I'm a big fan of Nassim Taleb's book Black Swan (2007). Taleb says that our "inability to predict outliers [which he calls Black Swans] implies the inability to predict the course of history." But my conviction that "what gets measured, gets managed" draws me to a new book by Walter Friedman, Harvard Business School. The book, called Fortune Tellers, looks at the early history of economic forecasting in the US. In an interview he explains his purpose:
“How do people predict the economic future? How have forecasting methods changed over time? What makes one forecaster more popular than another? I chose to research these questions by focusing on the first generation of economic forecasters—those who founded their agencies in the early twentieth century. Forecasting is such a deeply entrenched and ubiquitous activity today that I thought it would be interesting to see how it got started. How did a world of astrology and “sign-reading” turn to one of econometrics and leading indicators?
Forecasting was a lucrative business for many of the pioneering forecasters. Roger Babson built a business empire around his weekly forecasts—an empire that included his newsletters, syndicated columns, and eventually a radio program. In 1919 he founded Babson College, today a highly respected institution, to provide him with a pool of workers for his forecasting business. Others, like Irving Fisher, were successful as forecasters in the 1920s but lost everything after the 1929 crash—an event he failed to predict. But, more generally, while individual forecasters came and went, some making it rich and others not, the bigger story is that the industry created key resources for society as a whole.
In the process of trying to make reliable forecasts, economists and entrepreneurs developed index numbers, leading indicators, and new economic charts, and even founded important institutions like the National Bureau of Economic Research. The economist Wesley Mitchell, who was deeply engaged with forecasting in the 1910s and 1920s, served as director at NBER for many years. One of his students, Simon Kuznets, developed [a standard way to measure] Gross National Product there in the 1930s. In all these ways, the growth of the forecasting industry spurred efforts to make sense of economic change.”
