It's been painfully obvious for over three years that the standard approach of economic forecasters, who examine every newly released government statistic to divine the next lurch of the stock market, has been less than stellar. Almost none of those who today talk about the "technology bubble" actually called for a top in 2000, the recession of 2001 wasn't recognized until it was half a year old, and in spite of a chorus of calls for an incipient recovery it seems plenty of skepticism remains about economic prospects. The reason for this forecasting disconnect is obvious, according to Robert Prechter, Jr.

Prechter's newest title, Socionomics: The Science of History and Social Prediction is a two-book set that offers voluminous support for a revolutionary concept. It reverses the direction of causality that underpins the entirety of orthodox market forecasting with a radical thesis: Instead of the economic statistics leading the market, the market (or more properly the aggregate social mood it measures) determines economic behavior that leads to the statistics.

Though a simple statement, this is heady stuff when its full ramifications are considered. This is exactly what this set does, addressing both theory (Wave Principle of Human Social Behavior, 2nd ed.) and its application (Pioneering Studies in Socionomics, a new work). Its illustrations of this reversal of causality cannot be casually dismissed, nor should they be ignored by anyone who believes timing matters in business, politics, investing, or every other aspect of life.

Socionomics is Prechter's term for the application of Ralph Nelson Elliott's Wave Principle market model to a wider array of social phenomena (see reviews of Elliott Wave Principle). Prechter has taken this principle and, along with colleagues both within and without his Elliott Wave International market forecasting firm, developed it into an early stage science in its own right. Pioneering Studies in Socionomics is a compilation that represents their work, a series of related studies which run from the 1980s and forward to 2002. Most were published as part of Prechter's Elliott Wave Theorist newsletter. Sequential dating of some studies offers a particularly detailed timeline for their conclusions, allowing readers to assess the validity of the observations in retrospect. The result borders on amazing.

Pioneering Studies is quite a departure from Prechter's other recent work, Conquer the Crash. While the latter deals almost exclusively with the financial arena, this latest book leaves the world of finance and ventures out into the wider arena of human endeavor.

Noting that certain social outcomes occur against a backdrop of specific market behaviors, socionomics attempts to make objective forecasts for the kinds of events that should occur as the market and its social mood "Pied Piper" follow their tortuous path through time.

That "torturous path" is where the greater controversy rages. Adherents of Elliott Wave methodology believe that markets follow a fractal pattern and that the market's current position in the wave pattern can often be estimated with a significant level of confidence. Knowing "where you most probably are" gives tremendous guidance in discerning the likeliest path for future market action. Detractors observe that there are always multiple, correct interpretations of where in the pattern the current market resides, so they claim application of the process to forecasting is simply too subjective to be useful.

Prechter's socionomics hypothesis starts with the Wave Principle and so raises two separate questions. Does the stock market reflect aggregate social mood, which precedes and drives social outcomes as varied as fashion, war and peace, economic activity, and even sex, according to socionomics, or are all these social factors dependent upon outside influences like unemployment rates and durable goods orders that can be discerned and used for forecasting in the orthodox method? And even if social mood is the driver of social outcomes, is the social mood patterned and therefore subject to forecast by analyzing the stock indexes, or is the path a "random walk" that precludes accurate forecasting at all?

The answer to the first question, as far as economic forecasting is concerned, can be determined by simply turning to the article titled, "Socionomics in a Nutshell." If a picture is worth a thousand words, the graph found in figure 1 is a picture equal to the sum of all the words uttered each year by economists on TV and in print. It bears a graph of the Dow Jones Industrial Average from the late 1920s to 2000 with shaded bars depicting periods of recession. With one exception (1946, which supports neither case), every recession during the period coincides with or follows a significant decline in the Dow. With this single graph, Prechter shows that asking an economist to forecast the direction of the market using economic statistics is about as silly as asking a passenger to predict how hard the driver will press the accelerator pedal ten seconds in the future by watching the speedometer now. All that is needed is to watch the stock market. If it's rallying, economic expansion will follow, while persistent, larger-scale declines presage economic contraction.

Pioneering Studies addresses topics both light and serious, tracing the connections between the social mood as demonstrated by the stock market with the fortunes of horror films, professional sports, terrorism and war. Events such as 9/11 are addressed in a way that brings coherence to what otherwise looks like chaos.

Anyone who recognizes the value of timing in their endeavors would be wise to consider the message delivered by this latest from Elliott Wave's most articulate exponent. Our times appear to be getting more "interesting," in the sense of the age-old curse (May you live in interesting times) and Prechter's method, thoroughly addressed in this set, offers a unique and useful perspective. This two-volume set should also be the starting point for a broader investigation of socionomics, with an eye toward its establishment as a new field of study in its own right.