The Dow at 36,000 and the end of history

By Bernd Debusmann
March 12, 2009


Bernd Debusmann - Great Debate — Bernd Debusmann is a Reuters columnist. The opinions expressed are his own. –

It’s no longer in print but you can get it over the Internet and $1.99 (plus shipping and handling) buys you a well-preserved copy of Dow 36,000, a book that has become an emblem for really, really wrong forecasts.

With the Dow Jones Industrial Average below 7,000 and the U.S. in its worst financial crisis in 80 years, re-reading the book is a bizarre experience, as well as a lesson that being wrong does not necessarily harm the prognosticator’s career.

On the contrary. Many have flourished, from the perpetually upbeat hosts of financial cable television shows to authors of “how to become a millionaire” advice.

Take James Glassman and Kevin Hassett, authors of “Dow 36,000, The New Strategy For Profiting From the Coming Rise in the Stock Market”. It was published ten years ago, made bestseller lists and catapulted Glassman, a financial columnist, to celebrity status and a series of high-profile jobs, including undersecretary of state for public diplomacy in the last 11 months of George W. Bush’s presidency.

Hassett, a scholar at the conservative American Enterprise Institute, a Washington think-tank, largely stayed out of the limelight but John McCain valued his expertise so highly that he made him senior economic advisor for his unsuccessful 2008 presidential campaign.

“A sensible target date for Dow 36,000 is early 2005,” the two said in their book, “but it could be reached much earlier.

After that, stocks will continue to rise, but at a slower pace.” If the history of earnings growth repeated itself, they ventured, “Dow 36,000 itself will be a distant memory – of happier times when stocks were still cheap.”

This week, in an interview with the Washington Post, for which he used to write a column, Glassman described as sound the history and logic (stocks perform well in the long run) on which the book were based and wondered “Are we in a period so different that we can no longer take our view from history?”

Tricky question. Despite routine comparisons between the Great Depression of the 1930s, there’s no precedent for today’s crisis. And identifying turning points in history has defied eminent historians.

Remember “The End of History”, the famous essay Francis Fukuyama wrote after the fall of the Berlin Wall in 1989? Mankind’s ideological evolution had ended, he argued, to be replaced by the “universalization of Western liberal democracy as the final form of human government.”


That has yet to happen, if ever it will, in places as far apart as Congo and Darfur, Egypt and Saudi Arabia, Russia and China.

The most memorably wrong financial predictions have tended to be on the exuberantly optimistic side. Irving Fisher, an economics professor at Yale, earned a place in the history books with a speech, on October 14, 1929, in which he said “stocks have reached a permanently high plateau.” The worst stock market crash in history came two weeks later.

Now, after years during which prophets of financial nirvana commanded most attention, dominating TV ratings and bestseller charts, it is the turn of the doomsayers, a development reflected by the titles displayed at popular bookstores.

Meltdown, says one. The Return of Depression Economics, says another. It sits next to The Great Depression Ahead.

One of the most dire predictions has come from Niall Ferguson, the prolific author and Harvard economic historian who thinks that the contagion that spread from the United States to the rest of the world will have an impact that goes far beyond finance and the economy.

“There will be blood,” he told a Canadian interviewer in February, “in the sense that a crisis of this magnitude is bound to increase political as well as economic (conflict). It is bound to destabilize some countries. It will cause civil wars to break out that have been dormant. It will topple governments that were moderate and bring in governments that are extreme.”

Out on an apocalyptic limb? Ferguson has heavy-weight company. Dennis Blair, the Director of U.S. National Intelligence told a Senate intelligence committee that the global economic crisis presented a greater threat to American national security than anything else (terrorism included).

“The longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests.”

A bleak view on the speed of the recovery came this week from the head of the International Monetary Fund (IMF), Dominique Strauss-Kahn. He told Reuters correspondent Lesley Wroughton in Dar Es Salaam that the advanced economies of the world were moving too slowly to rid banks of problem assets, one of the many interlocked elements of the current crisis.

How will it all end? One can only hope that things turn out better than they did for Irving Fisher, the pre-1929 crash optimist. At the time he made his “permanently high plateau” forecast, his assets totalled around $100 million in today’s dollars. When he died, in 1947, he owned around $60,000.

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Not to worry – so the forecast was off by a few years.
We’ll see Dow 36,000 after all. Maybe by 2015.
Around the time we see $24 for a tall regular coffee at
Starbucks, and $35 for a gallon of gasoline.

Posted by Mike Ward | Report as abusive

It is havoc happening. Why did we have to create value on whatever asset we create? This creation of value (mostly virtual) and realised by greed of man in anticipation of creating even higher value ( a never ending story). When it comes to realise all the created values at only one point in time, for which no one has been prepared for, then we see everything crumbling down.

We should find a new way of formulating capitalism in an endeavour to refrain creation of the intangible and keep us focussed on what can be created and valued for what it has been spent for.

Posted by JUGDISH | Report as abusive

This was as much a collapse of the model of our world being run by institutionalized and rampant sociopathy as it was a collapse of an economic model, although it most definitely was just that. The collapse of an economic and social model propagated by the Full Bull Sociopath of them all, the economic Attila The Hun, Uncle Miltie Friedman. May hell enjoy his presence. His legacy of institutionalized sociopathy has lived on in places and people like Dickie “I can sure take a punch” Fuld and AIG, as well as too many to list here.

Between that nut and the other nut, Ayn Rand, everywhere we look, the economic landscape grows more sere by the day, the blatherings of the cheerleaders notwithstanding.

All because we, in our greed and stupidity, handed over the keys to our economies to sociopaths, sniffed our armpits and screamed “Ambrosia!”.

My lord, we are a thick and dull people, at our core.

Do we have a problem? Seems like all in Tulsa is the same as before—houses and business construction are being made–resturants are full at night and people come and go as usual–lots of people at the mall too–is the sky falling?

Posted by travguy | Report as abusive

When government restricts or attempts to remove the core of a nation, which is the individual, that nation will slowly regress and disolve into a dark age. Read back in history and you will find that the freedom of the individual in all aspects of his life is wear greatness and innovations are born.

Posted by carl | Report as abusive

What is needed for running water, schools, hospitals, and food enough for all humanity is a sum that corresponds to the amount spent by us on perfume in a year.

Posted by gunnar | Report as abusive

Jon said, “The only time captialism [sic] has issues is when too many outside forces interfere with the natural market progressions.” Oh really? So the natural market progression of monopolies and cartels is not an “issue”? The fact that corporations will lie, cheat, steal, and bribe their ways to the top if unchecked by government is of no concern to you?

Wake up! Capitalism needs government intervention to work properly! There has to be a balance achieved between letting capitalism have its necessary freedoms while ensuring that competition and treatment of the consumer stay fair. Right now, I think the government is destroying capitalism on one side and letting it run wild on the other.

I blame stupid or apathetic voters, and corrupt or stupid politicians.

Posted by Steve | Report as abusive

Jon, you are one of a dying breed. Reality is too real for sane people to deny. Capitalism does this. This IS capitalism. It is not socialism, Obama or some weird Democrat housing plan. Over the past 30 years we have had Thatcher, Regan, Blair, Clinton and Bushes. ALL have tried to “free” the free market, but that just encourages corruption. Face it, either just accept that capitalism is not particularly efficient, effective or just and tell us to like it, or accept that it should go. PLEASE don’t try to blame some inappropriate tinkering. Capitalism never had it so good, and capitalism has never had it so much its own way. It failed.

Posted by Lee Salter | Report as abusive

What we need is a good old fashioned military dictator in the USA. A round or 2 of Fascism to rid this great country of all the greedy, corrupt people who have it on the brink of collapse. Capitalism is not to blame, any more than Communism was in the old Soviet Union. Basic human nature is to blame. How long till Hale Bopp returns? I am getting my purple velvet ready!!!

Posted by Attila | Report as abusive

Jon and everyone who agrees with him are defeatist. Yes I make that bold claim and I will explain why. What is capatalism? Yes it is the most optimal form of social order we know of, but it is a human construct. As such it can be improved, it can be honed. Because there is a huge crash in the global economy does not have to be the natural order, but rather we make it such. I believe capatalism does not need to change much, but like a corporation a nation too must be selfish about protecting its long term interests rather than letting corporations do whatever they want to suit a set in stone ideology.

A Roman emperor could tell his subjects that there is only an emperor and that is the natural state of things, but today we know that there is a smarter way to be for all people.

Posted by Jason P. | Report as abusive

Why do people keep saying that capitalism has failed, just because we had a recession?

Its just like saying meteorology has failed, just because you don’t like rain. And just as smart.

This wouldn’t be a problem if more people learned economics in high school…

Posted by John Smith | Report as abusive

The countries that fulfill the promises of socialism are the Scandinavian capitalist welfare states, which invest the surpluses created by the market in education and social services that eliminate absolute poverty and create a highly skilled population. There’s capitalism and there’s capitalism. The boom-and-bust capitalism of corporate high-flyers triggered the current crisis. Will its reverberations trigger instability around the world? The largest economies in the most affluent countries will probably chug back to life, fueled by government bailouts–or what conservatives termed “handouts” when given to the poor. Perhaps we will all learn a little something from this socialism-for-the-rich-capitalism-for-th e-poor object lesson.

Posted by Anne Marie | Report as abusive