Ever since World War II, people have looked to economists to tell them what to do when the economy turns sour. But this time around, economists have little advice to offer.
Certainly, that's the impression left by the annual meeting of the American Economic Assn., a gathering of 7,000 economists in Washington, D. C., between Christmas and New Year's Day. The conference opened on the same morning that the Commerce Dept. announced its index of leading indicators had dropped for the fifth straight month, a sure sign of recession. And even normally cautious economists were beginning to acknowledge that the slump has begun. "We're at the stage where everything is turning out to be worse than where the consensus thought it would be even three weeks ago," says Robert J. Gordon, an economist at Northwestern University.
CRUMBS. But most economists attending the AEA meetings had little to say about the pervasive slowdown. The conference program offered at best a few crumbs on macroeconomic policy and no forum for discussing how the government should be fighting the downturn. And there was hardly any talk of how deep or long the recession might be--the question facing every consumer and every business in the country.
The only thing economists used to enjoy more than telling government what to do was arguing about it among themselves. AEA conferences held during previous recessions were full of give and take, including some full-blown seminars set up at the last minute. But economists took a pounding in the 1970s and 1980s. First, their theories failed to cope with tough times; then, they couldn't predict the historic expansion that followed. No wonder they find it safer to focus on abstract theory. Even in private, few economists at the Washington meetings were ready to venture antidotes for the current recession.
Indeed, conference participants were much more fascinated by discussions of monetary and fiscal policy in Eastern Europe than by the issue of what to do about economic woes at home. The hottest topic at the conference by far was Eastern Europe's transformation to a market economy. Visiting economists and government officals from the Soviet Union and former East bloc countries sere so numerous that several signs at registration were written in Russian as well as English. And the foreign economists drew packed crowds.
Unlike their U. S. counterparts, the economists from Eastern Europe were willing to propose imaginative solutions to the hard problems faced by their countries, from creating a stock market to transforming bureaucrats into capitalists. For example, Dusam Triska, Czechoslovakia's Deputy Finance Minister, described ambitious plans to privatize some 100,000 small businesses, initially by auctioning them off to Czech citizens. But privatizing large companies by selling them off to foreigners "is too complicated, too politically sensitive, and would take centuries," says Triska. "We may have to give away a large amount of state property in order to take the first step toward creating free-market institutions."
When U. S. economists did focus on issues, they were eclectic. Sessions on environmental economics, featuring titles such as "Greenhouse Warming" and "Tropical Forest Protection," were more numerous and popular than in previous years. Two sessions were devoted to drug abuse, an issue noticeably absent from last year's program. In an especially intriguing presentation, Rand Corp. economist Peter Reuter reported that selling illegal drugs is less lucrative than commonly believed, since street-level drug dealers typically net only $2,000 per month. That's not peanuts, but it's no more than the average manufacturing worker earns, and it's paltry in light of the risks involved.
NEW MOTIVES. Ironically, at the same time that Eastern European economists were embracing the free market, this year's meetings also unearthed growing doubts among U. S. economists about unfettered, 1980s-style self-interest. There were several sessions that highlighted the importance of altruism, religion, and charity. And even financial economists are much more willing to admit that investors are driven by motives other than profit maximization.
Most disturbing, perhaps, was the paper by Robert Frank of Cornell University, which suggested that economists can end up mimicking the narrow, self-interested "economic man" they study. "In the 1960s, people went into economics thinking they were going to make a contribution to the public good," says Frank. "Now, I'm concerned that teaching economics makes people more selfish." This year's conference, marked by so little willingness to address the hard macroeconomic issues facing the country, seems to prove his point.