Brad De Long has an interesting post:
If you ask a modern economic historian—like, say, me—if I know why the world is currently in the grips of a financial crisis and a deep downturn, I will say that I do know and I will give you this answer:
This is the latest episode in a long history of similar episodes of bubble—crash—crisis—recession, episodes that date back at least to the canal bubble of the early 1820s, the 1825-6 failure of Pole, Thornton, and company, and the subsequent first industrial recession in Britain. We have seen this process at work in many other historical episodes as well—1870, 1890, 1929, and 2000, for example. For some reason asset prices get way out of whack and rise to unsustainable levels. Sometimes the culprit is lousy internal controls in financial firms that overreward subordinates for taking risk; sometimes it is government guarantees; sometimes it is the selection of the market as a long run of good fortune leaves the financial market dominated by cockeyed unrealistic overoptimists. Go to his blog.
I certainly agree with him, too many economist utterly fail to realize what economic history is all about. The other day I was speaking with a brilliant young economist and she was telling me how she had never understood what economic history was all about. Latter she explained what her research was about: energy consumption and growth… since 1950.
However I also note a paradox in De Long’s argument, one the one hand he agrees that economic history gives a messy story (so many causes for financial crises) but on the other he criticize the economists for failing to reflect reality in their simplifying model. Alternatively I’m just too tired.