This is the season for dead batteries, rhinoviruses and annual economic forecasts, and some critics of the economic profession would say there's not much to choose among them.
The past two years have been full of unpleasant surprises for the economics profession, which generally underestimated the strength of the recovery and overestimated the drag of interest rates on consumers and businesses.
This week, economists were surprised again by the government's report of an exceptionally strong showing for the economy in the last three months of 1984 instead of the slowdown many experts had predicted.
"This recovery seems to thrive on pessimism," said Jack Albertine, president of the American Business Conference, and one of the optimists. "Every time commentators predict that the economy is grinding to a halt, the recovery surges ahead with new-found strength."
The optimists include President Reagan and his staff, who found the strong 1984 fourth-quarter performance to be further evidence of an economic miracle. Reagan, of course, has been a steadfast optimist, along with the handful of supply-side economists who supported his tax cut and have predicted it would prove to be a key for long-running, noninflationary growth. [The majority of economists who advise policy makers are divided into "mainstream," or conventional economists, and the smaller band of "supply-siders."]
In contrast with most of Wall Street mainstream economists, Reagan predicted last summer that interest rates would decline a shade during the second half of 1984, and he was right.
"The president hasn't paid much attention to economists, and it's worked out well for him," said Allen Sinai, chief economist of Shearson Lehman/American Express. "Right now I'd have Economists are getting a bum rap for their lack of success at something they admit they don't do well -- spotting the short-range turning points in consumer spending, for example. the same reaction if I were him -- what do I need a Council of Economic Advisers for?"
The reason he does need them is that economists are pretty good at what they are supposed to do: providing forecasts about large, long-term shifts and trends in the economy, Sinai said.
They are getting a bum rap for their lack of success at something they admit they don't do well -- spotting the short-range turning points in consumer spending, for example, and making precise predictions about interest rates six months in the future.
Wharton Econometric Forecasting Associates also misjudged the dramatic ups and downs of the economy last year. But their estimate for the increase in the gross national product in 1984 was right on the mark.
Where mainstream economists erred, says Sinai, was in not looking hard enough at the continuing positive impacts of the huge, multi-year tax cuts enacted in 1981. Some $342 million of tax cuts from the 1981 act were available for 1983, 1984 and 1985, delivering a tremendous stimulus to consumer and business spending.
"The profession did underestimate the effect of the tax cut on growth," said Sinai, because mainstream economists were so absorbed by the negative side of the coin -- the huge budget deficits caused by the tax cuts.
While the supply-side supporters of the tax cut had plenty of reason for embarrassment at their 1981-1982 predictions, they fared better than mainstream economists last year. "The supply-siders who were focused on that the growth factor had a better line" on 1984, Sinai says now.
But the growing debt -- the negative side of the coin -- remains. "Eventually, the debt comes back to roost. It's a question of timing, said Sinai. "The horizon looks so good now that the plusses of the debt and the deficit are still outweighing the minuses." The tax cut still boosts consumer spending and business investment. The overpriced dollar is restraining the growth of inflation by lowering import prices.
"That can go on longer than economists think. . . . But the problems are there, and the question is, when they will hit," Sinai said.
The budget deficit is part of a "helter skelter" acceleration of debt in the hands of the federal government, businesses and consumers, in the words of worried economist Henry Kaufman. To ignore the risks posed by that debt is to depend upon continued good luck.
Maybe the problem economists have had recently is that they haven't been lucky. But then, their calling isn't fortune telling.
Herbert Stein, a former chairman of the Council of Economic Advisers, offers this defense of his profession in the American Enterprise Institute's January publication, The AEI Economist.
"Economists should not be judged by the forecasts of next year's GNP or price level. I am prepared to stipulate that the value of economics should be judged by forecasts of some kind. I will confess that there are moments when I think that economics is a branch of literature, or entertainment, or show business, which can have value even if it cannot forecast. But economics would not rank very high in that category. . . .
"Economists have made a major contribution to the world's thinking by predicting some general consequences of the way the world is organized," he concluded. And that is why economists' concerns about the general, long-term consequences of today's economic trends bear the closest attention.