True story.

In 1997, three economists with nothing better to do fed all the data available to economists in 1929 into a new high-powered computer. Based on these data, they asked the computer: Is a Great Depression coming our way? Using the most advanced economic models, the computer checked and cross-checked every conceivable angle. It concluded that there was zero chance that a Great Depression was about to happen in 1929.

- John Rothchild

Hmmmmm, must have been the FED s/ware... :o)

-- Andy (2000EOD@prodigy.net), December 13, 1999

Answers

Perhaps Eddie Y. was using the same computer when he made his now laughable predictions::

"On January 1, 1999 they will experience many more, and it will be much more difficult to sweep them under the rug. On April 1, 1999 we will all watch anxiously as the governments of Japan and Canada, as well as the state of New York, begin their 1999-2000 fiscal year; at that moment, the speculation about Y2K will end, and we will have tangible evidence of whether governmental computer systems work or not."-- Ed Yourdon

"... I believe we'll start seeing [disruptions] by this summer, and I believe they'll continue for at least a year. As many people are now aware, 46 states (along with Australia and New Zealand) will begin their 1999-2000 fiscal year on July 1, 1999; New York (and Canada) will already have gone through their Y2K fiscal rollover on April 1, and the remaining three states begin their new fiscal year on August 1, September 1, and October 1. We also have the GPS rollover problem to look forward to on August 22nd, as well as the Federal government's new fiscal year on October 1st."

"There is, of course, some finite probability that all of these rollover events will occur without any problems; but there's also a finite probability that pigs will learn to fly."

Ed "Flying Pig" Yourdon

-- Mystery Man (mysterious@man.org), December 13, 1999.

So Mystery Man,

You're saying that had Ed entered last year all known y2k-related data in the Cray he keeps in his broom cupboard his erstwhile predictions would have been more accurate?

My God you're a geniarse!

The point is ***obviously*** lost on your pea brain.

-- Andy (2000EOD@prodigy.net), December 13, 1999.

Andy: What triggered the massive stock selloff on October 29, 1929? Was there any specific event that caused the market to plummet so far so fast?

-- cody (cody@y2ksurvive.com), December 13, 1999.

Andy,

I fed your data about gold into my computer.

-- (Polly@troll.com), December 13, 1999.

This is the risk of the prediction game. You never know what stupid thing the sheeple will do.

Evidence? Explain the market capitalization of VA-Linux. A small company that puts free Linux software on hardware that they buy from others. What prevents Gateway, Dell, IBM, or the two immigrant brothers down the street, from doing the same at a lower cost?

How many people bid the price of VA-Linux up? For that matter, with Sun's StarOffice available for free, what keeps the price of Microsoft up?

Also with all the free for the download software, why don't video stores rent Linux, Star, etc. CDs for $4.00/five days.

-- cory (kiyoinc@ibm.XOUT.net), December 13, 1999.

yeah. 'Stupid sheeple'. Pretty hilarious in that those doing the prognosticating are making their fortunes from those same stupid sheeple. How pompous. How arrogant.

But amazingly, those same sheeple are dedicated followers, even after the predictions are continually wrong. It doesn't seem to matter so long as the 'sheeple' cling to the coattails of the doom prognosticator and be a follower. The 'stupidity' eminates from the continuing funding lent to the prognosticator...and the credence which is lent him/her despite his past track record.

I'd say Andy portrays what this type of 'sheeple' is all about, quite nicely.

And as for 1929, maybe revisionism will paint parallels to our era, but read some good history books or better yet, talk to someone who lived through it.

-- Bad Company (johnny@shootingstar.com), December 13, 1999.

Andy,

I fed your data about gold into my computer.

-- (Polly@troll.com), December 13, 1999.

I hope it said there was a zero chance of a crash inthe POG :o)

-- Andy (2000EOD@prodigy.net), December 13, 1999.

Cody, re: 1929 crash. Joe Kennedy, Sr. and his buddies basically ran up the market with buying pools and, after they suckered the little guy in, pulled the plug. The best part is just a few years later FDR appointed Kennedy the head of the SEC: seems the fox knew the best way to police the chicken coop.

-- Dot (dromano03@snet.com), December 13, 1999.

Cody,

I'm not an expert on 1929 but I know linkmeister posted some super articles about the history of the second worst crash ever, they will be in the archives somewhere...

-- Andy (2000EOD@prodigy.net), December 13, 1999.

Ooops Polly@troll, I wish I hadn't said that!!!

-- Andy (2000EOD@prodigy.net), December 13, 1999.

Andy,

I don't believe there is ever a "zero chance."

-- (Polly@troll.com), December 13, 1999.

There is of me dating Madeline Allbright or Janet Reno...

-- Andy (2000EOD@prodigy.net), December 13, 1999.

I bet if you fed the data for today into that 'puter, it would give a 100% chance of a depression/crash occuring 1/1/1900.

Kook

-- Y2Kook (Y2Kook@usa.net), December 13, 1999.

Perhaps Andy was using the same computer when he made his earlier - and very wrong - predictions here about stock market crashes and gold going to 500 dollars an ounce. Tell me laddie, have you ever been right about anything? Hmmmm?

-- Mystery Man (mysterious@man.org), December 13, 1999.

Yes - your pea brain.

-- Andy (2000EOD@prodigy.net), December 13, 1999.

Translation from Andy:

I cannot defend the fact that I have been wrong with every single y2k prognostication I have ever made.

I will therefore resort to personal attacks instead.

-- Mystery Man (mysterious@man.org), December 13, 1999.

Andy,

I thought we were talking about gold. What's with Albright and Reno?

-- (Polly@troll.com), December 13, 1999.

We haven't even begun to see the end of the Price of Gold story. With the enormous credit expansion being orchestrated by the Fed to counter the effects of Y2K and to keep the stock market bubbling ever higher, massive inflation is down the road about six months hence if Y2K is minor, which means the price of gold will almost surely rise dramatically.

If, on the other hand, Y2K is severe and markets begin to crash worldwide, there will be a frantic flight to gold, which will also be very bullish for gold prices. Either way, gold is poised to skyrocket.

-- cody (cody@y2ksurvive.com), December 13, 1999.

I think that a true barometer in all of this is how tech stocks continue to skyrocket. IMHO, this means that Wall Street truly IS convinced that y2k presents little problem for the economy, as was stated by an analyst on CNBC last week. (He called it a non-issue to the market traders). You'll remember of course, that it has been predicted tenfold that Wall Street will have either crashed or severely receded by now if preparation of y2k (mounting bad news and the like.) That hasn't happened and while I have great optimism by this, it also makes me say that should problems actually take hold, this large bubble is going to make one helluva pop if it bursts.

Someone here once said 'watch what they do, not what they say.' I have been.This is yet another reason I feel rather optimistic. But that does not excuse the fact that if this attitude is in error, there'll be a price to pay.

-- Bad Company (johnny@shootingstar.com), December 13, 1999.

Andy's just sad because Prudent Bear has sunk below $4.00 a share.

Boo hoo.

As for the Great Depression, the causes are still open for debate. Given the vast imperfections in econometric modeling, I am not surprised by any model's inability to predict the Great Depression. (If someone claimed their model was successful, I would be very skeptical.)

The economy is a complex system... much like our weather. Like meteorologists, econommists do a reasonable job of forecasting in very short term. In the long run, the systems are too complex for Newtonian calculus. Until someone invents a better quality of math, our long term forecasts will be suspect.

When you strip an econometric model down to the bare bones, it is a set of assumptions, usually mathematical. You can manipulate the model to get whatever result you want... simply by manipulating the underlying formulae. (It is surprisingly easy.) Most models are designed around core assumptions, including the the assumption most outcomes will fall within a "normal" range. This inherent bias makes the model "seem" more accurate because most of the time, the economy behaves within a limited range.

It takes a long time to "calibrate" the model. When the model finally "works" and produces "realistic" results, there is a reluctance to meddle with the underlying assumptions. In the world of econometrics, there is resistance to simply making the model produce the results you want (also called "gaming the model.") Given the bias towards "normal" in most econometric models, it does not surprise me that 1929 data does not produce a "Great Depression" forecast.

In addition, the Great Depression took quite some time to unfold. Policy decisions made during 1930 and 1931 exacerbated the problem. Complicating matters, the factors contributing to the Depression were numerous. These included increased tariffs (Smoot-Hawley), tight monetary policy, weakness in the banking stystem, structural poverty and the artificial restrictions imposed by the gold standard.

During the past few months, I have read a fair amount about the Great Depression... though I am still some distance from writing "a's" article. It is a fascinating study for research... and I doubt anyone will ever produce a single theory that explain the event (nor a model that effectively predicts it.)

This is not to say we did not learn some valuable lessons during the Great Depression. Nor does the failure to predict this event, even ex post facto, obviate what economists DO know about how the world works.

-- Ken Decker (kcdecker@worldnet.att.net), December 13, 1999.

I cannot defend the fact that I have been wrong with every single y2k prognostication I have ever made.

I will therefore resort to personal attacks instead.

-- Mystery Man (mysterious@man.org), December 13, 1999.

Pot

Kettle

Black

MORON

-- Andy (2000EOD@prodigy.net), December 13, 1999.

Oo-oo-oo! Cory, Cody, Andy and Decker in one thread. What a good click so early in the A.M. when I have time for maybe 3 threads total today.

POG could go anywhere (except zero), anytime. Fed has programmed inflation, in order to counteract deflationary forces. Up? Down? You pick 'em. But gold is the ultimate security against the clinker that usually lives off the end of the bell curve: DEFAULT.

No one's economic models pick that one up, model it, or "smooth" its effects into their equations.

That's a good one to factor intuitively into your readings, Ken. I only got as far as Rothbard's book on the Depression this summer, a good starting place. I must have read Galbraith's years ago, don't remember.

Ken: Please share your thoughts regularly with us -- don't wait to write the perfect "final" essay on it -- tidbits as they come, fuller thoughts whenever. (Suggest thread heading: 1929 DEPRESSION: Similarities & Differences.)

Opening the "black box" of that traumatic era to the understanding of the average reader will do a lot for education in economics. Your mission, should you decide.... etc.

-- jor-el (jor-el@krypton.uni), December 13, 1999.

The Great Depression has become the Rorschach's Ink Blot Test of Economics.

Keynesians see the tightening of fiscal policy as the main culprit (Galbraith).

Monetarists see the tightening of monetary policy (indirectly) as the main culprit (Friedman).

Free-traders see the increase in tariffs as primarily responsible.

Gold haters see the gold standard as a large factor (Decker :))

The fact is that no econometric "model" better predicts the movement of an economy better than a random walk--a stochastic process which means that the best guess for the future is today's value with a guess as to a shock selected randomly from a probability distribution function.

In laymans' terms this means that looking forward, economists do a pretty lousy job when it comes to forecasting economic growth.

In defense of economists, we don't always have to be perfect. My friend always tells me that economics isn't as hard a science as physics. I always tell him that it doesn't have to be for people to make money. NASA has shown us repeatedly recently that even if you know with tremendous mathematical certainty how celestial bodies move, you won't necessarily be able to make a relatively small spacecraft land on one "safely".

Businessmen are to economics what space engineers are to astrophysics.

Economists are especially lousy at predicting turning points. They depend critically on human behavior, which may be predictable at the planetary level (see Asimov's Foundation Trilogy), but very hard to predict at the local level.

Good luck everyone.

-- nothere nothere (notherethere@hotmail.com), December 13, 1999.

I predict that we'll soon be seeing some look ahead problems at universities when students try to register for classes that start next semester.

By the way, for everyone who likes to go on and on about missed predictions, remember that "Consistency is the hobgoblin of little minds." I doubt that all of Albert Einsteins predictions were correct either, that doesn't make him wrong about everything.

-- Amy Leone (leoneamy@aol.com), December 13, 1999.

A fascinating economic account of the late 1920's is at this link:

"The Big Bull Market"

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=000mbl

A few points to keep in mind to put "The Big Bull Market" into perspective...there was a relatively mild recession in 1926-27 followed by a recovery that pushed the annual unemployment rate down to 3.2% for 1929. Consumer prices declined slightly in both 1927 and 1928, and in mid-1929 (before the October crash), consumer prices were only about 1% higher than 12 months earlier.

-- Linkmeister (link@librarian.edu), December 13, 1999.

Over the years I have read a fair amount about the Great Depression but I don't recall seeing anything about a specific event that triggered the October, 1929 market meltdown. In other words, why did everyone decide to sell simultaneously on that particular date?

-- cody (cody@y2ksurvive.com), December 13, 1999.