The Truth About Economists

...The military budget, at $85.8 billion the largest since the height of World War II, summarizes the impact of inflation, the swollen personnel costs of the volunteer Army, and the limitations of detente as brutally revealed by the October War in the Middle East and the consequent world-wide alert of American forces that Soviet pressure generated...

...The combination of inflation and unemployment, sufficiently puzzling by itself, is tremendously complicated by shortages of oil and other materials...

...But it came into being as the precious only child of the detente policies that were central to the President's 1972 reelection strategy...

...By the end of 1974, this would give us 9 per cent unemployment and 10 per cent inflation—unless effective countermeasures were undertaken in time...

...Additional Federal spending or less Federal taxation, in the presence of genuine bottlenecks of supply, might do no more than raise prices without expanding either output or employment...

...At best, "self-sufficiency" is a 5-10 year proposition, and at the end of the road energy will be permanently more expensive than it used to be...

...As even Treasury Secretary George Schultz by now realizes, the Russian wheat deal was incompetently handled by our very own Department of Agriculture...

...I draw no momentous inferences from these events...

...What could the President's advisers have thought as they compared 1973's performance with 1972's vision...

...CAUGHT WITH THEIR PARAMETERS DOWN The Truth About Economists by robert lekachman This year's Federal budget, a tidy $304.4 billion, not only is the first to break the $300-billion barrier, it is also 11 per cent larger than last year's and more than $100 billion in excess of the final Johnson Administration document—not precisely what Richard Nixon, Mark I, was promising his more devoted Calvinist adherents...

...Our practitioners are least at ease when the economy is jarred by events outside of their tidy system...

...If we have to bust the budget to prevent it, we'll bust the budget...

...But let it be added that economists outside of government were equally astounded by unexpected events and economic behavior...

...Only half-facetiously, an unkind observer would be tempted to postulate, as a rule of macro-economic guessing, the "law of Stein -\-3...

...The budget and the accompanying economic report are twin confessions of hopes miscarried and expectations doused in the cold bath of reality...

...This year, despite the United States Conference of Mayors' suggestion that the new budget does conceal just a little impounding and its complaint that precious little money is proposed for mass transit and other local purposes, Nixon seems to have been as conciliatory as his rebarbative temperament allows...

...In the longer perspective, though, it stemmed from the growing sophistication of the Persian Gulf producers, the relative political weakness of the major international oil companies, the swelling Soviet presence in the Mediterranean, and the internal disarray of the Common Market...

...These "exogenous forces" are sometimes predictable, sometimes not, ranging from political developments to changes in climate and ocean currents that affect food supplies and human survival...

...Mandate in hand, the President was promoting impoundment as the functional equivalent of the item veto that no Congress has ever been willing to grant the White House...

...Similar dilemmas abound...

...Medicare is the apt analogy here...

...Instead of 3 per cent inflation, by year's end we were living through an 8 per cent escalation (and rising) of the cost of living...

...Although the Council of Economic Advisers, seldom accurate in its recent forecasts, anticipates 7 per cent inflation as the 1974 average, the budget is, all the same, mildly expansionary...

...Money for space exploration is also down, a testimonial to public boredom with incessantly orbiting astronauts...

...Any economist knows that zero growth in the supply of money will infallibly halt investment dead in its tracks...

...Still, if economists are to restore the credibility of their quondam science, they must start paying heed to politics...

...If this year Heller ruefully concedes that economists were caught with their parameters down, and if the Administration's budget breathes a new humility about the certainty of its vision of the future and a novel promise to react to emerging events as necessity dictates, these responses are neither excessive nor premature...

...The Nixon Administration, let me hastily note, is far from innocent of blunders that have aggravated our present problems...

...These shortages place in doubt the efficacy of orthodox fiscal stimulus...

...Politicians prefer to be reelected...

...Only last year, a famous appendix proudly listed 115 programs, some dating back to the New Deal, that the triumphant Nixon had slated either for termination—as in the instance of the Office of Economic Opportunity and public housing subsidies—or for severe pruning...

...Social Security, a wildly popular, largely middle-class welfare program, is the fastest growing area of Federal spending...

...To recite the consequences of abrupt monetary deflation is simultaneously to explain why no industrial society since World War II has seriously embarked upon an all-out anti-inflationary crusade...

...After all, Walter W. Heller, Gardner Ackley and Arthur Okun—the three Kennedy-Johnson Council of Economic Advisers chairmen—did evince qualified approval of Nixon's move to Phase III, and no major Democratic economist took really serious issue with the White House's cheerful 1973 forecasts of declining unemployment and inflation...

...The now-familiar list includes the Russian grain robbery, belated removal by Agriculture Secretary Earl Butz of acreage restrictions on new plantings, retention of oil import quotas, failure to respond to menacing signs of fuel shortage well before the Arab embargo, and the premature shift in January 1973 to the weak and ambiguous Phase III wage-price controls...

...The current disarray of world monetary exchanges, signalized by French desertion of the Common Market currency float, is a consequence of a nationalist upsurge in Western Europe and an American inability to impose a common monetary (or energy) policy on its reluctant Allies...

...Prudent economists in this time of their troubles will offer none but the most tentative forecasts...

...Another $11 billion increases Social Security benefits to the superannuated...

...It's a bad season for economists...

...The immediate cause of the energy crisis, for example, was the decision of the Egyptians and their Soviet backers to gamble on a new round of Middle Eastern war...

...This assures one more "historic" first, for Federal outlays on income maintenance in the 1975 budget will exceed $100 billion...

...He also knows, however, that this will initiate a lengthening chain of bankruptcies, and guarantee layoffs of workers throughout the country...

...We are experiencing an unprecedented conjuncture of difficulties...

...Nevertheless, there is a modest role left to the economist...

...Economists, like other specialists, are prisoners of their own techniques...

...The budget's omissions are equally fascinating...

...It trembles in the chastened language of the new budget and economic report...

...As possibly the single good effect of high food prices, at long last farmers will receive sharply reduced Federal subsidies...

...For the fact is that the profession needs once again to return to the hard school of the real world...

...No doubt most well-socialized economists will at this point throw up their hands and protest that they are neither Pompidou's physician, Edward Heath's psephologist, Chairman of the House Judiciary Committee, Sheik Yamani, nor a qualified meteorologist...

...The words belong to Frederick V. Malek, Deputy Director of the Office of Management and Budget, but the political exigencies behind them are the property of a cornered Chief Executive who simply cannot allow mass unemployment to reinforce the case for his impeachment, coerced resignation or, in William F. Buckley Jr.'s scenario, leave of absence...

...Since little was done to increase the number of doctors, medical incomes leaped but few new health services were delivered...

...For the remainder of this year, the economic outlook in the United States, as well as in Europe and Japan, will probably be most affected by the state of Georges Pompidou's health, the outcome of the British general elections, the course of Congressional impeachment proceedings, King Faisal's oil policy—and the weather around harvest time...

...He is not going to tolerate recession...

...It will be an equally bad season for politicians who pay overmuch attention to what the economists right now have to say...

...The world will go on even if the reputation of economists suffers...

...They will await events and prepare themselves to react sensibly and swiftly to economic problems whose nature and dimensions are at present obscure...

...They are most comfortable when change is incremental and economic models can safely focus, as the trade jargon goes, on "endogenous variables"?such elements within a closed system as annual labor force additions, secular improvements in per capita productivity, and trend increases in consumption and investment...

...He continues to press for special revenue sharing, but at the same time he seeks appropriations for education, health and manpower training projects that were among his major targets 12 months ago...

...Inflation, of course, could be cured relatively rapidly by drastic tightening of credit on the part of the Federal Reserve...

...Of the extra $30 billion requested, the Pentagon's share is $6 billion...

...Unemployment, instead of declining toward 4 per cent, had begun to rise again toward the 6 per cent peak more recently foreseen by Herbert Stein...

...Like all such documents, this budget is interesting both for what it says and what it fails to say...

...Moreover, the projected deficit of $9.4 billion, twice the 1973 figure, is likely to be larger still if, as Nixon people publicly assert, "The President is very firm...

...When it was enacted, billions of dollars were tacked on to the existing demand for medical services...

...The President's statements to the contrary notwithstanding, the energy shortage cannot be rectified in the twinkling of a speechwriter's phrase, even if the Arabs unloosen oil spigots and conservation efforts continue to be relatively effective...