Some Hits and Misses from 1973
FUTURECASTS online magazine
Vol. 3, No. 12, 12/1/01.
25 year economic forecasts:
| Towards the end of 1973, Prof. Robert L. Decker
of the University of California polled between 65 and 84 professional
economists on a number of questions in a three round delphi iterative
effort to ascertain what could be foreseen for the last quarter
of the 20th century.
|| Economists were doing very badly with their
shorter term yearly forecasts at that time. Thus, there was more
than a little interest in seeing how well they would do with longer
term forecasts. These would depend more on perceived economic trends and would not be influenced by sudden unforeseeable events like
a short war or some temporary supply disruption.
As might be expected, the economists had some hits and some
misses. However, what they hit and what they missed are instructive
indicators concerning the actual economic understanding of professional
economists at that time.
| Predictions that were agreed to by at least
70 percent of the economists venturing an opinion included
some impressive successes.
- State and local governments would represent a rising share
of public expenditures. This was a correct political conclusion
that revenue sharing and reliance on state and local governments
would likely increase in the years to come.
- Supersonic airliners will not be used by the domestic
airlines, and could be rejected altogether. This was based
on fuel efficiency and noise problems.
- The number of nations possessing nuclear weapons and long-range
delivery systems will grow to six before the end of the century.
Depending on the definition of "long range," there
are now either five or seven with tested systems.
- An economic depression comparable to the nineteen-thirties
will not be experienced in the United States. Of course,
there has never been any other depression equivalent to the Great
Depression, but considering the growing pessimism of the 1970s,
the fact that over 90 percent of the economists got this one
right is commendable.
- Pollution will continue to be a major problem for the
economy. It didn't take a professional economist to see this
| More instructive about the weaknesses in economic
theory in the 1970s were the following misses.
- Fiscal policy will not fall into disrepute, and control
of the money supply will not become the primary means of conducting
economic stabilization policy. Reflecting the total divorce
from reality of the Keynesian theorists of the day, over 90 percent
of them agreed with this piece of stupidity.
- Price and wage controls will become a semi-permanent feature
of capitalist economies. Coming after the admitted failures
of the Nixon price controls, this is a very revealing indication
of the stupidity of economic theory in the 1970s. You could have
either price controls or capitalism - not both. Capitalism cannot
exist for any appreciable length of time with price controls.
Furthermore, no democratic electorate would long tolerate the
inevitable disasters of long term price controls. It is incredible
that trained economists could have missed this one.
- The world will remain divided between socialist and capitalist
states, but government central planning will increase everywhere.
The Keynesians still could not conceive of the extent of the
obvious failures that government central planning would inevitably
- United States defense expenditures will remain at about
10 percent of GNP for the balance of the century. Professional
economists had bought into two stupidities to reach this result
- the "mature economy" fallacy that provided them with
a very pessimistic outlook for real GNP growth, and the propaganda
myth of the "military industrial complex" that incredibly
caused many of them to believe that defense expenditures would
continue to grow even in the absence of a Cold War threat. Rapid
demobilization has always been a feature of democratic post war
policy. Even at the height of the Reagan defense buildup, defense
expenditures were well below 10 percent, and they ended the century
at the lowest level since before WW II.
- A four day week will be widely used in industry and government.
Among other things, this probably reflected "mature economy"
and "spread the work" fallacies.
- Some form of guaranteed income unrelated to employment
income, assets, etc., will be enacted. The failure and demise
of entitlement welfare programs was completely missed.
- The multinational corporation will replicate in the world
economy the characteristics and power of the oligopolistic sector
of the American economy. Another weakness of professional
economists of those times was the tendency to underestimate the
power of competitive markets - aided by some effective antitrust
efforts - to prevent the widespread growth of market power predicted
and ardently awaited by left wing theorists since Karl Marx.
- The degree of unionization in white-collar and public-sector
occupations will move up dramatically. Growth has occurred in the public
but it has hardly been dramatic in the private white collar sector.
- Income equalization policies will continue to be favored
by Democratic candidates - well, duh - but the actual
distribution of income will not change much. This second
part is a clear miss.
- The Federal Government will not have the economic tools
and political resolve to maintain inflation at less than 2 percent
annually. This prediction is still in doubt, but Greenspan
seems intent on making it false. At the very least, the political
support for - or at least the political toleration of - monetary
growth sufficiently restricted to keep price increases at or
below 2 percent would have come as a huge surprise to the more
than 90 percent of the economists who agreed with this one.
| Then, there were some predictions so obvious
that one wonders why they were even set forth.
- The Federal Government will not have the tools or political
will to maintain unemployment at less than 2 percent. Only
a committed Keynesian would be stupid enough to think that it
was even possible to maintain unemployment - as presently defined
and under modern conditions - at sustained levels of less than
- The Federal corporate income tax will not be eliminated.
Well, duh. Of course, it would be useful to eliminate the double
taxation of dividends that so distorts business finances. The best way of
doing this would probably be by means of a tax deduction for dividend expenses like the tax
deduction for interest expenses.
- The major nations of the world will not be essentially
free of tariff barriers, quotas and other restrictions on trade.
Another no brainer, considering the obvious political realities. Elimination
is simply not in the cards, but forecasts concerning the success of efforts to further reduce
trade barriers would have addressed a more realistic and interesting
- The balance of the century will not be dominated by Republican
administrations, and there will not be a consequent decline in
the economic role of the public sector. The last twenty four
years have been evenly divided. However, there are few "small
government" politicians in Washington, even among the Republican
members of Congress, so this, too, is a no brainer. However,
the type of economic role played by government has changed in
important ways. Government economic management has fallen into
disrepute, and entitlement welfare programs have been cut back, but the
total and variety of government benefit programs continue to
grow impressively, middle class entitlements are untouchable, and other entitlement benefits are still strongly
- Starvation will not be eliminated from the world economy.
As long as undeveloped nations have socialist, kleptocratic, and/or dysfunctional governments
that do not permit capitalist markets to develop, this is a no
- The institution of inheritance will not be abolished by
the imposition of confiscatory tax rates. That this question
would even be raised is a reflection of the ideological bias
of the economists of those times.
- The Presidents Council of Economic Advisors would regain
its lost prestige and standing as a professional body, if only
for a brief time. If they are wedded to Keynesian
policies, any recovery of prestige will be limited to a very
| Questions on which the economists remained fairly
evenly split were also interesting.
- Inflation in excess of 5 percent was expected - by
just under 50 percent of the economists - to continue indefinitely. Before
Ronald Reagan, this was a real possibility.
- Tax simplification was expected by just over 50 percent.
How unrealistic can you be? It was, in fact, attempted, but inevitably was
very short lived.
- Increases in various legal restraints on union power
were expected by over 50 percent of the economists. Reagan enforcement
of existing legal restraints on the power of public employee
unions, and the power of competition to limit pricing power -
and thus the power of unions as well as management - made enactment
of further legal restraints unnecessary.
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Copyright © 2001 Dan Blatt