History is littered with flawed forecasts on economic trends. And where some have proven to have been surprisingly accurate in their glimpse into the financial and economic future, these projections have usually been scorned, until too late. Our current global economic crisis is a case in point.
Nouriel Roubini, the famed NYU economics professor, warned about the impending meltdown of the financial system and collapse of several prominent investment banks, all based on the asset bubble in residential housing and the vulnerability of subprime mortgage securitization. In response to his perceptive warning, he was mocked as "Dr. Doom." However, no one mocks Professor Roubini anymore.
In looking at the broad sweep of history, there are many excellent examples of disastrous economic forecasting. On the other side of the ledger, the number of prescient glimpses into the economic future are relatively few. Among this small, select group, however, there is one gem that conspicuously stands out.
In my view, the most accurate long-term economic forecast of all time was provided by the legendary Renaissance French seer, Nostradamus, usually more renowned for his prophecies on the end of the world. In 1548 Nostradamus predicted, "From Albion's shore shall come a marvelous contrivance: a carriage of silence bearing the arms of Rolles de Roi." Apparently, Nostradamus saw the creation of the Rolls Royce motor car in England, and its reputation for silent and prestigious personal transportation, more than three centuries before the invention of the internal combustion engine. Placed in a broader context, this clairvoyant perceived the creation of a massive new industry, automobile manufacturing, and the important future role of brand marketing in economics . Whether this forecast was based on research, intuition, a lucky guess or some inexplicable power of prophecy is unknown to me. Irrespective of his methodology, Nostradamus hit one out of the ballpark with this forecast.
In contrast with Nostradamus, perhaps the most inaccurate and inept economic forecast of all time was delivered relatively recently, by the Chairman of the U.S. Federal Reserve, Ben Bernanke. In October 2005 The Washington Post carried the following headline: "Bernanke: There's No Housing Bubble to Go Bust."
Yes indeed, Ben Bernanke, who had recently been nominated to succeed Alan Greenspan as chairman of the Fed, presented a confident prediction to Congress that the unprecedented rise in U.S. home prices did not constitute an asset bubble, and was based on sound economic fundamentals. The rest is history-and infamy.
One would think that the same Chairman of the Federal Reserve who arguably delivered history's most inept and erroneous economic forecast could never be reappointed as Fed boss by President Barack Obama, not in a million years. Guess again.