COLUMN

The dismal science’s sunny side

Contradictions beset economists as their credibility takes a beating

Roderick McQueen December 29 1980
COLUMN

The dismal science’s sunny side

Contradictions beset economists as their credibility takes a beating

Roderick McQueen December 29 1980

The dismal science’s sunny side

COLUMN

Contradictions beset economists as their credibility takes a beating

Roderick McQueen

Economists, like errant election pollsters, are getting so they can’t be trusted to future-watch. The ones who do make some sense may not be getting any more accurate, but at least they are becoming more entertaining. One such wit is Abraham Rotstein of the University of Toronto. As a

man who promotes government intervention in a hands-off conservative world, he can’t afford to take himself

too seriously. When he predicts next year’s number of housing starts, for example, he’ll admit cheerfully: “My secret

confession is that I begin with the TV bulletin and make a marginal change.”

TD Bank’s Doug Peters is another candid canvasser.

He does not expect controls to return in 1981, but recalls his 1975 pronouncement: “Just be-

cause you’re in trouble, you don’t do something stupid.” A mere two weeks later, the federal government brought in controls.

When Rotstein looks ahead, he will say something puckish like: “1981 will be like 1980 only more

so.” It’s a technique learned from a professor who used to point out that anyone who consistently said that tomor-

row’s weather will be like today’s was likely to be 20 to 30 per cent more accurate than the weatherman.

That wise counsel came from Milton Friedman, a 1976 Nobel Prize-winner for economics and now a latter-day saint who is worshipped almost more than mammon. Friedman’s tightmoney theories have dominated U.S. economic policy for the five years since wage and price controls advocate John Kenneth Galbraith fell out of favor. The conservative views of President-elect Ronald Reagan will ensure a perpetual Milton machine, with Canada remaining a small cog run from afar. Finance Minister Allan MacEachen, whose October budget has made him one of the Bothers of Confederation, has hidden in a thicket of verbiage which includes an attack on U.S. monetarist policies as “dangerous.” Living north of the U.S. is suddenly a wealth hazard equivalent to

the downwind side of Three Mile Island.

The trouble with the 1980s is that the pat answers of the past—massive government spending, tax cuts, money supply tinkering—no longer seem to work. Interest rates are at all-time peaks with prime reaching 18.25 per cent last week, yet Canadians will still splurge $3 billion on Christmas gifts. The dollar sank to a 47-year low of 82.49 (U.S.) last week yet, despite record exports, trade balances continue to be in deficit. The total economy will be worth $300 billion next year, yet Canada will likely stagger through the longest recession since 1954.

More contradictions. After countless job-creation programs, there will be one million unemployed; after years of tight money, inflation may reach 15 per cent. At present rates of inflation, in the year 2000 a loaf of bread will cost $8, a jar of instant coffee maybe $50 and the car of tomorrow will cost the same as the house of today. As Vera, the often drunk and out-of-work actress in the musical Mame, says when the crash of ’29 wipes out everyone else: “Thank God I never put anything aside.”

Through it all today, the speed of greed increases. On some days, options now equal equity sales on the American Stock Exchange. That means people want to make instant money, preferring to invest in a vanishing asset rather than the long-term growth of a company. This season’s best-selling business book is Douglas Casey’s gloomy Crisis Investing. The U.S., he says, will enter a depression far greater in scope than the 1930s—no later than 1983. It’s a date conveniently far off to allow for maximum paperback sales. And the season’s most sanguine man must be the Rt. Hon. Pierre Elliott Truculent, who says that a little common sense and a reordering of priorities will stretch the food dollar.

The plain fact is that no one knows what to do about the economy in general or inflation in particular, least of

all Gerald Bouey, governor of the Bank of Canada, the House that Flack built. Asked after a meeting of provincial treasurers last week how he and his standpat policies were received, the good grey man quipped that he “left to wild applause.” Maybe they thought he was never coming back.

“Everybody’s afraid of something,” said the late Frank Graham as he interviewed Clyde Beatty, the lion and tiger trainer. “What are you afraid of?”

Replied Beatty: “Don’t tell anybody, but I’m afraid of those lions and tigers.”

These days, economists and policy planners face

the same dilemma. They can either freeze with a fear of the future they foresee, or they can adopt the what-meworry attitude of Ontario Hydro chief economist David Drinkwalter. Says he: “When we’re dealing with a forecast in the future, we’re not dealing with precision. We’re dealing more in the realm of fantasy and vision.” Too much fantasy, apparently, for businessmen. A recent Gallup poll found that most chief executives give little weight to the views of economists, saying that forecasts have minor influence on company plans. Admits Prof. Walter Heller, a University of Minnesota economist and adviser to Presidents John Kennedy and Lyndon Johnson: “It has gotten so bad that the Polish are telling economist jokes.” Just another reminder that anyone who thinks economists are humorless has forgotten that Stephen Leacock was one. It’s a good thing that even the best economists don’t take themselves too seriously. No one else should either.