Jacob Heilbrunn

James Glassman and Dow 36,000

James Glassman, executive director of the George W. Bush Institute, has a column in the Wall Street Journal that comes close to a mea culpa for predicting in his 1999 book of the same title that the Dow would hit 36,000. "I was wrong," Glassman announces. Glassman points to a number of factors that account for why he was offbase.

For one thing, he observes that the "relative economic standing of the U.S. is declining." The country has compiled massive debt. Foreign competitors, China and Brazil and India, are experiencing growth. America's, by contrast, has slowed. The Congressional Budget Office, Glassman observes, believes that growth in America will average about 2 percent a year compared to the past century's 3.5 percent. Glassman calls that drop a "stunning decline."

Then there is the risk problem. As Glassman sees it, a new kind of risk has emerged with globalization. "Discontinuous risks"--a terrorist attack, a tsunami--can cause a flash crash in America.

How persuasive is Glassman's analysis?

On the question of American decline, he correctly notes that it isn't inevitable. The biggest hurdle facing the economy is the national debt. Treasury Secretary Geithner is walking a fine line on the question of cutting entitlement programs. The Obama administration, in a rhetorical feint, is talking about "overhauling" them. If Republicans and Democrats can reach a compromise on cutting the debt, it would be a huge deal. It would signify to the markets that the government isn't stymied when it comes to debt, or going to continue trying to ignore the problem. The amount in interest payments alone on the national debt is set to reach $2,500 per man, woman, and child in America by the end of the decade.

Glassman's second point is about risk. This seems less convincing. Risk has always been a problem. Terrorist attacks and environmental catastrophes are not new. Perhaps it could be argued that their severity has increased, but that's questionable. World War I, after all, was triggered, in its most proximate cause, by the Serbian Black Hand, which murdered Archduke Ferdinand.

But it's also possible that American inventiveness will save the day. Unpredictability cuts both ways. Risk can have positive as well as negative outcomes. Perhaps the Dow will hit 36,000, sooner than anyone, including its original prognosticator, thinks.