Anyone with a memory for 1960s television will recall the black-clad figure of Richard Boone playing Paladin in "Have Gun, Will Travel." Paladin looked fierce, but in the main, he was a benevolent character who wielded his six-shooter on behalf of the deserving.
The image somehow applies with a twist-to the economics profession today. It has its thousands of eager Paladins, ready to offer their service to myriad causes. But one wonders about benevolence of their influence. For if the six-shooter has disappeared, it has been replaced with something almost as menacing: the computer.
The computer is both the boon and the bane of economists. It underlies the profession's prosperity. Today, the federal government employs 5,300 economists-60 percent more than in 1960. And many of them owe their livelihood to the computer. It has enabled economists to store and manupulate mountains of data. New technology creates its own demand: What can be done, must be done.
A parallel boom has occurred in private industry. Computerized consultants churn out monthly forecasts and charge clients more than $100 million annually for their predictions according to one estimate. A client can buy not only monthly printouts, but also the right to plug a private terminal straight into the consultant's central computer. With on-line access, no end of computer games can be played. A beer company devises an equation to relate beer sales to the economy's performances. The beer company economist cranks in his economic assumptions and out comes beer consumption.
These manupulations are sometimes as entertaining as they are enlightening, but to see the process at work is to understand why the computer has subtly corrupted the profession. With increasing frequency, economists perform as hired guns. To often, they have succumbed to the temptations of fame and fortune. The overreach themselves, claiming that they and their computers-know more than they do.
Merchandising ideas now almost routinely includes presenting computer studies. Politicians and interest groups of all shades and persuasions engage in this salesmanship: liberals and conservatives, Republicans and Democrats, business and labor.
But the studies grow progressively more suspect. Earlier this year, computer studies forecast catastrophe for the California economy if the state's voters approved Proposition 13. The voters did, and the state's economy still is booming.
When Congress last spring considered reducing the tax on capital gains-such as the profits on stock sales-one business group presented a consultant's report that predicted astounding results. A cut in the maximum capital gains tax rate from 49 to 25 percent would push up the stock market by 40 percent the report said. In fact, the Congress cut the maximum rate to about 28 percent, but the stock market is where it was a year ago.
That these studies produce the results that their sponsors expect is not to say that they are overtly dishonest. The process is more subtle. Buyers and sellers know what to expect from each other. Data and equations allow ample room for maneuvering.
Consider that capital gains study, Michael Evans, president of Chase Econometrics, reminds critics that the study forecast the full impact would be felt only after two years. He concedes that for the moment the stock market has been overwhelmed by other factors-higher interest rates, inflation and fear of recession. By late 1980, the Dow Jones average, now hovering around 800, could easily rocket past 1100, he maintains.
If that happens, Evan's critics surely will respond that the the rally reflects a multitude of factors-a better inflation outlook, higher profits a presidential election and, perhaps, lower capital gains rates. Ultimate causes almost always remain obscure.
That Evans received a sizable fee ($20,000) for his prediction surely taints his conclusion. Another major consulting firm. Data Resources Inc., performed a similar study.
These commercial pressures obvious enough, but the computer has inflicted more serious damage on the economics profession. It has fostered an illusion of certainty and precision when the real world is uncertain and imprecise. And even when economists give lip service to these problems, they too often accept the judgments of their machines as a substitute for common sense.
This has critically affected the information available to government officials in making economic decisions-and the public climate in which those decisions are made. By its very nature, the computer has helped impart a short-term bias to economic policy. Typical of the advice offered to congressmen, for example, are the economic reports of the Congressional Budget Office. With distressing regularity, the CBO reviews a series of policy options, explaining that such and such an option will, say, lower the rate of unemployment by 0.3 percent whilee raising inflation 0.1 percent.
It is doubtful that anyone can predict the short-run impact of policies with such exactitude, but ecen if that feat were possible, this type of forecasting ignores the genuinely critical question of the long-run impact of government policies on the economy's behaviour.
Most economic models base their predictions on relationships that existed in the past: if personal income increases X percent, then consumption should increase Y percent and savings Z percent. But most of the forecasts have erred in estimating inflation and have missed critical aspects of the economy's current expansion because relationships are changing. Individual and insitutuional behavoir is simply not as stable as the computers would like.
Even if it were, uncertainles exist that never can be pumped into a computer. On the basis of an elaborate model, for example. Martin Feldstein, a professor of economies at Harvard, has argued that by guaranteeing people a retirement income. Social Security has discouraged private savings and therefore, investment. With no Social Security, investment would have been significantly higher.
Maybe. But without Social Security, a whole generationl of older Americans would have lacked much of their retirement income. Surely that would have had perfound effects on the economy - including investment - in the last decades.
The computer is not evil. It represents a genuine advance of stupendous proportions that allows economists to raise new questions and better understand society's choices. But the computer cannot duplicate the real world. A good technology, like Paladins's six-shooter, is only as good as the people who use it. CAPTION: Picture, no caption, By Milton Clipper - The Washington Post