The Credit Crunch: Housing Bubbles, Globalisation and the Worldwide Economic Crisis [Hardcover]

The outline in the Amazon `product description' above is a fair summary, but it should be stressed that there is nothing sensational or overtly political about this book. It tries to be a reasoned economic assessment of our current plight, although doubtless it will upset some `free market' and `pro-business' zealots. It is a very timely and its predictions seem to be being born out - for example on page 191 we read `the US Treasury .... will be forced to act, rescuing more banks by injecting public sector capital and, ultimately, taking many into public ownership'. I write this on the same day that the US Treasury has proposed to provide as much support as is required to `Fanny May' and `Freddie Mac' and a couple of days after the Californian bank Indy Mac was nationalised.

Some may consider that the two chapters that discuss what happened to Japan after its speculative bubble went bang in 1990 have their longeuers. However, they give us some insight into how difficult it is to get out of a post bubble slump - particularly given the mindsets of economists and central bankers - and what we might have to look forward to (not a lot if Japan is anything to go by).

This book should be readily understood by anybody with an interest in economic and political affairs. There are lots of clear and very informative graphs and not too much heavy economic theory. It explains a lot but is hardly cheering - perhaps Gordon Brown (of whom the author has remarked elsewhere [Spectator Business website] `I think he will go down as the worst Chancellor in history') has seen a copy - it would explain his current demeanour!

The current economic crisis has given cause for journalists and economists to rush to publish a number of books that seek to explain the crisis beyond what the rapid pace of news can deliver. Just to mention a few, we have had Robert Preston's "Who Runs Britain", Vince Cable's "The Storm", Alex Brummer's "The Crunch" and of course the one I am reviewing "The Credit Crunch" by Graham Turner. I chose to read Graham Turner's book because it was said to have analysed the economic crisis in the context of the great political economists such as Adam Smith, Karl Marx and John Maynard Keynes. Did the book live up to this high intellectual connection or did Turner set out to do something different?

Graham Turner is an economic forecaster and founder of GFC Economics an independent economic consultancy. He argues that house inflation has created a false sense of security. Government and regulators have allowed housing bubbles to hide the inevitable effects of companies taking production abroad to increase profits. Inevitable bubbles burst and the effect is one of world wide deflation with the ensuing consequences of bankruptcy, unemployment and massive corporate and personal debt. Furthermore, he highlights a shift in the balance of power between "corporations and workers". This has lead to over production and overinvestment by corporations whilst at the same time wages have been kept low which meant that the easiest way to absorb the mass output of goods was to borrow money. In relation to whom should carry the can for the economic mess, Turner apportion blame to financial institutions, central banks, regulatory authorities but he thinks the real culprits are politicians. Interestingly Turner does not appear to blame individuals for not taking responsibility for their decisions and actions.

One of the things I find annoying about explanations for massive private debt is the avoidance by most commentators of apportioning some blame to individuals. Governments, financial institutions and regulators are quite rightly blamed but the individual borrower is almost absolved of any blame. Commentators appear to avoid individual greed and a deep seated British culture of buy now and pay later. This is unfortunate because I believe that individuals must take responsibility for their decisions and actions.

Mr Turner is not too interested in personalities. Sure there is mention of the role big players such as Alan Greenspan and Ben Bernanke played in the creation and management of the crisis. However, apart from Keynes, whilst at best Turner's analysis is only implicitly informed by the great political economists, for example Adam Smith and Karl Marx; nonetheless what he does very well is to examine the current crisis on a broad historical and global scale. He shows us the connection between moving production abroad, debt inflation, peak oil production, biofuels and the impact on the environment and the very poor.

At times, however, the book is too descriptive with cause and effect reportage. Perhaps overall the book leans towards description rather than analysis. That is a pity because Turner is at his best when his focus is one of analysis rather than description. There are two good examples where Turner draws on the works of Irvin Fisher and John Maynard Keynes to analyse Japan's economic crisis of the 1990s. In these instances Turner's narrative is gripping, his insight is clear and the dept of his knowledge and understanding is vividly portrayed.

Turner was right to focus on the Japanese economic crisis of the 1990s rather than our own simply because the dust has not settled here yet. The UK is still deep into the crisis. In doing so Turner is obviously hinting at possible parallels between Japan and the UK in terms of how things could develop in the long term. Those writers who have rushed to chronicle the UK's crisis have probably been premature.

One of the things that Turner's book revealed is the age old issue that economics is not a science. It is amazing how many fundamental mistakes were made by so called experts and people in government in the case of the Japanese crisis. The Credit Crunch is therefore a reminder of the limitations of economics as a social science and a good account of the current economic crisis.

I found this in an incredibly informative and insightful book about the present economic situation. It makes sense - though I am sure that some aspects of the book are controversial. The author challenges the reader to consider the origins of the credit crunch. The roots are found in free trade and the endless cost cutting pursuits of large corporations in advanced nations who are preoccupied with driving down costs in order to inflate their bottom line; hence the burgeoning trend towards outsourcing to low waged economies. But that is just the start. The book is highly comprehensive and readable.