Predicting the Recovery
In a 1988 paper*, three economists studied economic forecasts from 1929 made by two competing groups. One, led by Professor W.L. Crum, was known as the Harvard Economic Service (HES); the other was lead by Irving Fisher at Yale. HES sold subscriptions in a weekly letter at a cost of $100 per year ($850 in 1996 dollars). Fisher's forecasts were syndicated to newspapers.The HES forecasts were based on statistical analyses of three indexes (one of selected stock prices, one of commodity prices, and a third of interest rates); Fisher's forecasts were based on a modified version of the classical model we have studied in class. Both forecasters, constrained by the thinking of the classical model and the properties of previous recessions, persistently presented optimistic forecasts of impending recovery. This page reports a selection of their juicier quotes. 
Thrown in here and there are some headlines from the New York Times. These were originally collected and posted by Mark Underwood of the University of Kentucky, on a site no longer available. Note that a major slump occurs in the stock market on Octover 24, 1929, 8 days before the infamous crash of November 1, 1929. As Underwood asks: if you were an invester reading these headlines, would you have kept your money in stocks?
*  K.M. Dominguez, R.C. Fair, and M.D. Shapiro (1988): "Forecasting the Great Depression: Harvard versus Yale." American Economic Review, 78:595-612.


Sunday, October 13, 1929, II, Page 7, Col. 2

STOCK PRICES WILL STAY AT HIGH LEVEL FOR YEARS TO COME, SAYS OHIO ECONOMIST


Wednesday, October 16, 1929, Page 8, Col. 4

FISHER SEES STOCKS PERMANENTLY HIGH

Yale Economist Tells Purchasing Agents Increased Earnings Justify Rise
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SAYS TRUSTS AID SALES


10/19/1929 (HES): If recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the reserve system would take steps to ease the money market and so check the movement.


Tuesday, October 22, 1929, Page 24, Col. 1

FISHER SAYS PRICES OF STOCKS ARE LOW

Quotations Have Not Caught Up With Real Values As Yet, He Declares
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SEES NO CAUSE FOR SLUMP


Thursday, October 24, 1929, Page 1, Col. 1

PRICES OF STOCKS CRASH IN HEAVY LIQUIDATION, TOTAL DROP OF BILLIONS

PAPER LOSS $4,000,000,000
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2,600,000 Shares Sold In The Final Hour In Record Decline
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MANY ACCOUNTS WIPED OUT

Thursday, October 24, 1929, Page 2, Col. 1

SAYS STOCK SLUMP IS ONLY TEMPORARY

Professor Fisher Tells Capital Bankers Market Rise Since War Has Been Justified.
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ECONOMIC REASONS CITED
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"Public Speculative Mania," He Declares, is Least Important Cause of Price Inflation.


1/1/1929 Black Friday: stock market collapses.

11/2/1929 (HES): We believe that the present recession, both for stocks and business, is not the precursor of business depression, but will prove intermediate in character.

12/21/1929 (HES): Today a depression seems improbable, and continuance of business recession is all that is in prospect. This justifies a forecast of recovery of business next spring, so that 1930, as a whole, should prove at least a fairly good year.

1/20/1930 (Fisher): It would not be surprising if by next month the worst of the recession will have been felt and improvement looked for.

5/19/1930 (Fisher): It seems manifest that thus far the difference between the present comparatively mild business recession and the severe depression of 1920-21 is like that between a thunder-shower and a tornado.

8/20/1930 (HES): There is every prospect that the recovery which we have been expecting will not be long delayed.

6/30/1931 (HES): We conclude that improvement in business volumes, the first step in business recovery, is already underway.

7/31/1931: Unempoloyment passes 16%, and rises for the next two years to reach a peak of over 25%.