For the thousands of economists attending the American Economic
Association annual meetings in Atlanta, and for the millions of
people in the world undergoing rapid and often chaotic change, there
is a crucial question: How good is the state of economics?
The answer from some leaders of the profession: Not so good.
Herbert A. Simon of Carnegie-Mellon University, a winner of the
Nobel Memorial Prize in Economic Science, contends that the
differences and sharp conflicts among economists demonstrate that
the state of economic knowledge is insecure.
``The public is not mistaken in its perception that economists
disagree frequently and vociferously,'' Simon said.
``We have Keynesian economics, monetarism, supply-side
economics, rational expectations and budget balancing, not to
mention free trade, protection for infant industries, and proponents
of the income tax, the single tax, the sales tax and almost no taxes
Michael J. Boskin, chairman of the President's Council of
Economic Advisers, sought to resolve these clashes by taking what he
called a ``pragmatic, eclectic'' position.
He said the public could not expect to find a ``pure monetarist,
pure Keynesian or pure rational expectationist'' on his staff.
``We are not sticking slavishly to any one of them,'' he said,
adding, ``This view is shared by most people in the Administration
and fits in with the way President Bush thinks.''
He counseled much greater humility for economists.
Despite differences among economists on both analyses and
policies, some critics insist that economists share a common and
incorrect approach to understanding human behavior - that they
exaggerate human rationality, alleging that people act on the basis
of calculations and forecasts of how they can get the most income,
profits or well-being.
Kenneth J. Arrow of Stanford University, who won the Nobel
Memorial Prize in 1972, observed in an essay in a new book, ``The
State of Economic Science,'' that ``the impossibility of carrying
out such calculations is manifest from everyday observation and
confirmed by the inability of economists using our theory and our
computing power to make good forecasts - even good contingent
A contingent forecast is one based on certain assumptions.
Arrow noted that in experiments, cognitive psychologists had
found systematic kinds of bias in human behavior, strongly
contradicting the economists' assumption of rational behavior.
Both Arrow and Simon urged the economists to learn from these
The inability of economists to forecast reliably remains a
persistent criticism of the profession.
There is increasing question, after the development of chaos
theory in mathematics, about whether economic systems, given their
complexity and the possibility that small changes in some variables
will produce enormous changes in the overall system, is inherently
chaotic and does not lend itself to dependable forecasts. …