Economists' actions have done little that aided recoveries, book maintains

April 17, 1994|By Teresa McUsic | Teresa McUsic,Fort Worth Star-Telegram

Economists have been influential advisers to the federal government since the days of Franklin Roosevelt, but critics have long wondered if their theories helped the nation and if their predictions of economic change have proved correct.

Alfred Malabre Jr. says no in both cases in his new book, "Lost Prophets: An Insider's History of the Modern Economists" (Harvard Business School Press, $27.95).

Mr. Malabre is economics editor of the Wall Street Journal and has had a long career in "economist watching" in both government and business.

In this highly readable book on recent practitioners of the "dismal science," Mr. Malabre maintains that regardless of the particular economic theory followed by an administration, the resulting actions taken by the government have, at best, done nothing to aid economic recovery.

At worst, they have delayed a return to better times.

Mr. Malabre traces, in an anecdotal fashion, the rise of economists into positions of prominence from after World War II to the end of the Bush administration.

In addition to providing a history of economic policy during these 40-odd years, he presents personal glimpses into the lives of such prominent economists as John Maynard Keynes, Milton Friedman and John Kenneth Galbraith.

These and many others were pulled from academia into positions of great power and became so well-known to the American public that their photos even appeared on the covers of news magazines.

Almost every economic theory known was espoused by the federal government during this period -- Keynesian, monetarists, supply-side -- with numerous variations.

But any attempt to fine tune the economy, whether by pump-priming, monetary control or marginal tax cuts, did not result in any real smoothing out of the business cycle.

The "boom and bust" alternation still persists, in varying lengths and degrees.

Mr. Malabre proposes that the business cycle itself may be the only reality in the economy, and that periods of growth and contractions "stem from external developments that jolt the economy from time to time, rather than from shifts in fiscal or monetary policy" and, therefore, are largely unpredictable.

If such is the case, one may question the value of economists and economic theory. Mr. Malabre says they are needed, but their advice must be used advisedly.

"Their counsel may not be golden,but neither is it dross," writes Mr. Malabre, noting that their guidance may be uncertain, "but that may be a blessing, for uncertain guides will be less likely to hurry us off in wrong directions."

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