Not a Swami, but a Student
INTERVIEW. Economist Weidenbaum says his job is learning how the economy works, not forecasting
ST. LOUIS — `THE human enterprise is really global.'' In those six words, economist Murray Weidenbaum summarizes what he has learned through decades of observation in three different worlds: in business with the Boeing Company, in government as chairman of President Reagan's Council of Economic Advisers, and now as a chaired professor at Washington University here, where he directs the Center for the Study of American Business. It was as an undergraduate at City College in New York that Mr. Weidenbaum - the first of his family to go to college - discovered his interest in the public-policy aspects of economics. ``I have no pretense of being a theorist,'' he says, referring to himself as ``a nuts-and-bolts economist.''
One of the serious problems facing economists, he notes, is ``to develop and maintain public credibility. The public thinks, `two economists, three opinions.' How can you believe people if each one of them is pointing in a different direction?
``We'll know that we really are an accepted profession when people look upon us the way they do dentists: Someone you go to for standard professional work,'' he notes with a smile.
But is economics as ``scientific'' as the natural sciences - or even as dentistry? Describing economics as ``an organized body of knowledge,'' he says it is indeed a science. If the public doesn't always see it that way, that is in part because economists ``tend to focus, in our public debates, on our disagreements.''
He notes, however, that economists find broad areas of agreement on many points. In the recent national discussion over an increase in the minimum wage, for instance, he recalls that, unlike earlier debates, no one seriously questioned whether such a step would increase unemployment. ``Our basic point - that if you increase the price of labor, you reduce the demand for labor - has finally been accepted.'' The debate, instead, turned on the question of how large the effect would be.
So are there ``laws'' in economics that resemble laws of nature?
``We're very chintzy in enacting legislation,'' he chuckles. ``I feel more comfortable talking about general conclusions than about laws.''
Those ``general conclusions,'' however, don't always lead to accurate forecasts. He admits to being party to a ``bad goof'' when, as a White House economist, he failed to forecast the recession in 1982. But even that ``bum forecast,'' he says, was not as far off the mark as the ``even bummer forecasts that prevailed in the private sector'' at the time.
Such failures, in fact, stimulated him several years ago to examine his profession's record of forecasts in general. His research, presented in a paper to the American Economic Association, concluded that annual economic forecasts have been remarkably accurate - within one percentage point on such matters as real growth and inflation. ``If we say the inflation rate will be 4 percent,'' he explains, ``it's not going to be lower than 3 percent and it's not going to be higher than 5 percent.
``On the other hand, if you look at the record of quarterly forecasts, it's very discouraging. Here, we've really discredited ourselves, because sometimes we've said the economy's going to go up when it's going to go down. I quit making quarterly forecasts.''
Why the discrepancy? With tongue in cheek, he blames ``St. Offset,'' whom he calls the patron saint of economists. ``I think within one year a lot of different factors can offset each other - lots of adjustments, especially in volatile areas like inventory accumulation or farm price supports. Here I think we do the public a disservice by not understanding our limitations.''
But the goal of his profession, he insists, is ``not to play swami and read the foggy crystal ball'' - a point his wife made recently when she bought him ``an actual, foggy crystal ball'' for his birthday. The aim, instead, is to ``understand how an economy operates, and to understand the impact of changes in public policy on the economy.''
Just now, Weidenbaum is putting that understanding to work in preparing a book on the so-called ``peace dividend'' of federal funds made available from defense-spending cuts as the cold war winds down. ``I sat down and worked up a detailed table: What are the specific weapon systems that are likely to be canceled or cut back, and what are the dollar amounts? People have been writing all this stuff about peace dividends,'' he says, ``but before you carve up the melon, what's the melon going to look like?''
His conclusion: It will require ``a tremendous amount of cutting of the budget over a five-year period to put together even a $100 billion melon.''
That sort of budget-cutting exercise, he says, is increasingly tied to a global view of America's place in the world. ``As I look at the United States in the very competitive world economy,'' he says, ``I think an understanding of what makes our economy tick is essential.''
That global view has only recently prevailed. When, newly graduated from Princeton University with a PhD, he began working as a corporate economist, he recalls doing reports on ``the consumer sector, the business sector, the government sector - and, if you didn't run out of time, a little on the foreign sector.''
Now the ``foreign sector'' looms large - a point brought home to him several months ago when he served on a presidential mission to Poland. ``We have so much experience in analysis of countries moving from capitalism to communism,'' he says, ``but how do you go from a communist, totalitarian society to a democratic, capitalistic society? There's no blueprint. This is pioneering.''
An emphasis on international affairs will, he says, characterize the work of economists in the future. In the 21st century, he adds, the global economy will cease to be ``a platitude'' and will become instead ``a commonplace.''
In the past, ``we typically have tended to analyze a closed economy - a piece of geography, if you will. But there's a growing tension between the force of technology and business, which is global, and the force of government policy - which, whether it's a city, state, province, or country, is territorially oriented. We're going to have to focus on that broader dimension.'' That, he says, may be one of the contributions of his field, which can help to ``focus national thinking not on the piece of territory but on the human enterprise.''
He also sees the need for a greater understanding of ``this three-way relationship between technology, public policy, and economic forces.'' Already, as corporations and financial markets deal transnationally, much of government policy is becoming ``obsolete.'' Decisionmaking in the private sector, he says, ``is going to be proportionately far more important in the 21st century than decisionmaking in the public sector.''
``To the extent that what occurs in the public sector is less and less relevant to the global economy,'' he concludes, ``we need to focus more not on the governmental response, but on the private response.''