All forecasts of postwar deflation turned out to be entirely wrong, as was to be expected. Almost immediately after the end of hostilities a postwar boom began. But the forecasters, in no way discouraged by their errors, stayed on the job. Now they predicted the continuation of inflation. Just when their forecasts became most articulate, in the spring of 1949, the recession of that year set in. Then deflation was considered here to stay; government intervention was advocated. The second postwar boom, not caused, I think, but accentuated by the outbreak of the Korean war in 1950, led again to predictions of continued and even of runaway inflation. But 1951 was basically a year of deflation, and of inflation only in the areas where it was governmentally fostered.
Clearly the regularity of these errors in forecasting can not be pure chance. Something like a Law of the Necessity of Errors in Forecasting must be at work.
It is seldom realized that belief in the possibility of “scientific” business forecasts, and the forecasting mania of our time, are comparatively new phenomena. Until about 1930 serious economists were not so bold — or so naive — as to pretend to be able to calculate the coming of booms and depressions in advance. It would not have fitted into their general view on the working of a free economy. They considered the economic future as basically dependent on unpredictable price-cost relationships and on the equally unpredictable psychological reactions of entrepreneurs. Predictions of future business conditions would have seemed to them mere charlatanry, just as predictions, say, regarding the resolutions of Congress two years from now.
—L. Albert Hahn, “Predicting the Unpredictable,” The Freeman: A Fortnightly for Individualists 3, no. 1 (October 6, 1952): 23.
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