Perhaps, I have been in Washington for too long, but I am getting highly suspicious of economic projections. No doubt it`s a byproduct of seeing too many White House rosy scenarios go awry.
So it was not with equanimity that I greeted a splashy press release by the National Planning Association predicting that the Los Angeles-Long Beach area would lead the nation in job growth between now and the turn of the century. According to the association, exactly 1,032,000 new jobs would be created in that region.
Not surprisingly, the Boston metropolitan area (754,700 jobs) was second; Anaheim-Santa Ana, Calif. (701,500), third; San Jose, Calif.
(539,200), fourth; Phoenix (537,000), fifth; metropolitan Washington, D.C.,
(509,000), sixth; Houston (497,700), seventh; Chicago (493,500), eighth;
and all the way down to 30 places.
The question you probably have is the one I had: How can they know such things? And why is it that we report it in the press as if it`s the gospel truth, immutable and unchallengeable? Has economics become so precise?
Indeed, it has not. As the association itself makes clear if you take time to look at its assumptions, its predictions are standard economic projections based on recent growth patterns and amount to rather fancy extrapolations of current trends. National growth projections are broken down and applied to local areas.
There is nothing wrong with such projections if you are prepared to believe that the world never changes much. People in business use such projections all the time, but they are wise enough to take them with a grain of salt, knowing that the world is more complex than an economic formula using past trends.
Frank Levy, an urban economist at the School for Public Affairs at the University of Maryland, said that anyone in 1970 who had tried to guess the rapid economic growth in the New England area would have been badly fooled if they had used past trends. Nina Klarich, economist at First National Bank of Chicago, made the same point.
New England appeared to be on its last legs, having lost much of its manufacturing base and its employment. But the last decade has brought an amazing high-technology resurgence based on computers, knowledge and defense. ”There is too much uncertainty,” Levy said. Suppose, for example, that foreign competition proved intense and knocked out a couple of key industries in the areas presumed to have high job growth. Then, there goes your projection.
”It is so dependent on which products are doing well or doing badly. There is a lot of slack in U.S. automobile production, but suppose the U.S. car manufacturers become more competitive with the Japanese and that reverses. Right now, Chrysler can`t make enough of its minivans and Ford has a backlog on two if its new models.”
To be sure, the National Planning Association tries to take such uncertainties into account, factoring in recent changes in oil prices. But that`s a risky proposition too, with oil prices expected to be highly volatile in the future. The association assumed that oil prices between now and 1990 would average $20 a barrel.
Klarich said another potential flaw in the projections is that growth in services, trade, construction, transportation, finance and state and local government is assumed to be mathematically linked to growth in the basic industries.
This may have been true at one time, but the old linkage is disappearing as the economy becomes more services-based, she said. In addition, some cities are getting investment in these nonbasic industries without regard to the size of their basic industries. New York and Chicago, for example, are seeing international investment that has helped their economies along.
We in the press must bear some of the responsibility for reporting such projections as if they were the whole truth and nothing but the truth without telling the reader of a study`s methods and assumptions.
There`s a great hunger on the part of the press for information, particularly information that purports to provide titillating peeks into the crystal ball 10 to 15 years hence. Such information should not be suppressed, but it should not be dosed out without supporting facts. Sometimes the press slaps it in the paper, attributes it to a particular organization and forgets the back-up material.
Projections can serve a useful purpose, but they can also be harmful. Klarich said, for example, that a business ready to invest in an area because it had relatively low wage rates might suddenly have cold feet if a story came out showing it to be a lackluster area for economic growth and jobs.
In January, 1975, President Gerald Ford sent a budget to Congress containing some interesting projections. Inflation, for example, was projected to be 5.2 percent in 1978, 4.1 percent in 1979 and 4 percent in 1980. It turned out to be 9 percent in 1978, 13.3 percent in 1979 and 12.4 percent in 1980.
That explains my crotchety nature. So, whenever you see an economic projection of any type, it is meet and right to have that good old Missouri attitude: ”Oh, yeah?”
