Though he worries deeply about the
year 2000 problem,
says he has done none of those things that you hear some people have done, like stocking up on canned goods and filling up tanks of kerosene. (
tell anyone about the supplies you've laid in -- that's inviting the riot to your door.) Nor has the
Deutsche Bank Securities
chief economist made any plans to be anywhere but at his home in Long Island. (
discuss your Y2K plans with strangers!)
Yardeni does, however, believe that the problem will significantly slow the world's economy. That's important because not only is he the sole economist on the Street who thinks that, he's apparently the only one who's putting in much time at all into worrying about its broader economic effects.
"Do you get the sense that they're even researching it?" Yardeni wonders. "I don't get the sense that economists are spending any time on this issue. I don't mind if economists say that it's a nonevent, but they should study it."
One reason why other economists shy away from studying how Y2K will affect the economy is that it is impossible to model. It's not like trying to figure out what kind of impact a hurricane or an earthquake or a plague of frogs might have -- those things have at least all happened before. Talking about what kind of hit the economy will take is a matter of pure conjecture. Yardeni agrees: Though he says that
gross domestic product
will probably drop by 4% and that he sees a 70% chance that the world will drift into a decline on par with the 1973-74 recession after the oil shock, that's just to show his level of conviction.
"Put it like this," says Don Fine, chief market analyst at
Chase Asset Management
. "If you can foresee a problem in this area right now, you can probably fix it. The problem that nobody foresees is what we have to worry about. We simply don't know about the potentiality of the problem."
In general, economists will say they can see how the economy will probably take some kind of hit -- the money and time that companies have to throw at Y2K could have gone toward boosting productivity -- but the effect on GDP should be muted. The average response of 33 economists in a
survey last month was that the problem will shave 0.3% off the economy in 2000.
"I'm amazed that they're so casual about it," says Yardeni. The problem is not, as Yardeni sees it, about the allocation of resources that could have been put to some other use. It is about the importance of the information flow in the world today. It does to our economy something akin to what, in another time, a disruption of trade would have done to Venice. Can you quantify it? No. Will it be bad? Absolutely.
Or so says Yardeni. And so doesn't say anyone else.
It's a pretty huge divergence of opinion, and if we judge by the same light as we do things like economists' retail-sales and inflation forecasts, Yardeni is almost certainly wrong. In a 1996 paper,
Rational Basis in Macroeconomic Analysis
New York Fed
economists David Laster, Paul Bennett and In Sun Geoum found that, in a survey of 38 firms' GNP predictions from 1977 to 1995, only one performed better than the consensus. Their explanation of why some economists' predictions are so out of whack with the consensus (and so wrong) may have some bearing on Yardeni's Y2K predictions as well.
If accuracy is what economics is all about, then the best thing for a forecaster to do is to follow the consensus pretty closely. That is not the only thing that economics on Wall Street is about, however. It's also about publicity. If you're on the fence about whether the
will cut rates -- and most people think it won't -- the best thing for you to do is say it will. If you're right, you're a hero.
The Wall Street Journal
The New York Times
will interview you, and
will wheel its cameras into your office. If you're wrong, people will forget about it.
Yardeni has already gotten a lot of ink for his stance on the year 2000 problem, and as the millennial mark approaches, he will no doubt be awash in it. Indeed, one of the complaints you hear about Yardeni from other economists is that he's flashy and publicity-hungry, suggesting, of course, that his view on Y2K is a ploy. But if publicity can be a factor in forecasting, what about envy? One wonders if some economists aren't looking too deeply into Y2K because that would be like beating Yardeni's drum.
Clients who have asked other economists about the effects of the problem have been told, "'That's Yardeni's issue. Why don't you ask him?'" says Yardeni. "It's not my issue, you know. This is something that we all have to deal with. The bottom line is I'm not looking for a fight or a debate with other economists. I'm just looking for more and more analysis. It's amazing how the entire profession is willing to assume everything will be all right."