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What Congress and the President Should Do

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journal contribution
posted on 01.08.1978, 00:00 authored by Allan MeltzerAllan Meltzer

Contraiy to most reports, the economy is recovering, albeit slowly. It would be a mistake to act on the assumption that we are facing a deep recession or the start of another great depression. In retrospect, the recession will be seen as relatively mild. Our current unemployment rate at 6.8% of the labor force is below the rates in many countries including Britain (8.7%), Canada (10.3%), France (9.7%) or Italy (10%). Germany has had a boom for several years, but its unemployment rate at 6.3% is only slightly below ours.

Economic forecasts are often wide of the mark. We should not add to our current problems by basing policy action on forecasts about the speed of the recovery. The best forecasts of economic growth have an average error about equal to the average rate of growth. A comprehensive study of forecast errors shows that forecasters cannot distinguish on average between booms and recessions next year or even next quarter. Basing policy actions on forecasts is likely to produce errors of timing.

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01/08/1978

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