Speaking of Business: Simon Kuznets Isn't Here When We Need Him
Simon Kuznets, a Nobel Prize-winning economist, is best known for his work on the national income accounts. How big is the American economy? How fast does it grow? How do we measure recessions and expansions? Answers to such questions have become possible only in the past four or five decades largely through the work of Kuznets and other dedicated professionals at the National Bureau of Economic Research.</br></br>In a new National Bureau study, "Some Notes on the Scientific Methods of Simon Kuznets" (Working Paper No. 2461), Robert Fogel of the University of Chicago makes it clear that Kuznets, who died in 1985 at the age of 84, was a man with a mission that never could be completed.</br></br>Mr. Fogel recalls that Kuznets once remarked, "Anyone can start a row in economics; it is much harder to find out what is really happening to the economy." Where the economy has been and where it is now -- those were the matters that concerned Kuznets. Economic forecasts may get more headlines, but the forecasts will never be very good until we get a better grip on our present and past.</br></br>Last week provided an example of the uproar that bad statistics can cause. In the first half of the 1980s the strong dollar made imports cheap and exports expensive, so the nation ran big trade deficits. Finally, the Reagan administration decided to let the dollar sink. Of course, it didn't want the dollar to go into a "free fall" -- it would stop the fall at the "right" place, when the dollar had reached its "proper" level. And what was that level? When exports began a sustainable rise and imports a sustainable fall.</br></br>How would we know? We would watch the Commerce Department reports on the merchandise trade deficit. Last week the department announced that the November trade deficit was $13.2 billion, a sharp drop from the record $17.6 billion of the month before. The stock and bond markets threw a party to celebrate.