Wednesday, May 13, 2009

Now we know why Krugman wouldn't take Mankiw's bet

Greg Mankiw after he questioned the Obama Administration's economic growth projections as being overly optimistic and Paul Krugman slammed him for it:
Wanna bet some of that Nobel money?

Paul Krugman suggests that my skepticism about the administration's growth forecast over the next few years is somehow "evil." Well, Paul, if you are so confident in this forecast, would you like to place a wager on it and take advantage of my wickedness?

Team Obama says that real GDP in 2013 will be 15.6 percent above real GDP in 2008. (That number comes from compounding their predicted growth rates for these five years.) So, Paul, are you willing to wager that the economy will meet or exceed this benchmark?
Krugman's response:
[... silence ...]
Now we know why....
Paul Krugman Says Rapid Recovery ‘Extremely Unlikely’

May 12 (Bloomberg) -- Paul Krugman, Princeton University’s Nobel Prize-winning economist, said global economic prospects don’t justify the two-month rally that has restored $8.9 trillion to stock markets around the world.

“It looks to me now as if the markets are now pricing in a rapid recovery, that they’re pricing in a V-shaped recession, which I consider extremely unlikely,” Krugman, 56, said at a forum in Shanghai today...
Krugman shooting at Mankiw then:
when unemployment is high, it tends to fall. And together with Okun’s law, this says that yes, it is right to expect high growth in future if the economy is depressed now.

How can you fail to acknowledge that there’s huge slack capacity in the economy right now? And yes, we can expect fast growth if and when that capacity comes back into use.
Krugman as quoted yesterday:
"The market seems to be looking as if this is going to be an average recession, but it’s not ... Everything says that’s wrong, that this is going to be a sustained period of weakness."
Another circle to square. Score 1-0 in the imputed wager market.