Ominous Economics

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Ominous Economics Monday, August 11, 2003

Metrowest Daily News

Notoriously, economists and business forecasters failed to predict the Great Depression. Instead they foresaw sustained and robust economic growth and even an end to recessions right up until the bottom fell out on Black Thursday, Oct. 24, 1929, whose anniversaries still cause a frisson of fear on Wall Street.
Indeed, the forecasters couldn't have called it any other way, according to Cynthia Crosson's ominously named Deja Vu column in The Wall Street Journal. Most economic indicators of the day were positive. There were a few storm warnings, but the statistics conveyed basically good news. One modern review of the data concluded, "The Depression was not forecastable."
Crosson writes, "In 1929, car loadings -- goods shipped by rail, as most were at the time -- were breaking records. The steel industry was experiencing 'phenomenal activity' .... Consumer prices were stable ....
"People were using the new system of installment credit to snap up cars, radios, appliances and fur coats. Many homes were being wired for electricity, and utility companies flourished. Unemployment was estimated to be just over 3 percent. From 1922 through 1928, real earnings rose 22 percent and corporate profits jumped 62 percent. Federal income taxes had been drastically cut ..."
And then the economy fell into a pit it wouldn't fully climb out of until World War II came along 12 years later.
Today's generation of economists and business forecasters has sophisticated econometric models and measurements to keep track of inflation, employment, gross domestic product, consumer and business confidence, factory orders, inventories and interest rates.
On Thursday, the Associated Press reported the latest economic news: "America's business productivity soared, new claims for unemployment benefits dropped to a six-month low and retailers reported strong sales, a triple dose of good news as the economy tries to get back to full throttle."
There's no way we can make the same mistake again. Can we?

Ominous Economics	Monday, August 11, 2003
	Metrowest Daily News
Notoriously, economists and business forecasters failed to predict the Great Depression. Instead they foresaw sustained and robust economic growth and even an end to recessions right up until the bottom fell out on Black Thursday, Oct. 24, 1929, whose anniversaries still cause a frisson of fear on Wall Street. Indeed, the forecasters couldn't have called it any other way, according to Cynthia Crosson's ominously named Deja Vu column in The Wall Street Journal. Most economic indicators of the day were positive. There were a few storm warnings, but the statistics conveyed basically good news. One modern review of the data concluded, "The Depression was not forecastable." Crosson writes, "In 1929, car loadings -- goods shipped by rail, as most were at the time -- were breaking records. The steel industry was experiencing 'phenomenal activity' .... Consumer prices were stable .... "People were using the new system of installment credit to snap up cars, radios, appliances and fur coats. Many homes were being wired for electricity, and utility companies flourished. Unemployment was estimated to be just over 3 percent. From 1922 through 1928, real earnings rose 22 percent and corporate profits jumped 62 percent. Federal income taxes had been drastically cut ..." And then the economy fell into a pit it wouldn't fully climb out of until World War II came along 12 years later. Today's generation of economists and business forecasters has sophisticated econometric models and measurements to keep track of inflation, employment, gross domestic product, consumer and business confidence, factory orders, inventories and interest rates. On Thursday, the Associated Press reported the latest economic news: "America's business productivity soared, new claims for unemployment benefits dropped to a six-month low and retailers reported strong sales, a triple dose of good news as the economy tries to get back to full throttle." There's no way we can make the same mistake again. Can we?

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