A Nobel winner's remedy for trial-and-error economics

The present government involvement in the operation of the United States economy presents a confusing picture of a sprawling labyrinth rather than a blueprint of a rationally designed edifice.

In an advanced industrial economy like America's, any action intended to meet a problem confronting one particular industry, one particular geographic area, or one particular group of citizens is bound to affect - whether intended or not - many other industries, other regions, and other citizens. Moreover, many, if not most, of the decisions, private as well as public, arrived at and carried out today can be expected to affect the economy and the state of American society not only next year, but 5, 10, and even 20 years from now.

The troubleshooting approach to formulation of government policies, at least in the economic field, is bound to be ineffectual and inordinately costly under such conditions. Measures devised to meet one particular problem turn out to create new problems or, at least, to aggravate the already existing ones.

An alternative to the troubleshooting, trial-and-error approach is one in which the country's economy is viewed as a system of interrelated activities (which it actually is) and the economic policies of the federal, state, and local governments are conceived as a combination of well-coordinated rules and actions designed to facilitate the day-to-day operation and, to some extent, steer in a desired direction the development of the system as a whole.

Some recent legislative reforms and administrative changes can be interpreted as tentative moves in this direction. The time has now come to take a decisive step:

A strong autonomous research organization should be established to provide all branches and agencies of the government with technical support required for developing a systematic coordinated approach to development, evaluation, and practical implementation of national, regional, and local, general, and sectoral economic policies.

The proposed organization could also strengthen the quality and compatibility of privately gathered data (e.g., by associations and research groups) by providing suggested statistical standards and guidelines.

This organization should also be responsible for monitoring in great detail developments in all parts of the US economy, with emphasis on changes in their inter-relationships and, whenever necessary, on their dependence on anticipated changes in the structure of the world economy. In doing so, it should be able to identify and perhaps anticipate the potential trouble spots.

In looking ahead, the analytical capabilities of that organization should be engaged not so much in crystal ball predictions of the future, but rather in systematic elaboration of alternative scenarios each describing, with emphasis on sectoral and regional detail, the anticipated effect of a particular combination of national, regional, and local economic policies. This is, in fact , the only means by which the government and the electorate at large will be able to make an informed choice among alternative policies.

While providing research support to legislators and administrators engaged in the overall direction of national economic policies and assisting in the choice of appropriate methods for their practical implementation, the proposed technical organization should not be directly involved in either process any more than is, for instance, the Bureau of Labor Statistics (Department of Labor) or the Bureau of Economic Analysis (Department of Commerce). In order to be able to discharge effectively the responsibilities assigned to it, it should, however , have a decisive voice in determining the direction and scope of the data-gathering activities of the federal and, in some instances, state and local governments.

As every user of government statistics knows, to secure a modicum of comparability and compatibility between figures emanating from different agencies or even from different offices within the same agency is a trying task, absorbing an inordinate amount of time and money. Much valuable information falls inevitably by the wayside. The time elapsing between collection and the actual release of urgently needed figures is, in many instances, too long. An official input-output table describing the flow of goods and services between all sectors of the American economy in the year 1972, a table based mainly on census figures, will, for example, be ready for release only in 1978. In the absence of a comprehensive statistical plan, data-gathering crash programs are initiated which are both inefficient and costly. Much more complete and reliable information would be on hand at the time of a crisis if the need for it were anticipated and detailed basic data were collected year-in and year-out.

The activities and responsibilities of the proposed research organization should thus comprise:

* Serving the research needs of an economic development board to be established in the executive branch of the federal government.

* Preparing special research reports at the request of congressional committees and various departments and committees in the executive branch.

* Monitoring the state of the US economy and its relationship to the rest of the world; preparing and publishing, on its own initiative, technical reports on problems confronting it.

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