Greg Ip reviews two books with lessons from economic history

THIS TIME IS DIFFERENT

Eight Centuries of Financial Folly

By Carmen M. Reinhart and Kenneth S. Rogoff

Princeton Univ. 463 pp. $35

THE CREATION AND DESTRUCTION OF VALUE

The Globalization Cycle

By Harold James

Harvard Univ. 325 pp. $19.95

The Dow's recent vault back to the neighborhood of 10,000 inspired a sense of relief far more than it did any urge for celebration. We have been through a dreadful recession, but at least, the market tells us, we have avoided a depression.

Or have we? This week marks the 80th anniversary of the crash that ushered in the Great Depression. In recent months, the Dow's behavior has eerily mimicked those dark days when the index leapt from its 1929 lows to rally 48 percent into 1930. It was a false dawn: The worst of the Depression was still to come.

A popular refrain during our modern-day financial crisis is that we have forgotten the lessons of economic history. But Americans are not ignorant of the past: Many are obsessed with it. Countless investors scrutinize stock charts and bet on history repeating itself. However, few win this way. Our problem is not ignorance of history but an inability to know which bits are most relevant to the present.

The dilemma is especially prevalent now. The actions of Federal Reserve Chairman Ben Bernanke have been influenced by his deep research into how the Fed worsened the Great Depression. Christina Romer, chair of President Obama's Council of Economic Advisers, has used her research on fiscal policy errors in the 1930s to defend the size and duration of this year's stimulus plan.