09 Jan 2014  Research & Ideas

Excerpt: ’Fortune Tellers’

An excerpt from Walter A. Friedman's book, Fortune Tellers: The Story of America's Economic Forecasters.

 

Fortune Tellers: The Story of America's Economic Forecastersbook excerpt

Forecasters

From the introduction of Fortune Tellers: The Story of America's Economic Forecasters

By Walter A. Friedman

This is a book about a group of entrepreneurs who, like Evangeline Adams, identified a business opportunity in the anxiety about the economic future that pervaded the early twentieth century. It is a story, in part, about how fortune telling was professionalized. Unlike Adams, whose insights into the future rested on her purported ability to read the stars, the entrepreneurs profiled here were statisticians and economists who based their predictions on their claim to systematic scientific insight. This book describes the first generation of economic forecasters and the methods they created to predict the future of the economy.

The forecasting field was initially developed by entrepreneurs like Roger Babson and John Moody following the Panic of 1907, as businesspeople were forcefully reminded, yet again, of the ups and downs of the economy. By World War I, there were only about ten forecasting agencies operating in the United States. Professional economists, like Irving Fisher and Warren Persons, advanced the field after the war, joining the growing ranks of forecasters. By 1925, Fisher wrote, "We now have nearly fourscore forecasting agencies to help the business man."

 

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These forecasters emphasized what today we would call the "real economy"—upcoming changes to production, employment, trade, and services—rather than trends in the stock market. They usually distributed their predictions in weekly bulletins that carried relevant business news and economic indexes. Along with their predictions, forecasters often included charts and graphs that showed economic change over time and pointed to the future. These had various names, such as Babson's Composite Plot and the Harvard Economic Service's Index of General Business Conditions.

Forecasters also devoted time to sales and marketing. Successful forecasting agencies developed ways to publish, distribute, and advertise their predictions. Some forecasters built sales forces to travel from office to office in lower Manhattan or in Boston and Chicago. Others sent their representatives to Rotary Clubs and churches in smaller cities and towns to give lectures. Nearly all forecasters advertised in the New York Times, the Wall Street Journal, the Commercial and Financial Chronicle, and the Chicago Tribune. Some forecasters packaged snippets of their forecasts to be sold through news syndicates and to appear in daily newspapers such as the Alton (Illinois) Evening Telegraph, the Salt Lake Tribune, and the Montana Standard of Butte.

While entrepreneurs and academics developed the industry, the American government also became deeply involved. Herbert Hoover, in particular, proved to be a big advocate of forecasting. He pushed the Department of Commerce, which he headed from 1921 to 1928, to increase the amount of economic data that it collected and published. He made it a priority of government to study the nature of business cycles and to bring business executives to Washington, D.C., to improve their ability to spot upcoming trends.

Together, these actors—entrepreneurs, academics, and politicians—helped raise the stature of economic forecasting and embed the practice in every corner of business and government. They sought to create a distinction between the "respectable" profession of scientific forecasting, on the one hand, and the practices of fortune telling and speculation, on the other. In this effort they enjoyed wide institutional backing. Courts of law routinely supported those who made predictions based on dispassionate scientific rules rather than those who, say, enlisted the help of the stars.

Many U.S. jurisdictions established statutes prohibiting the practice of "occult arts" in fortune telling. In a typical prosecution dating from 1918, a woman was arrested in New York and charged under the state Code of Criminal Procedure (section 899-3); she was found to be a "disorderly person" who was "pretending to tell fortunes." Despite her fame, Evangeline Adams lived under constant threat of such legal action.

Forecasters' reliance on science and statistics as methods for accessing the future aligns their story with conventional narratives of modernity. The German sociologist Max Weber, for instance, argued that a key component of the modern worldview was a marked "disenchantment of the world," as scientific rationality displaced older, magical, and "irrational" ways of understanding. Indeed, the forecasters profiled in this book certainly saw themselves as systematic empiricists and logicians who promised to rescue the science of prediction from quacks and psychics. They sought, in the words of historian Jackson Lears, to "stabilize the sorcery of the market."

The relationship between the forecasting industry and modernity was an ambivalent one, though. On the one hand, the early forecasters helped build key institutions (including Moody's Investors Service and the National Bureau of Economic Research) and popularize new statistical tools, like leading indicators and indexes of industrial production. On the other hand, though all forecasters dressed their predictions in the garb of rationality (with graphs, numbers, and equations), their predictive accuracy was no more certain than a crystal ball. Moreover, despite efforts of forecasters to distance themselves from astrologers and popular conjurers, the emergence of scientific forecasting went hand in hand with rising popular interest in all manner of prediction. The general public, anxious for insights into an uncertain future, consumed forecasts indiscriminately.

Reprinted with permission from Fortune Tellers: The Story of America's Economic Forecasters, by Walter A. Friedman. 2014 by Princeton University Press. All rights reserved.

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Comments

    • Ryan Hunter
    • Chairman's Fellow, Towers Watson

    Walter: Hats-off to your cogent reflection on the historic thinkers who dared to peer into our economic future.

    I have been intrigued for decades how once-speculative methods led innovation in economic forecasting.

    Why?

    1. Women and men who think different, despite prevailing wisdom, forge new opportunities

    2. The ability to foresee trends is a competitive advantage

    3. Applying insight from economic forecasts can be used to create #EnduringProsperity for customers, employees, shareholders, citizens, and society as a whole

    Case in point: Warren Buffet's bet that more goods will be shipped in 30 years despite being an 'old' innovation, railways will be a key mode for distributing goods, and BNSF is an attractive investment that will benefit the gamut of stakeholders.

    I'm looking forward to reading FORTUNE TELLERS in its entirety.

    Regards, +Ryan

    ryan.hunter@towerswatson.com Twitter: @ryanjhunter