The economists performed as expected when the stock market crashed in October, sagely warning that a consumer-led recession would follow. It didn't.
Recognizing that their script might be wrong, the economists changed it a couple of months later. They delayed their projected recession to mid-1988, and some, daringly, even to late 1988.The consensus became even more widely split, however, when some continued to talk of imminent recession. They would not be put off, any more than the recession would be put off. But the old rationale wouldn't work anymore.
Recognizing that the consumer hadn't been frightened from the marketplace, the newly adopted reasoning was that an accumulation of inventories - unsold goods - would stagnate the economy and pitch it forward on its face.
The inventory-led recession didn't happen either, but this did not faze the pessimists. They found a new approach: Instead of going directly into recession, they said, the economy would first overheat.
That is, there would be a boom of sorts before the recession. To most people a boom is the opposite of a bust, which is a recession, but somehow the economic seers accomplished the turnabout without any public apology.
"They are a creative bunch," says one economist, Edward Yardeni of Prudential-Bache Securities. He thinks they have done it again; he believes they are reacting to the past and present rather than reading the future.
"It is ironic," he said last week, "that the pessimistic crowd sees a boom just as bloated inventories are starting to cool things off." He thinks many of his colleagues will be forced to flip-flop again.
Explaining why he wrote the book "Economists At Bay, Why the Experts Will Never Solve Your Problems," Robert Lekachman explained that "when respectable economists are wrong en masse, other people usually suffer the consequences."
Lekachman wrote his book in the 1970s after watching his colleagues provide the White House with such poor advice that the consequences are felt to this day.
Example: In early 1973 economists encouraged President Nixon to dismantle a comparatively effective set of wage and price controls. As a group, they failed to see the price explosion that followed.
When Gerald Ford succeeded Nixon, he summoned economists to a conference in September 1974. "None of those assembled warned of the collapse of production and employment which began almost as soon as they left town."
The advice caused Ford to launch a program aimed at beating inflation instead of spurring the economy. Recession was the problem; the president was advised to fight its opposite, a boom.
Lekachman asserted that conventional economics would continue to mislead politicians and the public until economists surrendered the delusion that they are pure scientists.
Have they? Will they? Any answers are as debatable as economics itself. But some recent evidence suggests that if economics is a science it is very inexact.
Example: An economist who views with curiosity and perhaps astonishment the herd mentality of colleagues to forecast an overly strong economy based on the latest monthly employment and jobless statistics.
Says Albert H. Cox, Jr.: "Employment is not a leading indicator. It is a coincident indicator. As such, it tells us only where we have been - not where we're going."
Example: A policy paper from the U.S. Chamber of Commerce stating that the latest consumer price statistics, on which hinge many of the latest forecasts of rising inflation, are being misread.
It refers to the widespread assumption that inflation is worsening, based on a sharp increase during one month, March.
What should be noted instead, the Chamber contends, is that in the January-March quarter the inflation rate fell. In the Chamber's view, the threat of inflation, on which policy is being based, is overstated.