Not since the Great Depression have economists fallen so low in national esteem as in the last year or two. Fifty years ago many of the most reputable members of the profession continued to applaud the policies of Coolidge and Hoover--and oppose those of F.D.R.--until public incredulity gave way to amusement. Currently, one cannot doubt, there is a widespread impression that it is economists who are responsible for the disastrous designs of Ronald Reagan or, by earlier default, for the conditions that, out of recklessness, caused them to be tried. And it is widely believed that economists are now short of alternatives.
I have not, in the past, been a relentless defender of my professional colleagues. With no excessive effort, I have been able to identify their faults, including those of Jimmy Carter's aides, who now enjoy the distinction that derives from past public service while the man they had reject effective wage and price restraint in favor of a tight money policy and recession is back in Plains. One could come up with other lapses. Nonetheless, the ill-fame to which the profession is currently subject seems to me undeserved. Thus this word in their--our--defense.
The economics, as it is loosely called, of the Reagan administration never had the support of more than a minor fraction of my colleagues. This is especially true of the supply-side aberration. The number of certified scholars supporting it was greater than the number of accredited physicians speaking out for Laetrile, but the comparison is close. Only those unduly open to affluent applause ever believed that large tax reductions with heavy benefit in the upper brackets would bring a big burst of personal and corporate energy and investment. Quantitative research gave no support to this thesis. That the responding increase in output would somehow quench inflation, another supply-side dementia, was believed by almost no one. What is known to economists as Say's Law holds that increased output, that from improved productivity apart, will, in a general way, pay out the purchasing power by which it is bought. There will be no net deflationary effect. And increases in output from increased productivity are too gradual to make any real difference. All of this is commonplace in the textbooks and taught routinely with no appreciable effort of the mind.
Prof. Arthur Laffer's famous freehand curve showing the effect of tax reduction on output, the magic logo of the supply-siders, was also not taken seriously by the profession. For some, Laffer was a figure of fun. Most others held that the Kleenex, paper napkin or toilet paper on which, according to varying legend, the curve was first drawn could better have been put to its regular use.
The monetarists, the other voices in the Reagan chorus, are a different case. They are taken seriously. But always among their colleagues they have been regarded rather as a cult. The reference to them as the Chicago School tells how they are set apart from the rest; there is no Harvard, Berkeley or Arkansas School. Prof. Milton Friedman, the acknowledged prophet of monetarism in the profession, the administration and around the world, is greatly respected for his intensity of purpose, much envied for his evangelism and particularly noted for his detachment. He recently, in a bitter denunciation, detached from Margaret Thatcher, his closest disciple. He has detached from the Bank of England and just lately from the Federal Reserve as too incompetent for his policies, and if things continue to go badly, one imagines he will detach himself in an intelligent way from Ronald Reagan. But for all the attention they have commanded, Friedman and his apostles have always been a minority in the profession.
It is true that many economists are fascinated by the arcane operations of the central bank; a familiar reference to "The Fed" is made to suggest a priestly identification with the occult. Central banks, in consequence, have been accorded a power and omniscience that are sadly in excess of the reality. And until recent times, monetary policy has been thought socially neutral. The punishment that it accords to housing, construction generally, the real estate, automobile, farm implement and thrift industries, to smaller businesses and farmers and to the disemployed was not sufficiently perceived, a mistake that will not again be made. But the monetarist conviction that all economic activity can be regulated rather painlessly by a single-minded attention to the money supply commanded belief only from a minority, and not even a minority imagined that vigorous supply-side expansion could be combined with stern monetary restraint that works its remedy for inflation by way of idle plant capacity, unemployment and induced recession. However, that is what Reagan economics requires one to believe.
I would agree that my professional colleagues have been a bit slow on alternatives. Most would urge a firm fiscal policy as opposed to a tight monetary policy; better high taxes than murderous interest rates. There is also now generally emerging support for an incomes and prices policy, a recognition that there isn't a modern highly organized economy that can combine high employment and reasonably stable prices without one. All this could have come earlier. One hopes, not incidentally, that the trade unions as well will now recognize that wage and price stability so negotiated is highly preferable to that forced by shrinking markets and failing firms, as presently in the automobile, airline and newspaper industries.
I also think that my conservative friends --those of the American Enterprise Institute, for example--remained far too long in the woodwork, where, indeed, some, to their professional shame, are. They would not have been tolerant of massive deficits and reckless fiscal policy from a liberal administration; their protest would have been as deafening as economists' ever are. And they should have reacted far more strongly to the risks implicit in the administration's program. But as large deficits (and the consequent choice between high interest rates and high inflation) have become a conservative totem, so have the risks. I met a conservative friend of many years' standing a few weeks ago, a loyal supporter of the administration. I taxed him with the hazards in the course being pursued. He replied, "I agree. But there is one chance in 10 that it might just work, and so I am for it."
My defense of economists cannot therefore be a complete whitewash. But still we are better than being pictured, or so I hope. Even among conservatives, the silence imposed by shock and misguided loyalty can hardly be taken for consent.