361. "Economists Fail as Forecasters." USA Today (August 13, 2001) p 12A.
The checks are in the mail.
That's the message the Bush administration has been happily promoting about the tax-rebate checks now being sent out. But if you believe President Bush when he tells you that the billions of dollars involved "will help our economy," you have been fooled.
Don't be misled by Democrats, either, when they claim the rebate will weaken our economy. Fact is, no one -- politician or economist -- knows for sure what the tax cut will do to the economy. Predicting the path of the economy is about as certain these days as picking a winning stock. So don't buy into the rhetoric.
How certain am I of that fact? Well, George Bernard Shaw used to say, "If all economists were laid end to end, they would not reach a conclusion."
Remember, economists argued for decades that if the economy grew at a rate higher than 2.5% per year, or unemployment was lower than 6%, the economy would overheat, causing runaway inflation. But during much of the 1990s, the economy grew faster, unemployment was much lower, and we had very little inflation.
But can the same be said about other economic indicators?
You bet. I worked for the Carter White House in 1979, when OPEC hit us with a second round of high oil prices. The conventional wisdom among economists then was that, given the limited, non-renewable amount of oil worldwide, the price of oil would continue to rise until next to nothing was left, sometime before 2000.
Ah, you may say, such long-term predictions are truly difficult. Well, go back just a few weeks and listen to the chorus of those who expected the price of gas to rise to $ 3 a gallon this summer, and California to be darkened by rolling blackouts.
Need I say more? The Wall Street Journal regularly compares the results of the investment recommendations of the well-paid stock pickers with the results of just throwing darts at stock market tables. Often, the cost-free darts win. And, when the pros win, it is often by an only slight margin.
Interpreting economic entrails
E.E. Evans Pritchard, a highly respected anthropologist, found that rainmakers in one African tribe stay in business -- even though they can't accurately predict rain -- by using a series of devices to soothe their public. If it fails to rain, the shamans say that either the rain dance was not done right and must be repeated, or that it will indeed rain, but just later than expected.
I'm sure all of these devices are used by economists, too. When it is predicted that the economy will pick up in the next term and it balks, we are told either that the last interest-rate cut was not large enough and must be repeated, or that the economy will rise -- just later than expected.
More assurance, less anxiety
Why do millions of people pay for newsletters and analysts to predict which stocks will rise, what the price of gold will be, what will happen to bonds, despite the fact that such predictions rarely work?
The reason people crave predictions seems to be what I call "future angst." They find, understandably, that investing (or making plans to purchase a house or open a business) is rather scary. They may lose their nest eggs or have to declare bankruptcy. Hence the more they can be assured what the future will be, the lower their anxiety. This is why fortunetellers exist and millions rely on astrology.
If you can do without such crutches, you may take note that no one knows what the economy will do next month, not to mention next year, or what interest rates will be or what the job market will be like when your kids graduate from college.
You may not sleep as soundly as those who are soothed by shamans, but you will also have fewer rude awakenings.
Amitai Etzioni, the author of Next: The Road to the Good Society , is a member of USA TODAY's board of contributors.