Economists’ predictions from 1980
That is the topic of my latest Bloomberg column, here is the intro:
Out of curiosity, I recently cracked open The American Economy in Transition, published in 1980, edited by Martin Feldstein and including contributions from… Nobel-winning economists [Samuelson, Friedman, Kuznets], successful business leaders and notable public servants. Though most of the essays get it wrong, I found the book oddly reassuring
The problems the book describes truly are of a different era. On one hand, I was comforted to learn that many of these fears turned out to be unfounded. On the other, I am concerned that many current economists are not worried about the correct things.
How did they do in their analyses?:
For instance, many authors in the book are focused on capital outflow as a potential problem for the US economy. Today, of course, the more common concern is a possible excess inflow of foreign capital, combined with a trade deficit in goods and services. Another concern cited in the book is European economies catching up to the US. Again, that did not happen: The US has opened up its economic lead. Energy is also a major concern in the book, not surprisingly, given the price shocks of the 1970s. No one anticipates that the US would end up the major energy exporter that it is today.
Then there is the rise of China as a major economic rival, which is not foreseen — in fact, China is not even in the book’s index. Nether climate change nor global warming are mentioned. Financial crises are also given short shrift, as the US had not had a major one since the Great Depression. In 1980 the US financial sector simply was not that large, and the general consensus was that income inequality was holding constant. Nor do the economics of pandemics receive any attention.
So you may see why the book stoked my fears that today’s economists and analysts do not have a good handle on America’s imminent problems.
As for opportunities, as opposed to risks: The book contains no speculation about the pending collapse of the Soviet Union. Nor are the internet, crypto or artificial intelligence topics of discussion.
The column is interesting throughout. Milton Friedman for instance thought that the Fed would not find it politically profitable to fight inflation until inflation reached 25 percent. The best essay in the book was by Samuelson, who noted that such predictions usually misfire.