The Age of Instability

The Age of Instability
By David Smith
Profile £15 288 pages
FT Bookshop price: £12

It is at times like these that the limitations of the printed page are most glaringly apparent. While the financial crisis is still roiling the world, any book attempting to tell the story will inevitably be out of date as soon as the manuscript is completed. You can get a much better view of what the crisis means and where it is going from a newspaper website than you can from anything between covers.

The public’s need to make sense of these vast and complex events, however, has created a demand for packaged, graspable narratives. From John Lanchester’s jokey Whoops! to Andrew Ross Sorkin’s exhaustive Too Big to Fail, books about the crisis are coming on to the market like subprime mortgages before the crash. Now David Smith, the well-regarded economics editor of The Sunday Times, has made his attempt to catch lightning in a bottle with The Age of Instability. Yet even in the past few weeks there have been events that have fundamentally changed perspectives on the crisis.

The 2,200-page bankruptcy report on Lehman Brothers has shed revealing new light on the bank’s demise, and the Greek debt crisis has exposed the unpleasant consequences of the financial turmoil for the eurozone. Neither development makes it into Smith’s book, which sets as its cut-off point the end of 2009.

Smith himself notes that the best popular account of the financial crisis of 1929, JK Galbraith’s The Great Crash, was not published until 1954. Indeed, the causes and consequences of the crash and the depression that followed are still being debated today.

As a guide through the treacherous and shifting landscape of the crisis, Smith has excellent credentials. He is a fine economics columnist: digestible for the general reader, but meaty enough to interest the cognoscenti, and – unlike many of those attempting to scrawl down their first drafts of the history of the past few years – he has no particular agenda, whether ideological, commercial or personal.

For some of his chapters, he has turned in what is known in the trade as a “cuttings job”, heavily reliant on secondary sources. He quotes policymakers, bankers, economists, other journalists, and even, on occasion, himself. There is no shame in that: repackaging the best material already in the public domain is an important service. Smith has a good eye for a telling quotation, such as the observation by the FT’s Gillian Tett that the proliferation of structured investment vehicles, centred in London, “created a vast shadow banking system that was out of sight of almost everybody outside the specialist credit world”.

The roots of the crisis in financial innovation, the housing boom and weak regulation are sketched clearly, and Smith gives fair, even-handed treatment to some of the key controversies, such as whether US legislation fostered the housing crisis, and whether Lehman should have been allowed to fail.

Where he really adds value and insight, however, is in his assessment of British economic policy. He begins the book with a nice anecdote about a Treasury drinks party in the summer of 2004, at which Gordon Brown, then chancellor, advised him to write about the “great stability”: the apparent success of policymakers around the world in smoothing out the ups and downs of the economic cycle and sustaining long periods of non-inflationary growth.

I was probably at that party – I attended several similar events in the first half of the noughties – and well remember the self-satisfied mood of the times. Many policymakers, and commentators too, as Smith admits, seemed to believe macro-economics was a problem that had been solved.

Smith has some nicely dry things to say about Freakonomics and similar inquiries into the economics of trivia, which flourished while the central questions of employment, growth and prices were neglected. While the policymakers of the 21st century did indeed understand more than their predecessors, they had failed to understand finance, and that weakness undermined all the rest of their knowledge. In what Smith calls “the paradox of stability”, their success in moderating the economic cycle meant that the downturn was even larger when, inevitably, it arrived.

In a recent column, Smith notes winningly that the Age of Instability “has been described, by me, as the most comprehensive and readable account of the global crisis and its aftermath.”

A less partial reader might concede that the claim is probably justified. If you know nothing about the crisis, and want the basics of what happened and why, then this is a pretty good place to start.

If you want more detail, then try Sorkin for the drama of events on Wall Street, or Carmen Reinhart and Kenneth Rogoff’s superb This Time is Different for the context and lessons from, as the authors put it, “eight centuries of financial folly.”

For the definitive work on the great instability of 2007 and onwards, however, we are likely to have to wait a good few years yet.

Ed Crooks is the FT’s energy correspondent

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