The Forecasters Flunk

  • Share
  • Read Later

Poor predictions give once prestigious pundits a dismal reputation

"I'm thinking of quitting and becoming a hockey goalie."

Lawrence Chimerine, chairman of Chase Econometrics, could be speaking for the entire fraternity of economic forecasters. After their failure to foresee the current economic boom, trying to block slap shots might seem like an easier career. Almost with one voice, the experts a year ago predicted moderate growth and a rise in inflation in 1984. They were spectacularly wrong. The U.S. economy has since embarked on a boom that has produced a stronger expansion with steadier prices than at any other time in the past two decades. In the first quarter of this year the gross national product grew at a dazzling 10.1% annual rate, more than twice what the experts had predicted.

Other forecasts have scarcely been better. The economists missed the onset of the 1981-82 recession, the worst downturn since the Great Depression. Then, once the slump arrived, they misjudged both its length and its severity. Now even some professionals have soured on economic predictions. Says Martin Feldstein, who returned to Harvard last month after an embattled 21 months as chairman of the President's Council of Economic Advisers: "One of the great mistakes of the past 30 years of economic policy has been an excessive belief in the ability to forecast."

Doubts about predictions popped up again last week when the Reagan Administration gave its midyear forecast of the economy and the outlook for the size of the federal deficit. Guided by figures produced by economists at the Treasury Department, the Office of Management and Budget and the Council of Economic Advisers, the White House estimated that the G.N.P. will grow by 4% annually between now and 1989 and that, as a result, the deficit will shrink from $174 billion in 1984 to $162 billion during that period. The G.N.P. projections, though, were so vague and uncertain that Treasury Secretary Donald Regan said, "If you believe them, then you also believe in the tooth fairy. I don't think that anybody can see very clearly for five years." Indeed, the Congressional Budget Office expects the deficit to swell to $263 billion by the end of the decade.

This kind of professional performance is raising serious questions about the degree to which companies and governments should pay attention to economists at all. "We have often claimed more than we can deliver," concedes Milton Friedman, the 1976 economics Nobel laureate. Partly in view of that, Neoconservative Pundit Irving Kristol has argued that the Swedish Royal Academy of Science should stop awarding the Nobel Prize for Economics. Says Economist Lester Thurow of the Massachusetts Institute of Technology: "Economics is no longer in fashion. In the U.S., the public esteem of economists is lower than at any time since World War II."

That is nowhere more true than in the White House, where President Reagan, an economics and sociology major at Illinois' Eureka College, seems to prefer to be his own economist. Reagan is not bothering to fill the top economic advisory post vacated by Feldstein until after the November election, assuming that he is reelected. According to Murray Weidenbaum, Feldstein's predecessor, Reagan once asked, "Do we need a Council of Economic Advisers?"

  1. Previous Page
  2. 1
  3. 2
  4. 3
  5. 4
  6. 5