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Jul 19, 2011

Selgin critiques Roubini

The latest issue (Summer 2011) of The Independent Review has a wonderful review essay by George Selgin critical of Nouriel Roubini and Stephen Mihm's Crisis Economics: A Crash Course in the Future of Finance. Roubini is of course the famous "Dr. Doom" who in September 2006 predicted the recent financial crisis.

But as Selgin points out, if "one devoted Roubini watcher is to be believed, 'Dr. Doom' actually predicted no fewer than '48 of the last 4 recessions.' . . . Roubini predicted a serious crash for 2004, then a severe slowdown for 2005, then a global reckoning for 2006, and finally a sharp recession for 2007. After the much-trumpeted crisis at last materialized (though not quite for the reasons Roubini had harped on), he declared that the S&P 500 would sink to 600, that oil would get stuck below $40 a barrel, and that a gold 'bubble' was about to do what the housing one had done. To be sure, these things have not yet come to pass, but tomorrow is another day, and to succeed prophets need only mark when they hit and never mark when they miss."

Although Selgin's review is not entirely negative and there are sections I would take issue with, it scores many important points.

NOTE: Selgin got the quotation about Dr. Doom predicting "48 out of the last 4 recessions" from a comment on the blog Seeking Alpha, but as many may recognize, this is quite a common economic quip first used, I believe, by Paul Samuelson in 1966: "Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties."

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