Michigan vs. Michigan State on the economic gridiron
Ann Arbor, mich.
Everyone in michigan knows what the biggest day of the year is: It's the day the University of Michigan plays Michigan State University in football. But what most people don't know from watching the Goodyear blimp as it floats over the stadiums is that the two universities also have economics departments that clash.
So, in the spirit of the Michigan economics bowl (winner gets to play either Wharton or Stanford), we present the outlook for the economy as seen by the University of Michigan's computer (the Hungry Wolverine), cheered on by Joan Crary, and Michigan State's chief waterboy, Dr. Charles Killingsworth.
Michigan -- the favorite going into this match -- is putting its computer's reputation on the line with the following forecast:
* The economic recovery will begin in the first quarter of 1981, aided in part by a tax cut and a Federal Reserve Board that keeps interest rates at about the same level as they are today.
* Unemployment will keep rising -- cresting at 9.2 percent -- in the first half of next year but will recede to 8.8 percent by the end of 1981.
* Inflation will hit a 12 percent annualized rate (in terms of the consumer price index on a constant dollar basis) next year.
* Gasoline prices will rise 8 percent this year -- to a national average of $ 1.30 a gallon -- while rising another 20 percent in 1981, averaging $1.56 a gallon.
Representing the Spartans at Michigan State University, Professor Killingsworth proclaims that computer models of the economy are not nearly as accurate as his own analytical method of forecasting. And, while he wouldn't be one to rub in the failings of such a system (such as when the University of Michigan model missed the beginning of the 1974 recession), he does note that computer models are only good at rationalizing what's happened in the past. Thus, if a recession doesn't fit a previous pattern, the model can be off.
So much for pregame warm-ups. Professor Killingsworth predicts:
* Unemployment will continue to rise, exceeding 9 percent this year, and quite possibly rising to 10 percent. "In the absence of some pretty powerful government programs," the professor forecasts, "it's a problem that is likely to be around for a while."
The professor, not content merely to get a first down with his prediction, adds that he has been predicting double-digit unemployment for the past year and a half, while his competitors, he sniffs, have been forecasting high unemployment levels for only the past month and a half. Touchdown!
* The economy, according to Michigan State, is still getting worse, but not as fast. The professor sticks to an earlier pronouncement he made that the recovery will come at the end of this year or the beginning of next year. "But, " he cautions, "how rapidly the recovery will be is another matter." It could be slower.
* Inflation will come down somewhat next year, he estimates, but will still remain at the 9- to 10-percent level (in terms of consumer prices). This higher level is here to stay.
* With a core inflation rate of 9 to 10 percent, interest rates will remain high. Dr. Killingsworth is willing to punt on a prediction, however. "If I could predict interest rates," he says, "I wouldn't be here."
* Finally, he says his main information on the oil situation comes from his gasoline dealer. "Despite the current surplus," the professor relates, "the dealer says his suppliers are telling him that shortages will crop up late this summer or early this fall."
Professor Killingsworth also disagrees with the University of Michigan on a tax cut. Despite Sen. Russell Long's enthusiasm for such a cut, he says, many congressman don't share the same zeal. "They sense the public is not with them on this issue," he notes.
The University of Michigan scores a touchdown with its model for the state's economy. Prof. Dave Verway, at Michigan State's Graduate School of Business, concedes that the opposition's computer model is "pretty good."
The Ann Arbor model foresees Michigan unemployment rising through 1981 to a high of 14.6 percent, up from a current 13.6 percent. At the same time, the state inflation rate will lag behind the nation's.
Professor Verway says double-digit unemployment will be with the state through the end of this year, although employment should begin to increase in October or November. He says inflation, on the other hand, will be a problem at least through the year, keeping pace with the nation.