The Dow at 36,000 and the end of history
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.”
FROM OPTIMISM TO DESPAIR
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.
You can contact the author at Debusmann@Reuters.com.