	‘However,	in	sodoing,	they	saved	reckless	banks	and	distorted	asset	markets	with	their	extraordinary	monetary	policy.	The	long-term	effects	of	this	clean-up	might	therefore	make	the	next	bubble	more	likely	–	and	more	dangerous’	(192).As	wonderful,	entertaining	and	instructive	as	this	book	is,	substantive	criticisms	are	in	order.	First,	Quinn	and	Turnermiss	an	opportunity	to	apply	their	bubble	triangle	framework	to	the	real-estate	bubble	in	China	and	Hong	Kong,	andto	the	Wealth	Management	Products	which	have	financed	it.	This	bubble	is	currently	deflating,	suggesting	this	asthe	site	of	the	next	crisis.Second,	Quinn	and	Turner	have	very	little	faith	in	governments	preventing	bubbles.	Thus,	the	best	we	can	hope	foris	central	banks	to	clean	up	‘the	mess	from	the	collapse	of	the	bubble	by	soothing	the	pain	of	its	bursting’	(217).They	anticlimactically	conclude	the	‘chief	lesson	for	investors	from	our	book’	is	merely	to	examine	‘each	situation	tosee	if	the	elements	of	the	bubble	triangle	are	present’	(221).	‘Investors	beware’	is	a	highly	dissatisfying	punchline.Third,	Quinn	and	Turner	explicitly	(189)	and	implicitly	throughout	their	book	worry	about	the	‘unhealthy’	relationshipbetween	the	state	and	financiers	as	a	primary	source	promoting	the	bubble	triangle.	Far	more	attention	should	begiven	towards	defining	the	conditions	constituting	a	‘healthy’	relationship	and	the	institutional	forms	that	would	helpto	solidify	a	healthy	symbiotic	relation	between	the	state	and	financiers.Fourth,	they	provocatively	claim	that	the	most	severe	consequences	of	bubbles	are	dependent	on	two	conditions.First	is	the	degree	of	leverage	and	involvement	of	banks,	versus	the	involvement	of	financial	investment	institutionsin	that	leverage	(213).	Second,	whether	the	initial	spark	is	innovation	or	political.	When	the	initial	spark	is	politicaland	the	banking	system	proper	is	heavily	leveraged,	the	consequences	are	catastrophic.	This	is	certainly	animportant	insight.	However,	there	are	good	reasons	to	believe	that	the	Mississippi	bubble	in	1720	and	the	2008subprime	crisis	were	caused	by	financial	innovation	more	than	government	policy.Relatedly,	the	justifications	for	the	George	W.Bush	administration’s	ownership	society	policy	were	inequality,	lack	ofhealth-care	and	inadequate	retirement	funds.	The	Federal	Reserve	promoted	the	real-estate	boom	due	to	theirconcerns	regarding	the	dot-com	stock	market	crash.	Why	not	identify	the	forces	generating	inequality	and	the	dot-com	crisis	as	the	spark	of	the	subprime	bubble	triangle?	Identifying	the	definitive	spark	is	more	problematic	thanQuinn	and	Turner	present.Even	with	these	constructive	criticisms,	Quinn	and	Turner’s	book	deserves	the	highest	recommendation.	It	isaccessible	to	the	layperson	and	simultaneously	edifying	and	provocative	for	the	expert.	It	is	extremely	well-writtenand	brilliantly	edited.	Most	impressive	is	the	powerful	explanatory	and	predictive	capacities	that	its	analyticalframework	will	provide	to	theorists,	policymakers	and	investors.Note:	This	article	first	appeared	at	our	sister	site,	LSE	Review	of	Books.	It	gives	the	views	of	the	author,	not	theposition	of	EUROPP	–	European	Politics	and	Policy	or	the	London	School	of	Economics.	Featured	image	photo	byAaron	Ledesma	on	UnsplashLSE European Politics and Policy (EUROPP) Blog: Book Review: Boom and Bust: A Global History of Financial Bubbles by William Quinn and John D.TurnerPage 3 of 3		Date originally posted: 2021-01-31Permalink: https://blogs.lse.ac.uk/europpblog/2021/01/31/book-review-boom-and-bust-a-global-history-of-financial-bubbles-by-william-quinn-and-john-d-turner/Blog homepage: https://blogs.lse.ac.uk/europpblog/

Book review: Boom and bust: a global history of financial bubbles by William Quinn and John D. Turner

In Boom and Bust: A Global History of Financial Bubbles, William Quinn and John D. Turner take readers on a 300-year tour through the history of the world’s most significant financial bubbles, aiming to improve understanding of why bubbles happen, their destructive and sometimes beneficial consequences and potential policy measures to help prevent bubbles. Hans G. Despain praises the book as a well-written, entertaining and accessible read that is particularly impressive in providing a predicative analytical framework for theorists, policymakers and investors. Boom and Bust: A Global History of Financial Bubbles. William Quinn and John D. Turner. Cambridge University Press. 202

In Boom and Bust: A Global History of Financial Bubbles, William Quinn and John D. Turner take readers on a 300-year tour through the history of the world’s most significant financial bubbles, aiming to improve understanding of why bubbles happen, their destructive and sometimes beneficial consequences and potential policy measures to help prevent bubbles. Hans G. Despain praises the book as a well-written, entertaining and accessible read that is particularly impressive in providing a predicative analytical framework for theorists, policymakers and investors

Book	Review:	Boom	and	Bust:	A	Global	History	ofFinancial	Bubbles	by	William	Quinn	and	John	D.TurnerIn	Boom	and	Bust:	A	Global	History	of	Financial	Bubbles,	William	Quinn	and	John	D.	Turner	take	readers	ona	300-year	tour	through	the	history	of	the	world’s	most	significant	financial	bubbles,	aiming	to	improveunderstanding	of	why	bubbles	happen,	their	destructive	and	sometimes	beneficial	consequences	and	potentialpolicy	measures	to	help	prevent	bubbles.	Hans	G.	Despain	praises	the	book	as	a	well-written,	entertaining	andaccessible	read	that	is	particularly	impressive	in	providing	a	predicative	analytical	framework	for	theorists,policymakers	and	investors.	Boom	and	Bust:	A	Global	History	of	Financial	Bubbles.	William	Quinn	and	John	D.	Turner.	CambridgeUniversity	Press.	2020.Find	this	book	(affiliate	link):	We	are	just	21	years	into	the	21st	century	and	there	have	already	been	three	majoreconomic	crises,	each	one	worse	than	the	one	before.	The	century	began	with	asevere	global	slowdown	in	the	world’s	largest	economies	of	the	United	States,	theEuropean	Union	and	Japan.	The	slowdown	was	topped	off	with	the	dot-com	collapsein	financial	markets	caused	by	excessive	speculation	in	internet	companies.	TheFinancial	Crisis	of	2008	was	even	more	devastating,	destroying	incomes,	crushingmiddle-class	lives	and	increasing	the	number	of	low-income	workers.	We	are	nowenduring	the	third	major	crisis,	accelerated	by	the	economic	shutdown	caused	by	theCOVID-19	pandemic.	Liberal	state	governments,	especially	the	US	and	the	UK,	haveaddressed	the	economic	hardships	ineptly	at	best.	Unemployment	remains	high,incomes	destroyed	and	an	unprecedented	number	of	small	businesses	have	gonebankrupt.Financial	bubbles	that	often	trigger	economic	crises	also	seem	to	be	happening	moreand	more	frequently.	A	notable	recent	example	is	the	cryptocurrency	bubbledom.	Theprice	of	one	bitcoin	rose	from	$555	in	August	2016	to	$19,783	in	December	2017;	oneyear	later	it	nosedived	to	$3,263,	and	at	the	end	of	2020	it	hit	a	new	all-time	high	of$29,280.	During	its	freefall	in	2018,	Professor	Nouriel	Roubini	of	New	York	University	called	cryptocurrency	the‘mother	of	all	scams’	and	the	‘mother	and	father	of	all	bubbles’.	The	two-year	rocky	ascent	in	price	has	not	changedRoubini’s	mind.When	financial	bubbles	pop,	they	not	only	destroy	wealth,	but	they	can	also	hurt	the	macroeconomy.	They	havedevastating	consequences	for	those	who	did	not	participate	in	the	activity	that	caused	the	initial	inflationary	boom	ofthe	bubble,	or	what	former	Federal	Reserve	Chair	Alan	Greenspan	called	‘irrational	exuberance’.In	their	brilliant	and	highly	accessible	new	book,	Boom	and	Bust:	A	Global	History	of	Financial	Bubbles,	authorsWilliam	Quinn	and	John	Turner	take	us	on	a	300-year	historical	tour	of	the	world’s	twelve	most	notorious	financialbubbles.	Starting	in	1720	in	the	tri-country	schemes	to	finance	public	debt	in	France,	England	and	the	Netherlands,the	book	ends	in	the	bubble-riddled	21st	century	with	the	dot-com	bubble	in	2001,	the	US	real-estate	bubble	in2008	and	the	Chinese	stock	market	bubbles	in	2007	and	2015.	However,	this	book’s	goal	is	not	strictly	historical.Instead,	Quinn	and	Turner	aim	to	understand	why	bubbles	happen	and	to	contribute	to	policy	measures	to	hopefullyaid	us	in	‘devising	policies	which	may	prevent	bubbles’	and	reduce	the	damage	they	cause	(12).Quinn	and	Turner	find	the	conventional	explanation	of	bubbles	as	the	‘irrational’	behaviour	of	investors	to	be‘unhelpful’	–	in	fact,	‘almost	useless’	for	understanding	bubble	dynamics	(11).		Likewise,	the	very	term	‘bubble’	iscontroversial	(3).	As	an	alternative	analytical	lens,	they	propose	their	‘bubble	triangle’	framework	(4-9).USApp – American Politics and Policy Blog: Book Review: Boom and Bust: A Global History of Financial Bubbles by William Quinn and John D. Turner Page 1 of 4		Date originally posted: 2021-01-31Permalink: https://blogs.lse.ac.uk/usappblog/2021/01/31/book-review-boom-and-bust-a-global-history-of-financial-bubbles-by-william-quinn-and-john-d-turner/Blog homepage: https://blogs.lse.ac.uk/usappblog/The	‘bubble	triangle’	begins	metaphorically	by	viewing	financial	bubbles	as	fires.	Fires	are	destructive	and	difficult	tostop	once	started.	They	can	also	be	beneficial	to	some	ecosystems	by	providing	conditions	for	renewal.	Givensufficient	levels	of	oxygen,	fuel	and	heat,	a	fire	can	be	started	by	a	simple	spark.		Extinguishing	a	fire	requires	theremoval	of	at	least	one	chemical	component.	In	a	financial	fire	the	analogue	chemical	components	are,respectively,	marketability	(the	ability	of	a	commodity	to	be	marketed),	money/credit	and	speculation;	the	spark	isfrom	two	sources,	technological	innovation	or	government	policy	(8).	Quinn	and	Turner	demonstrate	chapter	bychapter	how	their	analytical	framework	explains	both	how	financial	bubbles	begin	and	how	they	come	to	an	end.They	maintain	their	bubble	triangle	framework	provides	predictive	power	for	future	bubbles	(210-11).Economic	literature	tends	to	explain	the	causes	of	specific	historical	episodes,	while	the	bubble	triangle	frameworkprovides	a	more	general	theory	for	explaining	the	causes	of	bubbles.	In	addition,	although	John	Maynard	Keynes’sherd-like	behaviour	of	investors	and	Hyman	Minsky’s	instability	hypothesis	are	powerful	theories	for	predicting	theregular	recurrence	of	bubbles,	they	are	less	able	to	explain	why	no	major	bubbles	occurred	from	1931	to	1981.Quinn	and	Turner’s	framework	fills	this	analytical	gap.Quinn	and	Turner	demonstrate	the	power	of	their	analytical	framework	by	examining	twelve	historical	financial‘bubble	triangles’	in	ten	wonderfully	written,	extremely	entertaining	and	exceptionally	erudite	chapters.	They	coverthe	first	bubble	in	1720,	the	Latin	American	mining	stocks	bubble	in	the	1820s,	the	UK	railway	stocks	bubble	of	the1840s,	the	Australian	land	bubble	of	1886-93,	the	UK	bicycle	bubble	of	the	1890s,	the	US	stock	market	bubble	ofthe	1920s,	the	Japanese	stock	and	real-estate	bubble	in	1985-92,	the	dot-com	bubble	of	1995-2001,	the	subprimemortgage	bubble	of	the	2000s	and	two	Chinese	stock	bubbles	in	2007	and	2015.Quinn	and	Turner’s	approach	is	not	to	mine	for	new	historical	data,	but	to	review	the	scholarly	literature	anddemonstrate	that	in	each	episode	the	bubble	triangle	has	formidable	explanatory	power.	Generally	they	find	in	allbubble	occurrences	that	marketability	rises	or	is	already	high,	money	and	credit	are	greatly	expanded	andspeculation	always	ablaze.		In	each	case	they	contend	the	initial	spark	was	either	innovation	or	government	policy.They	further	highlight	that	all	too	often	fraud	and	ignorance	function	to	add	more	money	and	make	a	heatedspeculative	moment	even	hotter.The	series	of	events	in	1720	are	especially	interesting	in	that	they	constitute	three	separate	bubbles.	TheMississippi	Bubble	in	France,	the	South	Sea	Bubble	in	the	UK	and	the	Dutch	Windhandel	represent	the	first,	and	bysome	measures,	the	largest	global	financial	bubble	in	history.	In	each	case,	‘all	three	sides	of	the	bubble	triangle[were]	in	place’	(33).	According	to	Quinn	and	Turner,	propaganda,	fraud	and	government	policy	were	the	spark	(33).USApp – American Politics and Policy Blog: Book Review: Boom and Bust: A Global History of Financial Bubbles by William Quinn and John D. Turner Page 2 of 4		Date originally posted: 2021-01-31Permalink: https://blogs.lse.ac.uk/usappblog/2021/01/31/book-review-boom-and-bust-a-global-history-of-financial-bubbles-by-william-quinn-and-john-d-turner/Blog homepage: https://blogs.lse.ac.uk/usappblog/The	negative	economic	consequences	were	far	more	severe	in	France	than	in	the	UK	and	the	Netherlands	for	twoprimary	reasons.	A	much	greater	proportion	of	the	French	population	were	exposed	due	to	John	Law’s	currencyschemes	and	the	French	banking	system	was	much	more	deeply	involved	in	manufacturing	and	participation	in	theMississippi	Bubble	(37).	France	experienced	a	deep	recession	and	was	saddled	by	public	debt	and	financial	chaos,prohibiting	France’s	economic	development	and	‘indirectly’	linking	the	bubble	‘to	both	the	French	Revolution	andthe	ultimate	failure	of	Napoleon’	(35).	Meanwhile,	the	UK	and	the	Netherlands’	bubble	avoided	the	severe	economicand	political	consequences.	In	the	case	of	the	UK,	the	South	Sea	Bubble	may	have	been	a	net	positive	becausethe	recession	was	short-lived	and	the	debt	burden	was	significantly	reduced	(36).The	UK	bicycle	bubble	of	the	1890s	also	generated	net	positive	consequences.	Although	the	number	of	new	bicyclefirms	was	unsustainable	and	the	bicycle	stock	bubble	destructive	(98-108),	many	of	the	unprofitable	and	bankruptfirms	quickly	transitioned	into	other	forms	of	manufacturing	(111)	following	the	bursting	of	the	bubble.	Thisaugmented	the	industrial	capacity	of	Britain.	In	addition,	bicycles	provided	health	benefits	to	riders	and	reducedharmful	waste	products	from	horses,	making	pedestrian	activity	safer	(113).It	is	therefore	important	to	appreciate	that	bubbles	can	have	positive	consequences;	nevertheless,	‘not	all	bubblesare	benign	or	socially	useful’	(192).	The	2008	subprime	mortgage	crisis	is	notable	for	its	economic	destruction	(189-92)	and	devastation	of	home	values	(173).	In	the	early	2000s	the	bubble	triangle	was	in	supercharge.	The	fuel	ofthe	crisis	was	the	money	rushing	into	real	estate	following	the	dot-com	stock	crash	in	2001.	The	oxygen	was	thegreat	increase	in	stock	market	activity	from	the	1990s	as	well	as	the	increase	in	middle-class	wealth	and	in	financialinnovation	following	financial	deregulation.	The	heat	was	provided	by	real-estate	speculation	due	to	the	rapidincrease	in	house	prices,	the	financial	media	that	emboldened	real-estate	investment	and	television	shows	thatencouraged	house	flipping	(185).Quinn	and	Turner	contend	the	spark	to	the	housing	bubble	triangle	was	‘political’	(192)	and	to	be	found	ingovernment	housing	policy	that	aimed	at	creating	an	‘ownership	society’	and	reducing	inequality	(186).	Theyunderscore	the	‘unhealthy	symbiotic	relationship	between	property	developers,	banks	and	politicians’	(189).	Moreover,	central	banks	were	‘powerless’	to	prevent	the	boom,	but	powerful	in	clean-up	operations:	‘However,	in	sodoing,	they	saved	reckless	banks	and	distorted	asset	markets	with	their	extraordinary	monetary	policy.	The	long-term	effects	of	this	clean-up	might	therefore	make	the	next	bubble	more	likely	–	and	more	dangerous’	(192).As	wonderful,	entertaining	and	instructive	as	this	book	is,	substantive	criticisms	are	in	order.	First,	Quinn	and	Turnermiss	an	opportunity	to	apply	their	bubble	triangle	framework	to	the	real-estate	bubble	in	China	and	Hong	Kong,	andto	the	Wealth	Management	Products	which	have	financed	it.	This	bubble	is	currently	deflating,	suggesting	this	asthe	site	of	the	next	crisis.Second,	Quinn	and	Turner	have	very	little	faith	in	governments	preventing	bubbles.	Thus,	the	best	we	can	hope	foris	central	banks	to	clean	up	‘the	mess	from	the	collapse	of	the	bubble	by	soothing	the	pain	of	its	bursting’	(217).They	anticlimactically	conclude	the	‘chief	lesson	for	investors	from	our	book’	is	merely	to	examine	‘each	situation	tosee	if	the	elements	of	the	bubble	triangle	are	present’	(221).	‘Investors	beware’	is	a	highly	dissatisfying	punchline.Third,	Quinn	and	Turner	explicitly	(189)	and	implicitly	throughout	their	book	worry	about	the	‘unhealthy’	relationshipbetween	the	state	and	financiers	as	a	primary	source	promoting	the	bubble	triangle.	Far	more	attention	should	begiven	towards	defining	the	conditions	constituting	a	‘healthy’	relationship	and	the	institutional	forms	that	would	helpto	solidify	a	healthy	symbiotic	relation	between	the	state	and	financiers.Fourth,	they	provocatively	claim	that	the	most	severe	consequences	of	bubbles	are	dependent	on	two	conditions.First	is	the	degree	of	leverage	and	involvement	of	banks,	versus	the	involvement	of	financial	investment	institutionsin	that	leverage	(213).	Second,	whether	the	initial	spark	is	innovation	or	political.	When	the	initial	spark	is	politicaland	the	banking	system	proper	is	heavily	leveraged,	the	consequences	are	catastrophic.	This	is	certainly	animportant	insight.	However,	there	are	good	reasons	to	believe	that	the	Mississippi	bubble	in	1720	and	the	2008subprime	crisis	were	caused	by	financial	innovation	more	than	government	policy.Relatedly,	the	justifications	for	the	George	W.Bush	administration’s	ownership	society	policy	were	inequality,	lack	ofhealth-care	and	inadequate	retirement	funds.	The	Federal	Reserve	promoted	the	real-estate	boom	due	to	theirconcerns	regarding	the	dot-com	stock	market	crash.	Why	not	identify	the	forces	generating	inequality	and	the	dot-com	crisis	as	the	spark	of	the	subprime	bubble	triangle?	Identifying	the	definitive	spark	is	more	problematic	thanQuinn	and	Turner	present.USApp – American Politics and Policy Blog: Book Review: Boom and Bust: A Global History of Financial Bubbles by William Quinn and John D. Turner Page 3 of 4		Date originally posted: 2021-01-31Permalink: https://blogs.lse.ac.uk/usappblog/2021/01/31/book-review-boom-and-bust-a-global-history-of-financial-bubbles-by-william-quinn-and-john-d-turner/Blog homepage: https://blogs.lse.ac.uk/usappblog/Even	with	these	constructive	criticisms,	Quinn	and	Turner’s	book	deserves	the	highest	recommendation.	It	isaccessible	to	the	layperson	and	simultaneously	edifying	and	provocative	for	the	expert.	It	is	extremely	well-writtenand	brilliantly	edited.	Most	impressive	is	the	powerful	explanatory	and	predictive	capacities	that	its	analyticalframework	will	provide	to	theorists,	policymakers	and	investors.This	article	originally	appeared	at	the	LSE	Review	of	Books.Image	Credit:	Photo	by	Aaron	Ledesma	on	UnsplashPlease	read	our	comments	policy	before	commenting.	Note:	This	article	gives	the	views	of	the	authors,	and	not	the	position	of	USAPP–	American	Politics	and	Policy,	norof	the	London	School	of	Economics.	Shortened	URL	for	this	post:	https://bit.ly/39tWnxdAbout	the	reviewerHans	G.	Despain	–	Nichols	CollegeHans	G.	Despain,	PhD,	is	a	Professor	of	Political	Economy	at	Nichols	College	in	the	USA.	USApp – American Politics and Policy Blog: Book Review: Boom and Bust: A Global History of Financial Bubbles by William Quinn and John D. Turner Page 4 of 4		Date originally posted: 2021-01-31Permalink: https://blogs.lse.ac.uk/usappblog/2021/01/31/book-review-boom-and-bust-a-global-history-of-financial-bubbles-by-william-quinn-and-john-d-turner/Blog homepage: https://blogs.lse.ac.uk/usappblog/

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Book review: Boom and bust: a global history of financial bubbles by William Quinn and John D. Turner

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