Book Review: Fortune Tellers: The Story Of America's First Economic Forecasters

by: CFA Institute Contributors

Reviewed by Michael A. Martorelli, CFA

Investment professionals inundated by today's constant stream of economic data may not appreciate how lucky they are. Unlike an earlier generation of practitioners, they are able to consult an incredible multiplicity of authorities who are willing to predict the future course of the economy. Fortune Tellers, by Walter A. Friedman, director of the Business History Initiative and lecturer at Harvard Business School, is the captivating story of some pioneers of what many still call the "black art" of economic forecasting.

It is impossible to pin down the date of the first economic forecast. Friedman notes some attempts to divine the future direction of commodity prices as early as 1878. He suggests, however, that the period between the end of World War I and the Great Crash of 1929 was the "golden age" of forecasting. This was an era of steam-powered locomotives, electric-powered factories, synthetic fibers, automobiles, motion pictures, and an array of new consumer goods. It stood to reason that learned men should be able to divine the meaning of a variety of newly developed economic indicators.

Friedman's subjects had varied backgrounds and dissimilar types of academic credentials. Roger Babson and John Moody were financial publishers who sold their information services as well as their forecasts. Irving Fisher of Yale University and C.J. Bullock and Warren Persons of Harvard were academic economists intent on building what the author calls "economic observatories" around the world. Wesley Mitchell and Herbert Hoover were US Department of Commerce officials intent on providing the public with objective and precise data on the economy.

The individual chapters contain abundant details of each forecaster's methodology and chart the subjects' successes and failures before and during the Great Depression. A compelling final chapter ties their efforts together by noting their common belief that predicting economic trends was possible if one studied the data and used the right combination of analysis, judgment, and intuition to draw conclusions about the data's meaning.

Friedman notes some long-lasting contributions of these pioneers and credits them with inspiring succeeding generations of forecasters who may or may not have raised the art to a science. Readers who struggle with that question will appreciate this entertaining look at the predecessors of the analysts whose views they probably seek almost every day.

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