Newsweek postulates that Alan Greenspan’s 20-year success as Federal Reserve Board Chairman may be significantly due to luck.
First, here are the numbers:
From 1987 to 2005 the Gross Domestic Product grew by 70%. Nonfarm employment increased 31%. Annual consumer price index inflation averaged just 3.1%. Pretax corporate profits increased 38% to $1.3 trillion. The average stock quadrupled in value.
The numbers seem too good to be based on luck alone. But it is possible. Consider this scenario: the email scammer who sent out 1,000,000 emails to investors predicting the rise or fall of the market. Half a million emails say the market’s going up, half a million say it’s going down. Let’s say the market went up. Next month the scammer only emails the half million folks who got the up prediction. The third month the scammer only emails the quarter million folks who got the next correct prediction, and so on.
After a year, the scammer has a perfect record with 244 people. Ask any of those 244 people if the scammer’s perfect record could be due to luck and they’ll probably say no, how could anyone make the right pick 12 months in a row? Very unlikely. They must know something.
But Alan Greenspan’s no email scammer: he’s one smart cookie – he does know something. And I’d put my money on him.