I have but one lamp by which my feet are guided, and that is the lamp of experience. I know of no way of judging the future but by the past.
—Patrick Henry, Speech in Virginia Convention, St. John's Episcopal Church, Richmond Virginia, March 23, 1775
I don't believe you can be a successful forecaster unless you have a sound grasp of history. I'm not speaking of the statistical history used to generate models; I'm referring to the kind of history that allows you to evaluate current events in the context of an ongoing continuum. What does the past have to do with the future? Plenty.
In this chapter we review some lessons that the history of U.S. business cycles over the past 160 years of modern business cycle accounting hold for forecasters. I also provide commentary on the necessary, nonquantitative history required to process quantitative historical data most effectively.
Let's begin by acknowledging that the past is loaded with relevant lessons for contemporary forecasters. Only a student of the Great Depression of the 1930s, for example, could have begun to understand, beforehand, how financial fragility could trigger an economic contraction as severe as the 2008 to 2009 Great Recession—the worst recession since the 1930s. To predict the following unusually slow business recovery successfully, a forecaster needed to understand what the 1930s experience taught about the practical limits of the Federal government's ability to stimulate ...