The DOW at 36,000 and the end of history

(Bernd Debusmann is a Reuters columnist. The opinions expressed  are his own)  

 By Bernd Debusmann 

WASHINGTON, March 12 (Reuters) – 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.

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