Forecasting the Great Depression
What is proper role of professional economic forecasting in financial decision making? The case presents excerpts from three leading economic forecasters on the eve of, and just after, the stock market crash of October 1929. The first set of excerpts is from Roger Babson, an entrepreneur from Wellesley, Massachusetts, who gained considerable fame for correctly predicting the market downturn on the basis of his own forecasting device, the "Babsonchart." The second set is from the staff of the Harvard Economic Society, an international group of illustrious economists and statisticians. To create its forecasts, the Harvard Economic Society developed a model that traced economic activity in three areas: speculation, business, and money. The Harvard group had great success when they introduced their model in the early 1920s, but failed to predict the stock market crash in 1929. The third set of excerpts is from Irving Fisher, the premier monetary economist of his day and one of the most respected American economists of all time. Although the crash caught Fisher completely by surprise, he remained a major figure in the forecasting field in the 1930s. The case also includes passages from University of Chicago Professor Garfield Cox's effort, in 1930, to assess the accuracy of forecasts made throughout the 1920s.