Part 6 (1/2)
Kudlow was not pleased. He categorically denied having made any such prediction, he denounced Huffington's ”ad hominem” attack, and he quickly and firmly directed the conversation elsewhere.
But Huffington wouldn't let go that easily. After a commercial break, she held up a copy of Kudlow's prediction and read it. Kudlow sat frozen. His cohost intervened-”Let's just move on for the sake of conversation”-and steered the discussion to politics and predictions about the elections of 2010.
Finally, at the end of the segment, Kudlow let loose. ”Just let me say, Arianna, insofar as your personal attack on me, I am a great believer in American free-market capitalism for the long run. Unlike you, I have never changed my stripes. You were a conservative Newt Gingrich supporter, then you flip-flopped to a liberal. I stay the course. We may get to Dow fifty thousand or not. I don't recall ever making that forecast. But in the long run, in the long run, economic freedom and free-market capitalism will keep this country great. I say that on New Year's Eve. I will keep that point of view. And I have not changed my point of view for my entire adult life.”
Huffington tried to respond but Kudlow cut her off. ”We're going to move on,” he said. ”I just want to make a response. We gave you time, Arianna. I don't like ad hominem stuff. It's a cheap shot. You're trying to promote your Web site. That's your right as an American.”
”It's not a cheap shot,” Huffington squeezed in. ”I'm just telling you what you said. You're denying what you said.”
Kudlow waved her off. ”Don't drag us through the mud.”
Kudlow's cohost wrapped things up. ”Happy New Year!” he gushed. And that was that.
YESTERDAY'S NEWS In 1993, New York Times book critic Christopher Lehmann-Haupt was glum. He'd just read Paul Kennedy's new book Preparing for the Twenty-first Century, which warned that soaring populations would combine with diminis.h.i.+ng resources and worsening environmental problems to produce disaster. ”When you come to the end, you are so depressed you barely have strength to close the book,” he wrote. His only criticism of the author was that Kennedy had suggested there were still uncertainties in play so the grim future he foresaw would not necessarily come to pa.s.s. ”Kennedy whistles past the graveyard,” Lehmann-Haupt wrote.
What makes this review revealing is that in the early 1970s Christopher Lehmann-Haupt reviewed-and praised-several books whose themes were identical to Kennedy's. The only difference was that the earlier books said the decade that would decide everything would be the 1970s: Either there would be major change then or we were all doomed. One of the books Lehmann-Haupt reviewed was Paul Ehrlich's The End of Affluence, which predicted, as we have seen, that American prosperity was finished no matter what. It also made a long string of precise predictions about the end of oil, food shortages, ma.s.s famines, and the collapse of India. By 1993, it was clear that most of the forecasts in Ehrlich's book and the others reviewed by Lehmann-Haupt had completely failed. And yet in his review of Paul Kennedy's book, Lehmann-Haupt didn't mention that Kennedy's claims had been routinely made in the 1970s, or that those earlier predictions had fallen flat. Instead, Lehmann-Haupt faulted Kennedy for refusing to declare our doom inevitable.
So why didn't Lehmann-Haupt mention the many failed predictions of the 1970s? A cynic would say it was deliberate. He's pus.h.i.+ng an agenda and he doesn't care if his readers are properly informed. I don't think that's right. I think he simply forgot. Why would he remember books he had read more than two decades earlier? It was 1993, after all. Oil was cheap, people were getting fat, and the economy had done reasonably well for most of the previous decade. Food shortages? Overpopulation? The ”energy crisis”? That was so 1970s. People hadn't talked about any of it for years. You can't blame Lehmann-Haupt if The End of Affluence had vanished from his memory.
This is another huge reason we notice hits but ignore misses: If a prediction about a subject hits, that subject will probably be in the news and people will be talking about it, but if the prediction misses, the subject is likely yesterday's news and n.o.body will be talking about it. If Paul Ehrlich's predictions in The End of Affluence had been right, you can be sure that overpopulation and food shortages would have been very hot topics in 1993-and Christopher Lehmann-Haupt would remember Ehrlich's book. But they weren't right. By 1993, overpopulation and food shortages were as dated as bell bottoms and disco, and Lehmann-Haupt had forgotten the predictions he had once found so compelling.
”Three-quarters of news is 'new,'” an editor once told me. News happens today. If a famine happens now and an expert predicted it a decade ago, that old prediction is news. But if the famine doesn't happen, that old prediction is not news. It is merely old. In 2006, political scientist John Mueller contacted a Wall Street Journal reporter about a cover story on terrorism she had written for National Journal magazine two years earlier, shortly after the presidential election of 2004. In the story, the reporter quoted experts who predicted that the threat would rise in the months following the election. ”Bin Laden, having uttered his warning, will be marshaling his resources to make good on his promise that Americans will not be able to avoid a new 9/11. It'll be a race against time,” an expert said at the end of the article. Nothing remotely like that happened, so Mueller asked the reporter if she would write a follow-up piece noting that the prediction had failed. Probably not, she suggested politely. ”It's hard to do stories that do not have a hard news component.” Of course, if there had been terrorist attacks, you can be sure there would have been stories about the expert who predicted them. But with no terrorist attacks, there was no ”new” news, and thus no reason to write a story about the expert who blew smoke.
Heads: I win. Tails: You forget we had a bet.
There's not much risk for experts who make predictions.
CAPRICORNS ARE HONEST, INTELLIGENT, HARDWORKING, GULLIBLE. . . .
Self-interest and media amnesia aside, the more profound reason we notice hits and ignore misses lies in human psychology.
In 1949, psychologist Bertram Forer asked his students to complete a personality test. Later, he gave them a personality profile based on the test's results and asked them to judge the test's accuracy. Everyone was impressed. They were sure the test had really nailed who they were, which was odd because everyone had been given the same profile. Forer had a.s.sembled it out of vague statements-”You have a tendency to be critical of yourself ”-culled from a book on astrology.
”The root of all superst.i.tion is that men observe when a thing hits, but not when it misses,” wrote Sir Francis Bacon. The ”Forer Effect” is one demonstration of this universal tendency. It's what makes horoscopes so appealing. When we read a string of statements-”A business opportunity is promising,” ”New love beckons,” ”A figure from the past makes contact”-the hits and misses are not equally weighted. Those that seem to fit our circ.u.mstances grab our attention and are remembered, while those that don't are scarcely noticed and quickly forgotten.
That much is obvious. But bear in mind that hits and misses don't come with labels. It's a matter of perception whether something is a hit or a miss, which makes language important. The more ambiguous the wording is, the more a statement can be stretched, and since we want hits, that's the direction in which things will tend to stretch-a tendency astrologers, psychics, soothsayers, and prophets have understood since the dawn of time. When the notoriously vague Oracle of Delphi was asked by King Croesus of Lydia whether he should attack the Persian Empire, the oracle is said to have responded that if he did he would destroy a great empire. Encouraged, the king attacked and lost. Croesus hadn't considered that whether he won or lost, a great empire would be destroyed. Nostradamus also knew better than to be precise. All the sixteenth-century sage's predictions were written in such fuzzy, poetic images-”Serpents introduced into the iron cage where the seven children of the king are taken”-they could be taken to mean almost anything. And they have been. For centuries, people have insisted that a careful reading of the master's work reveals that Nostradamus predicted the present-even though it is only by constantly reinterpreting the same writing that his admirers keep Nostradamus on top of the day's events.
Mysticism invites this sort of gullibility but incense and spooky stories aren't necessary for the human mind to go to absurd lengths to discover hits, or even turn misses into hits. This truth is neatly ill.u.s.trated in a book simply called Predictions. Published in 1956, it's a compilation of old cartoons and ill.u.s.trations that made predictions about the future. One cartoon shows a map of Russia as a ravenous bear that has swallowed almost all of Europe and Asia and has its jaws open for its next meal: j.a.pan. In a caption, the author describes the cartoon as ”too accurate for comfort.” He thought this because, in 1956, Soviet Russia was a superpower threatening to dominate all of Europe and Asia-and since the cartoon had been drawn in 1904, more than fifty years earlier, it seemed astonis.h.i.+ngly prescient. To come to that conclusion, however, the author had to overlook a lot of history. In fact, the cartoon was a commentary on rising tensions between j.a.pan and Russia that exploded into war in 1905. Russia was crushed. Russia then suffered a civil insurrection. Less than a decade later came the First World War, another defeat, the loss of vast territories, revolution, and civil war. A decade after that came ma.s.s starvation. Then Russia was nearly annihilated by n.a.z.i Germany. Only forty years after the cartoon was published did Russia achieve the superpower status that made an observer in 1956 think this cartoon was an amazing hit instead of the spectacular miss it really was.
Simply reading a list of old predictions reveals our unfortunate bias. The misses may produce a chuckle or two, but they are soon forgotten. A hit, on the other hand, leaps off the page and is remembered. I often experienced this phenomenon in doing the research for this book. One day, for example, I was thunderstruck to read the following in a newspaper column Anthony Lewis wrote in 1969: ”The increasing carbon dioxide in the air gradually warms the oceans and could, it is feared, eventually melt the polar ice caps at a rate fast enough to flood the coasts of our continents. Daniel Patrick Moynihan, counselor to President Nixon, warned here this week that the atmosphere's carbon dioxide content would grow 25 percent by the year 2000.” That's more or less the current theory of man-made climate change, which didn't become scientific orthodoxy until the 1990s. Talk about a hit! But then I reminded myself that in the late 1960s and early 1970s, there were several hypotheses about climate change floating about. Some called for warming. Some for cooling. Some of those raising alarms of the day said either was possible. If someone in 1969 had made a short list of those theories, including a ”no change” option, and then chosen one outcome entirely at random, she would have had a good chance of successfully ”predicting” the future. But more to the point, I was so focused on this supposedly successful prediction that I paid little attention to others that appeared in the same column. They included ”Compet.i.tion for food and raw materials is going to become savage as populations grow.” And ”People and engines are using up oxygen at an alarming rate: one transAtlantic jet burns 35 tons. . . . One day, suddenly, the world's billions of creatures may literally be struggling for a last breath.” The hit may have been more apparent than real but it still had the power to overwhelm some spectacular misses.
PETER SCHIFF WAS RIGHT!.
Which brings us back to the amazing Peter Schiff. As the t.i.tle of that famous video says, he was right. When so many pundits were saying everything was fine with the American economy, he said it would crash. And it did. Peter Schiff was right.
That time. In a sense. Sort of.
”The dollar is going to start to fall. And as the dollar falls, you're going to have significant flows out of U.S. financial a.s.sets from all around the world. And that is going to send interest rates through the roof. And when that happens, this whole consumer-led, borrow-and-spend economy is going to come tumbling down. Then we're going to have a real recession.” That was Peter Schiff in a television interview that was not included in the famous ”Peter Schiff Was Right” video. The year was 2002. ”The bear market began in 2000,” Schiff said. ”It's probably going to last another five or ten years. I think the bulk of the downside is going to happen in the next couple of years.” And how much ”downside” would there be? ”My prediction for the NASDAQ is that it's going to fall to around five hundred. Right now, it's about seventeen hundred. It's got a long way to go down. Dow Jones is still above ten thousand. Probably going to fall to between two thousand and four thousand. But it might go below two thousand.”
Even if we are so generous as to stretch the time frame of Schiff's prediction to 2009-and it's clear he was actually talking about the first half of the decade-this looks bad. The dollar did decline from 2002 to 2008, but it didn't send interest rates through the roof and it didn't cause a recession. In fact, when the crisis of 2008 hit, investors ran to the American dollar, pus.h.i.+ng it up significantly. There also was no rampant inflation, another of Schiff's predictions. The stock markets did decline for about a year following his forecast, but they then rose steadily for four years, with the Dow hitting a peak of 14,000 in late 2007. And even in the darkest days of the 2008 crash, the markets never sank to anywhere near the depths Schiff forecast-the Dow hit bottom at 6,500 but surprised most observers, including Schiff, by bouncing back above 10,000 months later.
But Schiff didn't let any of this dent his confidence. ”While the housing bubble was inflating, I was telling people to rent. I was telling people to get out of tech stocks in 1998 and 1999. They kept rising, but then they collapsed, and I turned out to be right,” Schiff said in May 2008, when the American economy was sinking and his star was on the rise. ”The reality is I don't think I've been wrong on anything,” Schiff said in a May 2008 interview. If Schiff were right about his dazzling predictive powers, investors who took his advice must have really cleaned up in the year of Schiff's alleged vindication. But they didn't. ”The year that Schiff became a star prognosticator on TV was also one of the worst periods ever for his clients,” Fortune magazine reported. ”In most cases the foreign markets he likes got hit even harder than the U.S. in 2008 and even more surprising to Schiff, the U.S. dollar rallied strongly as investors rushed to the perceived safety of Treasuries.” Schiff provided some other reasons to question his claims of perfection in May 2008. ”I think the stock market is heading lower,” he predicted. He was right about that. ”Gold is going to be twelve hundred to fifteen hundred dollars by the end of the year.” Off by several hundred dollars on that one. ”Oil prices had a pretty big run and might not make more headway by the end of the year. But we could see a hundred fifty to two hundred dollars next year.” Oil crashed; it was less than forty dollars at the end of the year and it spent most of 2009 around seventy dollars. ”At a minimum, the dollar will lose another forty to fifty percent of its value. I'm confident that by next year we'll see more aggressive movements to abandon the dollar by the [Persian] Gulf region and by the Asian bloc. That's when the stuff really hits the fan.” Stuff hit the fan in 2009, but not that stuff.
But it's not the misses that dazzle. In December 2008, New York Times business columnist Joe Nocera gushed about the ”Peter Schiff Was Right” YouTube video. ”One thing that makes it amazing is how unflinching Mr. Schiff is, how unyielding, how matter-of-fact, no matter how scornful and sneering the response from the other talking heads. Even when they laugh at him, he keeps coming back,” Nocera wrote. ”The other thing that makes it amazing, of course, is that Mr. Schiff absolutely nailed the current crisis-and did so many, many months before the rest of us could feel the first tremor.” True enough. But it's somewhat less amazing if you bear in mind that Schiff has been making essentially the same prediction for the same reason for many years. And the amazement fades entirely when you learn that the man Schiff credits for his understanding of economics-his father, Irwin-has been doing the same at least since 1976. Now, even if we generously give Schiff unqualified credit for calling 2008, that means the combined record of Peter and Irwin Schiff is something on the order of one in thirty-two. As the old saying goes, even a stopped clock is right twice a day-which produces a record of one in twelve. It seems only reasonable that prognosticators should be required to do better than stopped clocks before we declare them gurus.
Nocera's judgment of Schiff's accuracy may be doubtful but he's absolutely right about Schiff's style. He is articulate, pa.s.sionate, and authoritative. And he is absolutely, unswervingly, unconquerably sure of himself. Just like the other hedgehogs who dominate the talk shows, best-seller charts, and lecture halls.
They may be wrong far more often than they are right. They may do worse than flipped coins and stopped clocks. But they never fail to deliver the certainty that we crave.
And we never fail to ask for more.
POSTSCRIPT: HANG THE INNOCENT.
On the very short list of pundits who suffered for making bad predictions, one name must take top spot.
Norman Angell was British but he spent part of his youth knocking about the American West, working as a journalist, a cowboy, a laborer, and a homesteader. In the years prior to the First World War, he wrote an internationally renowned essay and turned it into a hugely influential best-selling book. He became a member of Parliament, a lecturer, and a statesman. In 1933, he won the n.o.bel Peace Prize.
But all that is forgotten. The sole reason that Norman Angell's name continues to appear in print today, the only thing for which this remarkable man is remembered, is a prediction he made in 1909.
The economies and financial systems of the major powers were now intertwined, Angell noted in a pamphlet ent.i.tled Europe's Optical Illusion. It followed that in a war between the major powers, ”the victor would suffer equally with the vanquished,” wrote historian Barbara Tuchman, summarizing Angell's views, ”therefore war had become unprofitable, therefore no nation would be so foolish as to start one.” And so the major powers would never again go to war with each other, Angell concluded with impeccable logic and terrible timing: Five years later, Europe exploded in war and the great powers spent much of the next half century doing what Angell said they would never do again.
Norman Angell has been mocked ever since. Even now, almost a century after Angell's prediction failed so spectacularly, his name routinely appears in print as a warning against foolish optimism or economic determinism or the perils of making predictions. No one has ever suffered more for a prediction that failed.
And that is deeply unfair, for the simple reason that Norman Angell never predicted there would be no war.
What Angell actually argued in Europe's Optical Illusion and in the many best-selling editions of the book that followed-under the t.i.tle The Great Illusion-was that the interconnections of the economic and financial systems meant that a victorious nation would suffer more than it gained if it attempted to profit from war by looting national banks or otherwise plundering the defeated. This was a limited thesis. It left open the possibility that nations could reap political or strategic gains in war. It also did not deny the possibility that nations would go to war despite their self-interest, since Angell never thought that individuals and groups are always guided by strict rationality. So war was not impossible, in Angell's view; it was merely unprofitable, in a precise and limited sense.
Tuchman's summary of Angell's views, quoted above, is simply wrong. And Tuchman was far from the first to misrepresent what Angell wrote.
Almost from the moment Angell's book was published, his argument was simplified and s.e.xed up: Victors always lose more than they gain; war is always contrary to self-interest; therefore no one would be so stupid as to launch a war in the modern world; therefore no one ever will. It wasn't only critics who made this mistake. So did many of Angell's ardent admirers. ”What shall we say of the Great War of Europe, ever threatening, ever impending, and which never comes?” wrote David Starr Jordan, president of Stanford University, in 1913. ”We shall say that it will never come.” Even though Angell's work was discussed at the highest levels in London and other capitals, even though dozens of study groups were created to pore over The Great Illusion, the misunderstanding persisted. Angell later pinned some of the blame on his writing. There was a ”fundamental defect of presentation in a book that was highly, at times extravagantly, praised for its clarity and lucidity,” he wrote. Angell's biographer, Martin Ceadel, thinks the t.i.tles-both Europe's Optical Illusion and The Great Illusion-added to the confusion because they didn't make clear that the ”illusion” in question wasn't the threat of war but the profitability of war. ”Angell would have been spared much heartache had he called his book The Economic Contradictions of Aggression or some similarly substantive formulation that would have clarified that he was disputing neither the possibility of war nor the utility of defense,” Ceadell wrote.
Angell struggled mightily to set the record straight. ”War is, unhappily, quite possible, and, in the prevailing condition of ignorance of certain politico-economic facts, even likely,” Angell wrote to the Daily Mail in 1911 after the newspaper claimed Angell had argued ”war is impossible.” Angell wrote many such letters. ”You are good enough to say that I am 'one of the very few advocates of peace at any price who is not altogether an a.s.s.' And yet you state that I have been on a mission 'to persuade the German people that war in the twentieth century is impossible.' If I had ever tried to teach anybody such sorry rubbish I should be altogether an unmitigated a.s.s,” Angell wrote in 1913. ”Personally, not only do I regard war as possible, but extremely likely. What I have been preaching in Germany is that it is impossible for Germany to benefit by war, especially a war against us; and that, of course, is quite a different matter.”
It did no good. In 1914, the First World War exploded. As the most famous of the many experts who had said-or were believed to have said-that there would be no war, Norman Angell was singled out. He was the scapegoat.
Angell fought back in letters and lectures and interviews, but it was no use. In 1933, when Angell was awarded the n.o.bel Peace Prize for his tireless antiwar activism, the citation prominently denounced the claim that he had said war was impossible. Not even that helped. Among those less informed than the n.o.bel committee, Angell's reputation was permanently stained. Angell even complained that he had to avoid getting involved with causes he supported lest he ”might taint others with the derision which has grown from this falsehood or confusion.”
In 1952, when Angell published his autobiography, a sympathetic reviewer in The New York Times noted how absurd it was that Angell had suffered so much for so little reason. Even the critics' description of Angell was c.o.c.keyed, the reviewer noted. They called him ”starry-eyed,” an ivory-tower academic, a theorist out of touch with reality, but he was, in fact, a much-traveled and experienced journalist. And, no, the reviewer stated emphatically, he had not claimed war was impossible. Still, five decades later, in the very same newspaper, a writer mocked ”the starry-eyed British economist Norman Angell” who had claimed war was impossible.
One might think Angell would have been left in peace after he died in 1967, at the age of ninety-five, but the torment continued posthumously, thanks largely to Barbara Tuchman. Tuchman didn't merely repeat the myth of Angell's prediction. She repeated it in The Guns of August, a 1962 examination of the causes of the First World War that won the Pulitzer Prize, deeply impressed President John F. Kennedy, and became a ma.s.sive best seller that shaped the popular understanding of the war that launched the twentieth century. Tuchman chiseled the myth into marble.
And so, decades after he died, Norman Angell continues to be mocked as the fool who said war was impossible, while the many fools who actually said war was impossible lie undisturbed in their graves. There really is no justice in the matter of predictions.
7.
When Prophets Fail.