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5 of the Worst Economic Predictions in History – Article by Luis Pablo de la Horra

5 of the Worst Economic Predictions in History – Article by Luis Pablo de la Horra

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Luis Pablo de la Horra
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Uncertainty makes human beings uncomfortable. Not knowing what’s going to happen in the future creates a sense of unrest in many people. That’s why we sometimes draw on predictions made by leading experts in their respective fields to make decisions in our daily lives. Unfortunately, history has shown that experts aren’t often much better than the average person when it comes to forecasting the future. And economists aren’t an exception. Here are five economic predictions that never came true.

1. Irving Fisher Predicting a Stock-Market Boom—Right Before the Crash of 1929

Irving Fisher was one of the great economists of the first half of twentieth century. His contributions to economic science are varied: the relationship between inflation and interest rates, the use of price indexes or the restatement of the quantity theory of money are some of them. Yet he is sometimes remembered by an unfortunate statement he made in the days prior to the Crash of 1929. Fisher said that “stock prices have reached what looks like a permanently high plateau (…) I expect to see the stock market a good deal higher within a few months.” A few days later, the stock market crashed with devastating consequences.  After all, even geniuses aren’t exempt from making mistakes.

2. Paul Ehrlich on the Looming ‘Population Bomb’

In 1968, biologist Paul Ehrlich published a book where he argued that hundreds of millions of people would starve to death in the following decades as a result of overpopulation. He went as far as far as to say that “the battle to feed all of humanity is over (…) nothing can prevent a substantial increase in the world death rate.” Of course, Ehrlich’s predictions never came true. Since the publication of the book, the death rate has moved from 12.44 permille in 1968 to 7.65 permille in 2016, and undernourishment has declined dramatically even though the population has doubled since 1950. Seldom in history has someone been so wrong about the future of humankind.

3. The 1990s Great Depression that Never Happened

Economist Ravi Batra reached the number one on The New York Time Best Seller List in 1987 thanks to his book The Great Depression of 1990. From the title, one can easily infer what was the main thesis of the book, namely: An economic crisis is imminent, and it will be a tough one. Fortunately, his prediction failed to come true. In fact, the 1990s was a period of relative stability and strong economic growth, with the US stock market growing at an 18 percent annualized rate. Not so bad for an economic depression, right?

4. Alan Greenspan on Interest Rates

In September 2007, former Fed Chairman Alan Greenspan released a memoir called The Age of Turbulence: Adventures in a New World. In the book, he claimed that the economy was heading towards two-digit interest rates due to expected inflationary pressures. According to Greenspan, the Fed would be compelled to drastically raise its target interest rate to fulfill the 2-percent inflation mandate. One year later, the Fed Funds rate was at historical lows, reaching the zero-lower bound shortly after.

5. Peter Schiff and the End of the World

Financial commentator Peter Schiff became famous in the aftermath of the 2007-2008 Financial Crisis for having foreseen the housing crash back in 2006 (even a broken clock is right twice a day). Since then, he has been predicting economic catastrophes every other day, with very limited success. There are many examples of failed predictions from which to draw upon. For instance, in a 2010 video (see below), Schiff foretold that Quantitative Easing (the unconventional monetary policy undertaken by the Fed between 2008 and 2014) would result in hyperinflation and the eventual destruction of the Dollar. Unfortunately for Schiff, the average inflation rate per year since the onset of QE has been 1.68%, slightly below the 2% target of the Fed.

 

Luis Pablo is a PhD Candidate in Economics at the University of Valladolid. He has been published by several media outlets, including The American Conservative, CapX and the Foundation for Economic Education, among others.

This article was originally published on Intellectual Takeout.

“Inferno” and the Overpopulation Myth – Article by Jonathan Newman

“Inferno” and the Overpopulation Myth – Article by Jonathan Newman

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Jonathan Newman
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Inferno is a great thriller, featuring Tom Hanks reprising his role as Professor Robert Langdon. The previous movie adaptations of Dan Brown’s books (Angels and Demons and The Da Vinci Code) were a success, and I expect Inferno will do well in theaters, too.

Langdon is a professor of symbology whose puzzle solving skills and knowledge of history come in high demand when a billionaire leaves a trail of clues based on Dante’s Inferno to a biological weapon that would halve the world’s population.

The villain, however, has good motives. As a radical Malthusian, he believes that the human race needs halving if it is to survive at all, even if through a plague. Malthus’s name is not mentioned in the movie, but his ideas are certainly there. Inferno provides us an opportunity to unpack this overpopulation fear, and see where it stands today.

Thomas Malthus (1766–1834) thought that the potential exponential growth of population was a problem. If population increases faster than the means of subsistence, then, “The superior power of population cannot be checked without producing misery or vice.”

Is overpopulation a problem?

The economics of population size tell a different, less scary, story. While it is certainly possible that some areas can become too crowded for some people’s preferences, as long as people are free to buy and sell land for a mutually agreeable price, overcrowding will fix itself.

As an introvert who enjoys nature and peace and quiet, I am certainly less willing to rent an apartment in the middle of a busy, crowded city. The prices I’m willing to pay for country living versus city living reflect my preferences. And, to the extent that others share my preferences or even have the opposite preferences, the use and construction of homes and apartments will be economized in both locations. Our demands and the profitability of the varied real estate offerings keep local populations in check.

But what about on a global scale? The Inferno villain was concerned with world population. He stressed the urgency of the situation, but I don’t see any reason to worry.

Google tells me that we could fit the entire world population in Texas and everybody would have a small, 100 square meter plot to themselves. Indeed, there are vast stretches of land across the globe with little to no human inhabitants. Malthus and his ideological followers must have a biased perspective, only looking at the crowded streets of a big city.

If it’s not land that’s a problem, what about the “means of subsistence”? Are we at risk of running out of food, medicine, or other resources because of our growing population?

No. A larger population not only means more mouths to feed, but also more heads, hands, and feet to do the producing. Also, as populations increase, so does the variety of skills available to make production even more efficient.  More people means everybody can specialize in a more specific and more productive comparative advantage and participate in a division of labor. Perhaps this question will drive the point home: Would you rather be stranded on an island with two other people or 20 other people?

Malthus wouldn’t be a Malthusian if he could see this data

The empirical evidence is compelling, too. In the graph below, we can see the sort of world Malthus saw: one in which most people were barely surviving, especially compared to our current situation. Our 21st century world tells a different story. Extreme poverty is on the decline even while world population is increasing.

world-population-in-extreme-poverty-absoluteHans Rosling, a Swedish medical doctor and “celebrity statistician,” is famous for his “Don’t Panic” message about population growth. He sees that as populations and economies grow, more have access to birth control and limit the size of their families. In this video, he shows that all countries are heading toward longer lifespans and greater standards of living.

Finally, there’s the hockey stick of human prosperity. Estimates of GDP per capita on a global, millennial scale reveal a recent dramatic turn.

rgdp-per-capita-since-1000

The inflection point coincides with the industrial revolution. Embracing the productivity of steam-powered capital goods and other technologies sparked a revolution in human well-being across the globe. Since then, new sources of energy have been harnessed and computers entered the scene. Now, computers across the world are connected through the internet and have been made small enough to fit in our pockets. Goods, services, and ideas zip across the globe, while human productivity increases beyond what anybody could have imagined just 50 years ago.

I don’t think Malthus himself would be a Malthusian if he could see the world today.

Jonathan Newman is a recent graduate of Auburn University and a Mises Institute Fellow. Contact: email

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.