Making sense of self-fulfilling financial crises

Berkeley

THE 2008 financial crisis and subsequent recession left the Global North 10 per cent poorer than it otherwise would have been, based on 2005 forecasts. For those hoping to understand this episode better, I have long recommended four books in particular - Manias, Panics and Crashes, by the 20th century economist Charles Kindleberger; This Time Is Different, by Carmen Reinhart and Kenneth Rogoff of Harvard University; The Shifts and the Shocks, by the Financial Times economics commentator Martin Wolf; and Hall of Mirrors, by my University of California, Berkeley colleague Barry Eichengreen.

Now, I want to add a fifth book to the list: A Crisis of Beliefs: Investor Psychology and Financial Fragility, by economists Nicola Gennaioli and Andrei Shleifer. (Full disclosure: Shleifer was my roommate in college and graduate school; to this day, I credit him with whatever positive skills or reputation I may have.)