No blues for business economists
With a considerable amount of bad economic news being reported recently, would it surprise you to learn that economists are actually more optimistic about the long-run outlook than they were a year ago? This is precisely the result of a recent survey of about 400 business economists.
The National Association of Business Economists conducted the poll of their members as part of a regular annual survey. Over 90 percent of the economists in the group are employed somewhere in the private sector and many prepare economic forecasts as part of their responsibilities within their companies.
The increased optimism followed four successive years in which the economists had expressed increasingly pessimistic views about the long-run outlook for both economic growth and inflation. Donald Conlan, who is the new president of the association, attributed part of the change to the economic policies of the new administration. Significantly, many of these policies also received favorable ratings in the economists' survey. Mr. Conlan is executive vice president of Capital Strategic Services of Los Angeles.
In the previous four surveys there had been a tendency among the economists progressively to reduce their estimates of long-term economic growth. For example, in 1976, 58 percent of the group expected the real gross national product to grow by 4 percent per year over the next five years. By 1979 no one was predicting growth rates that high. In fact, 84 percent - the highest concentration ever - expected less than 3 percent growth. Now a majority expects at least 3 percent growth, and 16 per-cent are looking for growth in excess of 4 percent. This is the highest proportion which has been that optimistic in the past four years.
The increased optimism is even more pronounced in regard to inflation. The group had naturally been increasingly pessimistic about inflation in recent years. Mr. Conlan remarked that for four years in a row - 1975 to 1978 - the association economists could not be persuaded that the overall inflation rate, as measured by the so-called GNP deflator, could ever possibly be as high as 7 percent per year.
Finally, in 1979, the group caved in under the pressure of zooming oil prices. In that year nearly 70 percent said that the five-year inflation rate would be above 7 percent and almost 40 percent said it would be 8 percent or higher. By 1980 it was even worse, with 63 percent saying that the five-year inflation rate would be 8 percent or more.
This year's consensus inflation forecast represents a significant change from the past. The percent expecting 8 percent or more inflation was cut by more than half, to 31 percent. Those who expected inflation of 7 percent or less over the next five years amounted to 39 percent of the respondents, the largest such group in four years. This may well represent the first evidence of a major change in the public's inflationary expectations, according to Conlan.
The economists were evenly split over the ''supply side'' approach to economic policy advocated by the Reagan administration. Forty-five percent said it has only limited merit, and 8 percent don't believe in it at all. On the other hand, 30 percent consider it quite valid, and another 14 percent report they are gradually accepting it.
The National Association of Business Economists survey also revealed the attitude of its members about the advisability of various government policies. The one which generated the greatest number of favorable votes was acceleration of depreciation allowances, something that was accomplished in the recent tax bill. Eighty-four percent of the group expected that this would have a beneficial impact on the economy. Eighty-one percent said that a reduction in government regulation of business would be beneficial. A reduction in capital gains taxes and a reduction in the share of government spending to GNP were both supported by 79 percent. Maintenance of an independent Federal Reserve System was also considered important, being supported by 76 percent of the group.
The policy options that were considered most harmful were government bailouts of troubled companies (79 percent opposed) and a constitutional amendment to balance the federal budget (57 percent opposed). Most business economists support the concept of a balanced budget when the economy is operating at full capacity. But it is also generally accepted in the profession that a rigid attempt to balance the budget (say, by raising taxes) during an economic decline tends to aggravate that decline. This may make the budget even more difficult to balance.
The economists were evenly divided on the controversial question of increased defense spending. Thirty-four percent considered it harmful and 37 percent beneficial. The balance said the impact on the economy would be neutral.