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November 25, 2009
Experts - then and now - always get it wrong
History is difficult to discern when you are living through it. The Great Depression provides an excellent example. That downturn was not considered abnormal for several years. Our current economic problems are subject to the same up-close myopia.
The "best and brightest" of the 1930s provide an embarrassing record. Here is some of the wisdom prior to the October 29, 1929 crash of the Dow:
We will not have any more crashes in our time. - John Maynard Keynes in 1927
Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever be a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months. - Irving Fisher, Ph.D. Yale economist, Oct. 17, 1929
The October crash was painful, but most of the pain was yet to come. The stock market did not bottom until mid 1932. The eventual drop from the 1929 peak was almost 90%. Most of that loss occurred after 1929, yet the gurus of the period never saw what was coming:
There will be no repetition of the break of yesterday... I have no fear of another comparable decline.
- Arthur W. Loasby, President of the Equitable Trust Company
The Wall Street crash doesn't mean that there will be any general or serious business depression... Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before. - Business Week, November 2, 1929
... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall. - Harvard Economic Society, November 10, 1929
The end of the decline of the Stock Market will probably not be long, only a few more days at most. - Irving Fisher, Professor of Economics at Yale University, November 14, 1929
Financial storm definitely passed. - Bernard Baruch, cablegram to Winston Churchill, November 15, 1929
All downturns were known as depressions until after the Great Depression. So references to "depression" meant the same in that day as "recession" does in our day. Arguably the Great Depression did not end until around 1946. Yet no one seemed to have any idea of what was happening:
I am convinced that through these measures we have reestablished confidence. - Herbert Hoover, December 1929
[1930 will be] a splendid employment year. - U.S. Dept. of Labor, New Year's Forecast, December 1929
For the immediate future, at least, the outlook (stocks) is bright. - Irving Fisher, Yale economist, in early 1930
There is nothing in the situation to be disturbed about. Secretary of the Treasury Andrew Mellon, Feb 1930
Gentleman, you have come sixty days too late. The depression is over. - Herbert Hoover, - June 1930
... the present depression has about spent its force... - Harvard Economic Society, Aug 30, 1930
Years from now a similar collection of quotes from our time will be collected. The names will be different, but the quotes are likely to be just as embarrassing. The likes of Greenspan, Bush, Bernanke, Paulson, Obama, Cramer, Krugman, etc. etc. will likely appear as fools in the future. Most have already qualified, but are still enhancing their "resumes."
When you hear terms like "green shoots," "bottomed out," "new bull market," "exit strategy," "V-shaped recovery," "market undervalued" and all the other nonsense, think twice before acting. Go back and review the above quotations. History may only rhyme, but erroneous optimism always repeats.
I intend to put up a more complete list of quotations from the Great Depression on my website in the next few days.
Monty Pelerin www.economicnoise.com