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Divining Economic Issues
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14239 |
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EDITORIAL
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| Issue
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7 / 1988 |
1,273 Words |
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Morton A. Kaplan
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The special report this month in Current Issues deals with the state of the American economy. I assume that most of our readers are as bemused as I am by the fact that any four different economists are likely to have at least five opinions on many immediately important economic issues. Although there are certain basic aspects of economics on which almost all economists are likely to agree, these rarely include subjects of serious public debate.
The reason for this is not hard to find. Let us consider a field that all would concede is a genuine science, physics. Now suppose that we have to agree on how to build a bridge or design a plane, that is, on a matter of applied physics. Engineers might well disagree. If they do, they might turn to wind tunnel experiments or computer exercises to determine how real-world factors that theoretical physics does not directly deal with will affect the project. That is true even for a simple multibody problem, which is not nearly as complex as the design of a bridge or plane.
However, we cannot put an economy in a wind tunnel, build small models of it, or represent it in a computer without making simplifying assumptions that may vitally affect the outcome. Moreover, the computer model necessarily will leave out of account either unnoticed changes in individual propensities to behave or changes in relevant affecting conditions. In short, anyone who operates from any specific and rigid set of assumptions--whether monetarist, supply-side, or Keynesian--without asking whether the assumptions are relevant to the particular case, is an ideologue. And even if one asks the relevant questions, there are indeterminacies at work that make speculation hazardous.
We should be aware that practices that work with respect to one problem or at one time are the very ones that fail at another. And the mistakes that we try to correct, as is often the case in the field of international relations, produce in turn a new set of mistakes. It is enough to make one want to rephrase Santayana to read: "One who learns from history is doomed to make new mistakes."
With these qualifications in mind, and although I am without credentials in economics, let me comment briefly on some of the issues discussed in this special report. Professor Eisner's arguments with respect to the deficit seem difficult to challenge. The current yearly deficit is roughly 2.5 percent of the GNP. By European and Japanese standards that is not excessive. The total deficit relative to either the GNP or the national wealth also seems clearly sustainable by similar comparisons. Whatever objections may apply to $200 billion-plus deficits at current GNP levels, the more recent federal budget deficits, even ignoring state surpluses, do not seem to be a major problem.
The international trade deficits obviously cannot continue at current levels indefinitely. Although in principle they can be corrected by a decline in the value of the dollar, this involves complexities that may produce instabilities if taken too far. American manufactured goods in general, if not in every particular, seem overpriced. One hopes that the discipline of the market will force American manufacturers into efficiencies that will make U.S. products competitive. Problems in the quality of our labor force--the education issue--may make this difficult. But if we do not solve this issue, the American standard of living will have to
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