The Trouble with Prosperity: A Contrarian's Tale of Boom, Bust, and Speculation

by James Grant

In Boom and Bust in the American Century, James Grant tells why the financial prosperity of the 1990s is destined to collapse. This is a book about cycles of optimism and pessimism, of bull markets and bear markets, and of orthodoxy and heresy. Boom and Bust in the American Century is sophisticated financial writing by a gifted author and analyst at the top of his form.

Genres: Finance, Economics, History, Personal Finance, Nonfiction, Money

368 pages, Paperback

First published October 22, 1996

About the author

There is more than one author by this name on Goodreads.

James Grant, financial journalist and historian, is the founder and editor of Grant’s Interest Rate Observer, a twice-monthly journal of the investment markets. His book, The Forgotten Depression, 1921: the Crash that Cured Itself, a history of America’s last governmentally unmedicated business-cycle downturn, won the 2015 Hayek Prize of the Manhattan Institute for Policy Research.

Among his other books on finance and financial history are Bernard M. Baruch: The Adventures of a Wall Street Legend (Simon & Schuster, 1983), Money of the Mind (Farrar, Straus & Giroux, 1992), Minding Mr. Market (Farrar, Straus, 1993), The Trouble with Prosperity (Times Books, 1996), and Mr. Market Miscalculates (Axios Press, 2008).

Reviews

[m · Rating 5 out of 5]

Great book — loaded with interesting facts, insights, aperçus, deft criticism & Jim's usual brand of aphoristic philosophical musings.

Available here: https://archive.org/details/troublewi...

I've read this book closely several times. It repays repeated reading.

Jim's thesis is that there are benefits to failure, to creative destruction, to permitting the downcycle—without which economies become sclerotic.

"The modern-day consensus of economic thought is that the symptoms of any recession can (and should) be alleviated by timely government action. Pain and suffering are alleged to be no more an integral part of the capitalist cycle than they are of human health."

His thesis appears on page two of the Introduction and is reiterated throughout the text in slightly different wording.

"Cycles are a natural part of the market order. Thus, there are cycles of expansion and contraction, investment and liquidation rising prices and falling prices, optimism and pessimism. The relative scarcity of contraction, liquidation, falling prices, and pessimism (specifically, investment pessimism) has been heralded as an unalloyed blessing. However, I think, it has also contributed to the sclerotic pace of growth. In fact, the attempted suppression of the corrective phase of the business cycle has hurt economies throughout the industrialized world."

In his book's penultimate paragraph he says again:

"By suppressing crises, the modern financial welfare state has inadvertently promoted speculation."
(315)

Other good lines include:

"Success, once achieved, presents no insurmountable problems to any social system. Where the free enterprise system shines is in its treatment of failure. Individuals, as individuals, are always error-prone, and they register their failures in bankruptcies, fresh starts, and the write-off of investments they wish they had never heard of. (250)

"[The Fed's] ability to forecast interest rates or real growth was in no way improved by the fact that their motives were disinterested and public-spirited. ... To believe in the efficacy of the Federal Reserve System's chosen operating system, it was necessary to believe that the manipulation of a single interest rate could guide the largest economy on earth. It was literally fantastic." (280)

. . . if the Federal Reserve can facilitate a capital investment boom by suppressing the federal funds rate, why can it not keep on suppressing it? If the correct funds rate can prolong an upturn, why should there ever be a downturn? (281-2)

Through which capitalist institutions can human error be rectified, if not through the money-losing ones? (282)

The particular American business genius lies in beginnings and endings as much as in great, moneymaking middles. (284)

The deterministic view of cycles clashes with the modern view. It is widely believed in 1996 that recessions are the products of policy error. To the Viennese mind, they are the products of investment error, and investment error is the product of credit inflation. Credit inflation, as we have seen, is the product of subsidized interest rates. (291)

Their ability to forecast interest rates or real growth was in no way improved by the fact that their motives were disinterested and public-spirited.

If the one correct [Federal] funds [interest] rate can prolong an upturn, why should there ever be a downturn?


2-14-15, 8-29-15, 7-24-22, 6-18-23,

[M Thomas · Rating 3 out of 5]

This was cutting edge stuff 25 years ago and his warnings about leverage and too big to fail were prescient. But that doesn't mean you should read it now. While the writing is entertaining and illuminating, it is very hard to follow Grant's train of thought and there are many disgressions that are built up to be highly significant and really just weren't.

It's like being stuck on a transcontinental flight next to a very interesting guy but after a while you wish he'd just get to the point or shut up.

[Aharon · Rating 5 out of 5]

If you read only one book about interest rates in the early 1990s, this has to be it. It is way funnier than you'd think. Which is not to say that it's funny. Because, you know, the whole interest rate thing.

[Frank · Rating 3 out of 5]

Dry but somewhat interesting discussions of the history of 20th century investment landscape and historical background on Wall St.