I shall risk ostracism [he said] by questioning the basic premises of the thesis that government planners can fine-tune the economy to such an extent as to assure steady growth in employment and productivity . . . while at the same time maintaining a sound dollar. These premises seem to be:
1. Economists now have sufficiently accurate information to predict whether the government should be pursuing expansionary or restraining policies;
2. This information is available in time to be of practical use;
3. The fallible human beings who make the decisions for the government based on these data will make the right decision based on economics rather than politics; and
4. That these decisions will be made promptly at the right time.
Does recent history give us confidence that any of these four premises, much less all of them, will be met in this practical world of ours? On the contrary, is there not some reason to feel that government actions in recent years have been more unstabilizing than stabilizing?
Mr. Fitzhugh’s doubts were not only justified, but understated.
One of the premises of the “new economists” is that the government bureaucrats in charge of “keeping the economy on an even keel” are not only capable of forecasting future business conditions (or forecasting what they would be in the absence of timely governmental intervention), but are capable of forecasting them consistently better than private business. In fact, a chairman of the Council of Economic Advisers once informed me that without him the American economy would be “flying blind.”
One of the elementary facts that the would-be economic fine-tuners overlook is that most of the chief statistics on which they rely are not known until a month or two after the conditions they record. Even the latest statistics, in other words, only tell us what past conditions were, not what present conditions are, much less what they will be. And when some major economic event occurs—like the devaluation of the British pound by 14 per cent in November, 1967—our government economists, like the rest of us, don’t know about it until after it happens.
The only way government bureaucrats know of keeping prosperity going is to inflate some more—to increase the deficit or to pump more money into the system.
They proudly claim credit for a good result. But when the inflation begins to get out of hand, when the deficit in the balance of payments mounts, when the integrity of the dollar is threatened, they disclaim all responsibility. They explain that it is politically impossible to cut back government spending and would precipitate a crisis to stop expanding the supply of paper money. The only remedy they suggest is to raise taxes still further to pay for their own past extravagances.
They denounce the banks for raising interest rates. They denounce business for raising prices and for investing abroad. In brief, they denounce private enterprise for the consequences of their own reckless policies and demand still more governmental controls.