Alan Reynolds

These must be trying times for those who have spent the past few months or years predicting economic disaster. Oil prices and interest rates have come way down, and stock prices have gone way up. And the election is only a month away.

As I explained in a May 2005 column, "Doomsday Is Doomed," however: "Whenever the wrong political party controls the White House and Congress, the mainstream media feel compelled to predict some looming economic disaster, and to keep doing so shamelessly and erroneously year after year. The 'business news' thus careens between warning of a hard landing, deflation or stagflation -- any imaginable conjecture that depends on strong words, weak logic and no facts."

It is not just journalists who suffer from this partisan affliction. Some professional economists seem to develop an irresistible taste for doomsday scenarios as elections approach. The famed blogger Nouriel Roubini of New York University attracted attention lately by conjuring up a 70 percent chance of "severe recession" by the first quarter of next year.

This is the same fellow mentioned in my 2005 column, when he was predicting interest rates would rise by 2 percentage points. Since then, the yield on 10-year bonds has fallen from 5.1 percent to 4.6 percent.

Roubini now seeks solace in the fact that another blogger and former Clinton official, Brad DeLong, "warned of a recession and even a possible meltdown," as did "Paul Krugman in The New York Times." Those sources have almost as much credibility as Chicken Little's warnings the sky is falling. DeLong and Krugman have always described the economy in the worst possible terms whenever (1) elections were looming and (2) the wrong political party was in power.

Roubini's August forecast of recession relied on "Three Ugly Bears" -- "the housing slump is becoming a real bust; oil is heading higher and higher and could be soon well above $80; and inflation -- both core and headline -- is rising further, forcing policymakers across the world to increase interest rates."

The odd notion that oil prices would rise "well above $80" without global demand contracting now looks increasingly absurd, as does his endlessly incorrect forecast of higher inflation and interest rates. Yet the reality of falling oil prices and interest rates had no effect on Roubini's dismal forecast.


Alan Reynolds

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