At this time of year, there is nothing better than listening to a good Christmas song and thinking (deeply) about the macroeconomy. In the video below, the folks at econstories combine the two in their 'Deck the Bells with Macro Follies' spoof. I hope that all my blog followers have a prosperous 2016!
Posts
I was interviewed last week by Share Radio in their History of Booms, Busts and Bubbles series about the City of Glasgow Bank crash in 1878. You can listen to the interview by clicking here . I cover this collapse at length in my book Banking in Crisis and I have co-authored a paper with Graeme Acheson on the bank's failure.
The English Historical Review has just published a review by Duncan Needham (University of Cambridge) of my book Banking in Crisis . You can read the review here . Duncan Needham has several 'quibbles' with my arguments, but he calls Banking in Crisis an 'elegant history' and writes that it is an 'excellent and stimulating addition to the literature'.
My book Banking in Crisis has recently been awarded the Wadsworth Prize by the Business Archives Council for the best business history book published in 2014. The list of previous winners can be viewed here . At the awards ceremony at Lloyds last week, the chair of the judging panel, Professor Richard Roberts , said the following: Early on, Judith Rowbotham helpfully defined the book that should emerge as the winner as Q: ‘the book that we all felt it would puzzle everybody if it DIDN’T win.’ And the book that meets that criterion is: Banking in Crisis: The Rise and Fall of British Banking Stability, 1800 to the Present, by John Turner. Why was that? Well, this is both an original and an important book. It provides a lucid analysis and critique of the development of British banking over the last two centuries. It is the culmination and synthesis of a decade and a half of research on aspects of the history of banking, and of bank corporate structur...
Since the 2008 financial crisis, banks around the globe have been subject to stress testing. The concept of stress testing is found in engineering (can bridges withstand wind speeds of x mph?), computer science, cardiology, birthing, nuclear power plants, etc.. In banking, the idea of stress testing is whether a bank can remain insolvent under certain economic scenarios (e.g., a fall in house prices, a rise in unemployment etc) and how it would fare if a 'tail event' were to hit the banking system (e.g., the failure of a major financial institution). Central banks conduct these tests to ensure that banks have enough capital to absorb losses which may occur under any of these circumstances. Below is a Bank of England video which explains how they go about stress testing banks. However, I have two issues with stress tests. First, stress testing makes banking stability akin to an engineering problem. But stress tests cannot pick up or model how human behaviour changes in reacti...
Tomorrow evening I will be speaking to the Mandarin Speakers Association in Belfast. The title of my talk is: Whither the Chinese Economy? My talk will very much be an outsider's perspective on the Chinese economy. I will also provide a long-run perspective by placing China's recent growth in the context of its long-run economic performance. In my talk I will be addressing the following three questions: 1. Why was China a laggard among major economies by 1800 and why did it remain so? 2. Why has China experienced unprecedented economic growth since 1978? 3. Can China avoid the 'Argentina trap'?
My colleague Gareth Campbell recently gave an interview on Share Radio about the railway mania. Gareth explains the role played by high dividends, uncalled capital and overexpansion in driving the boom and bust in railway shares. You can access the podcast at Gareth's Railway Mania website . Gareth has written several seminal papers on the railway mania. He and I have written several papers on the mania, looking at the role of shareholders, managers, and the media in the railway mania.
The Share Centre's shareradio station has an interesting series of podcasts on the History of Booms, Busts and Bubbles - click here . In this podcast , Richard Grossman gives an interview about the Israeli Bank Stock Crisis of 1983. I didn't know much about this crisis until I listened to this podcast, but is a fascintating story. The crisis was so severe that Israeli banks had to be nationalised. The really interesting thing to me was that Israeli banks (and their pension funds) were buying their own shares!
Queen's Management School has started its first blog. The blog is called Meredith's Musings after Professor Hugh O. Meredith, a professor of economics in the School from 1911 to 1945. I have written the first post which provides some background on Meredith's career and how the Management School today is continuing the traditions started by Meredith - influencing other disciplines and trailblazing research which speaks to policy debates. Meredith's famous economic history textbook Me beside a painting of Professor Hugh O. Meredith
I have been teaching monetary economics and money and banking for nearly two decades. Back in 1998 I gave a lecture on the future of cash and the possibility of a cashless society. In 2015, we are closer to having a cashless society than we were back in 1998 thanks to the likes of Google Wallet, Apple Pay, Bitcoin, and ubiquitous credit cards. However, we still use cash and lots of it. Why? Convenience, anonymity, and the grey economy go some way to explaining our demand for cash. The cost to small retailers of going cashless is also playing a role. However, a lack of trust in the security of electronic payments skews the preference of many away from e-money towards cash. In addition, many low-income families do not have access to electronic payments systems because they are unbanked. The Bank of England video below gives an excellent overview of the future of cash. Will we be cashless by 2035? I for one doubt it.
Last week the Federal Reserve did not raise it interest rate despite signalling for months beforehand that it would do so (so-called forward guidance). Why did they do so? Why did markets react negatively to the announcement? In the video below, the FT's Martin Wolf tackles these and other questions.
Could it be that stock-market bubbles occur because managers and CEOs overexpand their businesses simultaneously in a hubristic and possibly irrational fashion? Or could it be that managers and CEOs expand their business simply to maintain incumbent positions? Along with my colleague Gareth Campbell , I have recently published a paper in Business History which addresses these very questions. The paper is entitled Managerial Failure in Mid-Victorian Britain?: Corporate Expansion during a Promotion Boom . An earlier version of the paper is available here and the paper's abstract is as follows: This article examines the mid-1840s expansion of the British railway network, which was associated with a large deterioration in shareholder value. Using a counterfactual approach and new data on railway competition, we argue that the expansion of the railway companies, and their subsequent decline in financial performance, was not due to managerial failure. Rather, the promotion of new rou...
How should one value a firm or the overall stock market? Below is an interview with Robert Shiller on his cyclically-adjusted price/earnings ratio and its usefulness as a predictor of future market value. Shiller thinks that today's market is overvalued, but is not sure when the market will turn down.
Back at the start of June, I predicted that China's stock-market bubble was about to burst - click here . Over the summer, we saw the Chinese government attempt to pump liquidity into the bubble to keep it inflated, but if anything this backfired. So the big question for investors in the rest of the world is whether the turmoil in China's stock market is simply a bubble bursting or a bellwether of future economic difficulties for China? If it is the former, then investors in the West have nothing to fear. However, if it is the latter then the slowing of China will have major repercussions for those who export to China and for those who have benefited from the boom in commodity prices thanks to huge demand from China for raw materials and food. As I highlighted in my post back at the start of June, China had all the ingredients for a classic stock-market bubble. However, its economy does have some major flaws which only a major shift in China's political institutions c...
The first academic review of my book Banking in Crisis has been published in the Economic History Review . The review by Mark Billings (University of Exeter) says that my "contextualization of crises provides an excellent concise history of the last two hundred years of banking in Britain". Mark Billings finishes off his review by saying that "not all historians of British banking would agree with all Turner's arguments, but all will surely want to read this stimulating book and recommend it to their students. Regulators and policy makers should also read the book, not least to be shaken from any post-crisis complacency by Turner's gloomy conclusions on the direction of banking regulation".
I must apologise to all readers of my Blog for my relative blogging inactivity over the past year. The principal reason for this inactivity has been my role as acting Head of Queen's Management School . I've just signed up to do another year so my blogging activity won't improve any time soon! The best part of the job has been working with my colleagues to develop the School's unique research, education and engagement agenda. The chief downside to the job is that I have less direct contact with students in the classroom. In addition, my research and blogging have taken a huge hit. I've been attempting to remedy the former over the past couple of weeks by working at Harvard University. I've met up with old friends, a PhD student, and a co-author, but most of my time has been spent in the fantastic Widener Library , which is celebrating its 100 year anniversary. Today is my last day in the library before my summer holiday. There is a very close connecti...
This very day last year, my book Banking in Crisis was published by Cambridge University Press. Since its publication, I have given talks about it at the Bank of England, Schroders, the Library of Mistakes in Edinburgh, University College Dublin, and Lund University. I also enjoyed launching the book back in September at Queen's Management School. It was great seeing my book go into the top 10,000 books in Amazon and I enjoyed getting my first royalty cheque - nowhere near a 'living wage' could be obtained from authoring academic books in case you are wondering! The year ahead will bring academic reviews in scholarly journals - I'm interested to see what my academic peers will have to say about my book. It has already been reviewed favourably on a few book websites ( Goodreads and the Page 99 test ). Unfortunately, the aftermath of the 2008 crisis is still with us - witness Greece, near-zero interest rates, QE, low economic growth etc.. Unstable banking has a h...
Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak and Todd Mitton have written a paper on whether firms connected to Timothy Geithner benefited from these connections. They do so by looking at how stocks of these firms reacted to the announcement that he was a nominee for Treasury Secretary in November 2008. They find that there were large abnormal returns for connected firms. Below is the paper's abstract and the full paper is available here . The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner's confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small ne...
As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of...
A month ago I met an alumnus in Shenzhen who told me that the problem with N. Ireland's economy was, and I quote, "too much democracy"! Is too much democracy bad for growth? A few years ago, Wenwen Zhan I published a paper ( click here ) which looked at the extension of the electoral franchise in the UK in 1867. We found that investors reacted negatively to the passage of this legislation because of fears about the protection of property rights. In other words, there might well be a non-linear relationship inverted U-shaped relationship between democracy and growth - there can be too much democracy! However, Daron Acemoglu and co-authors have recently published a paper entitled Democracy Does Cause Growth . In this paper, they argue that democracy causes growth and it does so by encouraging investment, increasing schooling, inducing reforms, reducing social unrest, and improving the provision of public goods. Here is the paper's abstract: We provide evidence ...
Greece is in a mess. Who is blame? The Troika or Greece's politicians? I don't blame either. For me, the blame rests squarely on the shoulders of the political architects of the euro (monetary union) project. The European Union was established to promote peace and democracy in Europe and bind European states together. Mutual trading ties and the free movement of good and services helped to achieve this. However, the European political (and oftentimes unelected) elite wanted ever closer union between member states and thought that monetary union would be the way to achieve this. The problem with this idea is that it put the cart before the horse - political (and therefore fiscal and banking) union is a precondition for monetary union. Any deal or extended bailout package agreed over the next few days simply postpones the inevitable (and creditor nations may want to do this to give their banks more time to repair their balance sheets). A YES vote in the referendum means more ...
Last night I attended the annual Queen's University Students' Union Volunteering Awards . It was an inspiring evening and I was delighted that Mogue Lawless, one of our students, was recognised with a special award for his volunteering efforts which centre around helping people with mental health issues. Andrew Haldane , the Bank of England's Chief Economist, is a very interesting economist who likes to look at issues in a novel fashion. He gave a speech last year entitled In giving, how much do we receive?: The social value of volunteering . In his speech, he attempts to measure the benefits to society of volunteering - it truly is a three-figure billion big business, which makes a major contribution to social well-being. However, he suggests that with a little nudge, we could increase even further the social and economic benefit of volunteering. So this raises a challenge for us. What will I do? What will you do? How can we mobilise an army of volunteers?
Part of the fun of writing a book is that you get invited to give talks on it at cool places. This Friday evening I'll be talking about my book Banking in Crisis at the Library of Mistakes in Edinburgh. The idea of this library, which was the brainchild of Russell Napier, is that it contains books on business, economic and financial mistakes so that the present and future generations learn not to repeat them. It is a great idea. Hopefully my book on the history of British banking crises contributes something to our knowledge of why crises happen and how they can be prevented (if there is the political will).
I was visiting Shenzhen last week and during my visit I was speaking with alumni who work in the investment industry. The main topic of conversation was the huge increases in stock and property prices in China. The Shenzhen Index has doubled since January. The Shanghai Composite has increased 140% in a year. Jincheng Umbrella Holdings floated on the Hong Kong market in February and its shares are up 1700%! Click here for a New Yorker piece on the Chinese stock market and here for a tongue-in-cheek piece by Tyler Cowen over at Marginal Revolution. After speaking with alumni and after making comparisons with historical bubbles, it looks like China may be experiencing a simultaneous bubble in its stock and property markets. Here are five reasons why I think that China may be experiencing a bubble. 1. Chinese stocks cannot be short sold and property by its nature cannot be short sold. Constraints on short selling have been common features of historical bubbles. 2. T...
My colleague and former PhD student Gareth Campbell has created a website about the British Railway Mania - click here . This episode has been described by the Economist as probably the greatest bubble in human history. Gareth's website provides background on the Mania and posits some explanations for the 'bubble'. In his explanation of why the bubble happened, Gareth places a lot of emphasis on investor myopia regarding future dividends and uncalled capital. His study of investors during the episode does not support the view that this episode was fuelled by naive and irrational investors.
A special issue of the Journal of Financial Stability , edited by George Selgin , has been published which examines past and present alternatives to the Federal Reserve system. Notable contributions to the the special issue include Matthew Jaremski (on clearinghouses as credit regulators), Hugh Rockoff (on Sprague and the founding of the Fed), Lawrence H. White (on returning to a commodity standard), Scott Sumner (on Nominal GDP futures targeting) and Gerald Dwyer (on Bitcoin).
The Cato Blog has a great post based on an excerpt from Larry White's piece on Free Banking in History and Theory . Free banking is the view that money and banking are best left to the invisible hand of market forces - no need for a central bank, lender of last resort or bank regulation. Free bankers argue that these things tend to destabilise banking systems and economies. They point to historical episodes where monetary and banking systems were relatively free of interference by the government to show the efficacy of free banking - episodes where banks issued notes redeemable for a precious commodity. Of course, no historical system is perfectly free of government interference, but Australia in the second half of the nineteenth century probably comes closest. I've dabbled in free banking history in the past - see my article on Australia here and my article on early joint-stock banking here . I find that free banking worked when there were credible constraints on...
In a recent Journal of Economic History piece , Matthew Hill studies the effect of economic conditions on marriage during the Great Depression. In the short-run, marriage was delayed. However, in the long-run, marriages formed during the tough times of the Great Depression were more stable. Here is the abstract to his paper: I examine the impact of the Great Depression on marriage outcomes and find that marriage rates and local economic conditions are positively correlated. Specifically, poor labor market opportunities for men negatively impact marriage. Conversely, there is some evidence that poor female labor markets actually increase marriage in the period. While the Great Depression did lower marriage rates, the effect was not long lasting: marriages were delayed, not denied. The primary long-run effect of the downturn on marriage was stability: Marriages formed in tough economic times were more likely to survive compared to matches made in more prosperous time periods.
Stuart Henderson, my PhD student, has a great blog post at the NEP-HIS Blog , which reviews a paper by Roland Benabou, Davide Ticchi and Andrea Vindigni entitled Religion and Innovation . In this paper, the authors argue that greater religiosity is almost uniformly and very significantly associated to less favourable views of innovation. However, Stuart rightly points out that there may be difference across denominations - some religions may positively effect innovation. Indeed, the economic historian in me would point out that many of the founding fathers of modern science had a theistic worldview which underpinned their science - e.g., Kepler, Pascal, Boyle, Newton, Faraday, Lister, Maxwell, Kelvin, Pasteur etc. In other words, these pioneers believed that there is a God who has created all things in an orderly manner and that there are laws of science which can be discovered through human investigation. Without this presupposition, one has to ask would modern science exi...
My recent lack of blogging is down to my new training regime. On Monday I will be running the Belfast Marathon along with a group of colleagues and students from Queen's Management School . We are raising money for Marie Curie Cancer Care , a great charity which helps care for the terminally ill. If you would like to donate to this worthy cause, please CLICK HERE .