I was just listening to the December CatoAudio interview with Tom Palmer and Ian Vasquez about the fall of the Soviet empire 20 years ago, and Tom mentioned that even as late as October 7, 1989, when the East German government held a gala celebration of its 40th year in power, no one anticipated that within a month the Wall would open and communism would come to an abrupt end in eastern Europe.
And then I looked at the predictions of various scholars and pundits at Politico’s Arena one year ago today and noticed how wrong most of them were — Terry McAuliffe would be elected governor of Virginia, Rod Blagojevich would still be governor in April, Iran would test a nuclear weapon, several Republican members of Congress would switch to the Democratic Party (!), Justice Stevens would retire. No one predicted the surge of small‐government, anti‐spending sentiment, which was arguably the top political story of 2009.
And then, looking up who said “Nobody knows anything” (screenwriter William Goldman, about Hollywood), I stumbled on this blog post from October 2008:
I pulled from my desk drawer a copy of the Wall Street Journal from Wednesday, May 23, 2007.
It was not a particularly notable day. The bull market was in force, and the Dow was hitting new highs … even though gasoline prices were at record levels. But here at Cabot we had been noting a growing divergence in the market; both the NYSE Advance‐Decline Line and the Nasdaq had failed to confirm the Dow’s high. Also, we detected a high level of optimism among both investors and the general media. So I saved The Wall Street Journal, in part because of the lead article that announced, “Why Market Optimists Say This Bull Has Legs.”
The subhead of the article followed with, “They See Decade of Gain Fed by Global Growth; Skeptics Cite Big Doubts.”…
So I reread the article and what did I find? Fundamental talk about global growth, low interest rates and a technology revolution that would boost productivity. [One bull] even had the courage to utter the phrase that makes an experienced investor quail, ” … it really is different this time.”
Also given ink were the detractors, who claimed that reversion to the mean was inevitable, that low interest rates couldn’t last, and that the weak dollar and above‐average P/E ratios would eventually pull the market down.
But here’s what I found interesting (in hindsight): Not once in the entire article did anyone mention credit!!!
Today, we know from our rearview mirror that credit was the culprit of a decline that has crushed the global financial system. But just 17 months ago, a reporter looking for reasons the bull might not last found no one mentioning credit!
All of which is to explain why you’re not going to find any predictions for 2010 in this post.
- Richard Rahn on the growing debt bomb, set to explode within three years: “Expect to see record high real interest rates and/or inflation, coupled with a collapse of many ‘entitlements.’ ”
- Why right wing “czar mania” is a needless distraction.
- Obama says that “nobody” considers the government mandate to buy health care a tax. But here are a couple of Obama appointees who do.
- Let the battle of ideas begin: Economists debate the monetary lessons of the last recession.
A recent Gallup Poll surveyed the public’s impression of how various federal agencies were doing their job. Of the agencies evaluated, on the bottom was the Federal Reserve Board. Only 30 percent of the respondents rated the Fed’s performance as either excellent or good. I can understand now why Chairman Bernanke felt the need to take his act on the road. Even the IRS managed to get 40 percent of respondents to see its job performance as excellent or good. A majority of the public, 57 percent, sees the Fed’s current performance as either poor or fair.
The result is not just driven by a general public disdain for federal agencies; over a majority of respondents thought such agencies as the Center for Disease Control, NASA and the FBI were doing an excellent or good job.
Nor is the result driven by public ignorance or indifference to the Fed; only a few years ago, back in 2003, 53 percent of Americans said the Federal Reserve was doing an excellent or good job and only 5% called its job performance poor. But then, the Fed was also giving us negative real interest rates at that time as well. Perhaps there’s a good reason to insulate the Fed from short‐term public and political pressures. Let’s hope Chairman Bernanke does not read these results as an excuse for repeating the Fed’s 2003 monetary policies.