WHY I'M NOT AN ECONOMIST

By Daniel Kadlec

The revealing thing about being locked in a room with six economists for a day isn't so much finding that you can stay awake as realizing how little they really know. As bash fodder, economists are right there with lawyers, politicians and stockbrokers. Economists predicted nine of the last five recessions, remember? Studies show they have less than a 50% success rate predicting whether interest rates will go up or down. That's dismal science, all right. But bashing isn't the goal here. When TIME's Board of Economists met with editors and writers last week, the panel was thoughtful, articulate, even passionate in explaining the unexplainable. The fact remains, though, that economists do not know the future path of the economy any more than you or I do. Indeed, as the TIME board convened last Tuesday, the Federal Reserve was meeting to consider interest rates. Most board members thought the Fed would raise rates, and were proved wrong within hours. Lack of clairvoyance comes with the territory.

The point is that many of us have come to expect people like Fed chief Alan Greenspan, an economist, to have all the answers, when he can't, and never will. Steering the economy via short-term interest rates--the Fed's job--is art, not science. That helps explain how Greenspan could see the stock market as irrationally inflated in December but be less concerned today, even though stocks continue to rise. Like Picasso, he might be into a new phase. But it's a sure bet that the Fed's brush will miss the canvas at some point. Why? Even basic economic readings are hotly debated. There are no guideposts. And that gets me back to what economists don't know.

The TIME board consists of former Fed vice chairman Alan Blinder, now at Princeton University; former Reagan adviser Martin Feldstein, now at Harvard University; Stephen Roach from Morgan Stanley; Allen Sinai from Primark Decision Economics; Edward Yardeni from Deutsche Morgan Grenfell; and J. Antonio Villamil from Washington Economics Group. An influential lot, for sure. Yet they can't measure whether computers are making people more productive. They can't agree on whether Americans are better or worse off than a few years ago. They don't know if the economy can grow faster and unemployment recede further without whipping up inflation. They can't even decide how to gauge inflation. "It's like a Rorschach," says Yardeni. "You take the data set. You see what you want to see."

The upshot is that Roach believes gross domestic product can grow safely at 2% to 2.5% a year, yet Sinai thinks it's 2.5% to 3%, and Yardeni says maybe 4%--big discrepancies in an $8 trillion economy that has lately been exceeding all those figures. The difference between 2.5% and 4% growth is $120 billion. That'd put a new car in a few driveways. The knowledge gap is widest when productivity is assessed. We assume that computers increase employee output. But Blinder wonders if we aren't using computers to get the usual amount of work done and then surfing the Net for fun. This is critical because accelerating productivity allows an economy to pick up the pace of growth without stoking inflation. If Blinder's fears are true, we're probably on a classic boom-bust path--and guess what, we've already had the boom. But if Americans are getting a lot more done, the good times will last. Just don't ask the economists how long.

Daniel Kadlec is TIME's Wall Street columnist. Reach him at [email protected]