Boom and Bust

Quinn and Turner borrow the fire triangle from fire safety. A bubble, they argue, needs three things: marketability, meaning assets that are easy to buy and sell; money and credit, cheap and plentiful; and speculation, buying purely to resell at a higher price. Once all three are in place, a spark, usually a new technology or a government policy, sets the bubble off. The rest of the book applies that frame to a dozen episodes across Britain, Europe, the Americas, Australia and Asia.

The authors are academics at Queen's University Belfast. Turner is a professor of finance and financial history and the author of Banking in Crisis, and Quinn is a lecturer in finance. That shows in their care with sources: they leave out the Dutch tulip mania on the grounds that the evidence suggests it was too unremarkable to qualify.

The book was a Financial Times best book of 2020. Reviewing it for EH.Net, Mary Tone Rodgers praised the metaphor and the accessibility but noted that it organizes existing research rather than adding new explanatory variables, and that for familiar cases like the dot-com and subprime bubbles it mostly summarizes the literature. Its fresh value lies in less-studied manias such as the British bicycle boom of the 1890s.

It is a natural successor to Kindleberger's Manias, Panics, and Crashes for investors, risk managers and policymakers.

1. Check all three sides. Marketability, cheap money and credit, and speculation must all be present for a bubble. When any one is missing, a price run-up is less likely to be a true bubble.
2. Look for the spark. Most bubbles are ignited either by a new technology or by a government policy, so ask what changed and who benefits from the story.
3. Bank credit decides the damage. Bubbles financed through the banking system, as in Australia's land boom, 1980s Japan and the subprime era, tend to cause deep recessions. Those that stay mostly in equity markets do less harm.
4. Some bubbles leave something behind. Manias such as the railway boom and the dot-com era financed infrastructure and technology that outlasted the crash, even as investors lost money.
5. Be skeptical of famous folklore. The tulip mania, the most cited bubble in popular writing, does not even qualify on their evidence, a reminder to check the data behind any historical analogy before trading on it.

After setting out the bubble triangle, the book works through roughly a dozen bubbles in chronological order, each chapter covering history, causes and consequences, and ends by drawing lessons for prediction and policy.

1. The framework. The authors define a bubble, lay out the three sides of the triangle and the sparks that ignite them, and explain why the tulip mania does not make their list.
2. The first bubbles. The Mississippi and South Sea schemes of 1720 show governments creating bubbles to manage their own debts, followed by the British boom of the 1820s in Latin American and other new ventures.
3. Technology and land in the nineteenth century. Britain's railway mania of the 1840s, the Australian land boom of 1888 to 1893 and the British bicycle mania of 1896 to 1898 show how cheap credit and easily traded shares turned new technologies and property into speculative markets.
4. The twentieth century. The Roaring Twenties and the Wall Street Crash, then Japan's late-1980s bubble, which the authors present as blown for political purposes and which left the country's banks deeply exposed when it burst.
5. The modern era. The dot-com boom, the subprime housing bubble and China's stock market bubbles bring the story to the present and show bubbles growing more frequent.
6. Predicting bubbles. The closing chapter compares the sparks and the leverage behind each episode, explains why some busts wrecked economies while others left useful technology behind, and asks how investors and policymakers might see the next one coming.

Why do stock and housing markets sometimes experience amazing booms followed by massive busts and why is this happening more and more frequently? Boom and Bust reveals why bubbles happen, and why some bubbles have catastrophic economic, social and political consequences, whilst others have actually benefited society.