Newspaper article THE JOURNAL RECORD

Experts See Room for Improvement in Economics

Newspaper article THE JOURNAL RECORD

Experts See Room for Improvement in Economics

Article excerpt

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 at all.''

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 forecasts.''

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 psychological studies.

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. …

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