Posted Wednesday, Dec. 7, 2011, at 11:59 PM
One of my favorite genres of inquiry are looks back on what people thought was going to happen in the future. Matt Novak's recent Slate piece about Depression-era panic robots stealing our jobs is an excellent example. A somewhat more chilling example is provided by Ryan Avent's tour through the 1931 archives of The Economist. The basic perspective of the time was for orthodoxy in both fiscal and monetary measures. The orthodox was bolstered by a generalized perspective of anxiety about non-orthodox measures. That generalized anxiety made sense, in turn, only in the context of what in retrospect looks like an undue optimism about the likeliness of economic recovery. And this undue optimism about economics is looped in with an undue optimism about politics. The magazine seems confident that Hitler's grasp on the National Socialist Party is slipping, and that the Nazi Party as such is peaking in influence. "Everything, of course, will depend upon the course of business," they say of Germany, "which seems recently to have shown some signs of improvement."
Obviously in retrospect one would say the downside risks of inadequate monetary stimulus -- several more years of Depression, the Nazi rise to power, a war in which tens of millions were killed and a huge share of a continent was physically destroyed, decades of Communist rule over Poland, Hungary, Czechoslovakia, Romania, and Yugoslavia -- were considerably higher than the risk that stimulus would go to far and cause "a rise in the domestic price level which, through its effect on costs, would give their quietus to the export trades."
But beyond a lack of prescience, Avent shows that it wasn't even clear to the most informed observers at the time what the important events were. The Creditanstalt bankruptcy that we now recognize as a key turning point in the European Depression was treated as a rather minor thing. Today I suspect we're considerably wiser in many respects than our forebearers. But we almost certainly suffer from a similar myopia about which events are the ones that really matter.