The Dow eclipsed 20,000 this week. That’s bad news for people who hate good news.
“If the question is when markets will recover,” Paul Krugman wrote in the New York Times on election night, “a first-pass answer is never.”
A few days before Donald Trump’s election, the Dow stood at under 18,000. Months later, it exceeds 20,000. Markets, it seems, act more rationally than pundits.
Milton Friedman famously declared that “the only relevant test of the validity of a hypothesis is comparison of its predictions with experience.”
But punditry does not conform to the rules of economics, even when engaged in by a Nobel Prize-winning economist. The most important ingredient in successful punditry involves mirroring the prejudices of one’s audience rather than correctly prejudging outcomes. The public forgives pundits for being wrong. For backing the “wrong” side? Never.
We take people seriously who say “the sky is falling” not because the speaker commands respect but because the words spoken demand notice. If you vote for Trump, a nuclear bomb explodes in your backyard, the polar melt floods your street, and your 401k drops faster than Glass Joe. This all grabs our attention because of the serious consequences in spite of the silly suppositions. People paying attention, accustomed to hearing such hyperbole, tune out. The apathetic, or those already inclined to believe the worst, embrace Chicken Littles. One might imagine that falling for the Boy Who Cried Wolf provides immunity for future cries, as it does in the story, but anecdotal evidence suggests otherwise.
The “remain” backers predicted similarly disastrous consequences for the passage of Brexit (Krugman appeared more responsible than most Brexit critics). They never came. Just as that vote in Britain foreshadowed the one in America on November 8, the dire predictions never coming to fruition on Brexit acted as a dress rehearsal for the unrealized doomsday scenarios surrounding Trump’s victory. Few learned a lesson.
As psychologist Jonathan Haidt writes in The Righteous Mind, we tend to believe information that flatters our political dispositions. “Once people join a political team, they get ensnared in its moral matrix,” Haidt maintains. “They see confirmation of their grand narrative everywhere.”
Richard Posner published a study of a specific type of pundit, the public intellectual — a label fitting for Krugman, Friedman, and even Posner — in his 2001 book Public Intellectuals: A Study of Decline. “Prediction is the stock in trade of the public intellectual,” the federal judge wrote. “Yet… the record of public intellectuals’ predictions is poor. This is not well known; and (a closely related point) public intellectuals do not lose their standing in the public-intellectual market when their predictions are falsified by events.”
True, but the Pollyannas generally fare worse than the Jeremiahs. Kenneth Adelman foresaw the Iraq War as a “cakewalk.” Noam Chomsky described the invasion of Afghanistan as the United States “in the midst of apparently trying to murder three or four million people.” Whereas Adelman’s faulty forecast might come as the first thing said about him despite his stated regrets and considerable accomplishments, bringing up Chomsky’s wildly-off assessment comes across as mean-spirited when it comes up at all.
Paul Krugman knows all about wishes steamrolling wisdom. “Dow 36,000 is a very silly book,” Krugman wrote about a Pollyannaish prediction regarding the stock market. The overly optimistic tome endured repeated ridicule by the New York Times columnist. Paul Pessimist’s election-night prognostication, perhaps fueled by emotions rather than thought, strikes as equally ridiculous as Dow 36,000 now that the stock market reaches record heights.
But don’t expect his readers to rebel. He writes what they want to read.