“History is just one damned thing after another.” — Arnold Toynbee
No one has any idea what the economy is going to do in the future, but you can be reasonably assured of two things: Things can change very fast, and what you think sounds preposterous today can happen tomorrow.
Take this quote, from President Clinton’s 2000 State of the Union address:
We are fortunate to be alive at this moment in history. Never before has our nation enjoyed, at once, so much prosperity and social progress with so little internal crisis and so few external threats. Never before have we had such a blessed opportunity — and, therefore, such a profound obligation — to build the more perfect union of our founders’ dreams.
We begin the new century with over 20 million new jobs; the fastest economic growth in more than 30 years; the lowest unemployment rates in 30 years; the lowest poverty rates in 20 years; the lowest African-American and Hispanic unemployment rates on record; the first back-to-back budget surpluses in 42 years. And next month, America will achieve the longest period of economic growth in our entire history.
We have built a new economy. And our economic revolution has been matched by a revival of the American spirit: crime down by 20%, to its lowest level in 25 years; teen births down seven years in a row; adoptions up by 30%; welfare rolls cut in half to their lowest levels in 30 years.
My fellow Americans, the state of our union is the strongest it has ever been.
This wasn’t hyperbole. But do you know what happened soon after this speech? The stock market crashed, the unemployment rate nearly doubled, poverty surged, terrorists attacked, we entered two wars, record surpluses became record deficits, and the median American household suffered its worst decade of income growth on record.
Now take this quote, from President Obama’s 2010 State of the Union:
One year ago, I took office amid two wars, an economy rocked by a severe recession, a financial system on the verge of collapse, and a government deeply in debt. Experts from across the political spectrum warned that if we did not act, we might face a second depression. … One in 10 Americans still cannot find work. Many businesses have shuttered. Home values have declined. Small towns and rural communities have been hit especially hard. And for those who’d already known poverty, life has become that much harder. This recession has also compounded the burdens that America’s families have been dealing with for decades — the burden of working harder and longer for less; of being unable to save enough to retire or help kids with college.
This, too, wasn’t hyperbole. But since this speech the stock market has rallied 57%, the unemployment rate dropped from 9.8% to 7.6%, home prices are up, one of those wars ended, the federal deficit was cut in half, and households now have the lowest debt payments relative to incomes in at least 30 years.
Things change. Fast.
Former Treasury Secretary Larry Summers has a saying: “A good rule of thumb for many things in life holds that things take longer to happen than you think they will, and then happen faster than you thought they could.” And not only do most of us never see the change coming, but what actually happens in hindsight would often seem downright absurd if you told it to someone in the past.
How do we apply this to the future? History makes it clear that when sentiment and statistics wander far off from their normal path, things are due for a change. It’s simply reversion to the mean, or as investor Dean Williams once put it, “Something usually happens to keep both good news and bad news from going on forever.”
