Yesterday there was a front page article here touting the latest prognostication of Paul Krugman as Holy Writ, entitled "Don't be Tricked by the Blip." This piece stated as fact that any increase in jobs in the economy that might be reported this Friday -- an increase by the way that most people at this site rejected out of hand as impossible until only a couple of weeks ago -- would just be a "statistical illusion" or "blip" that only be very temporary.
It is a shame that the front pager placed such unequivocal faith in the opinion of Prof. Krugman, because while he obviously is a brilliant economist, his record as an economic prognosticator is mediocre at best and, truth be told, you'd probably be better off taking the opposite side of a bet with him. Put another way: Don't be Tricked by "Don't be Tricked by the Blip."
The evidence, below.
Back on November 5, a front pager authored a story "On Economists Getting it Wrong" explaining just how bad many economists were in forecasting the future, quoting several other bloggers who said:
Forget forecasting the future, too many economists cannot accurately describe what happened yesterday.
and
I am not necessarily saying that mainstream economists were intentionally wrong, or that they lied because it led to promotions or pleased their Wall Street, Fed or academic bosses.
But it is harder to fight the current and swim upstream then to go with the flow, and with so many rewards for doing so, there is a strong unconscious bias towards believing the prevailing myths. ...
The front pager concluded:
That's something always to keep in mind as economists - most of whom were caught flat-footed by the Great Recession - tell us what's likely to happen next.
Krugman did indeed don full Doomer regalia earlier this week to "tell us what happened next," suggesting that current strong growth may just be a "blip", and this was indeed picked up - wrongly - by a front pager here to suggest that we will be back in Recession pronto! There are two problems with that.
The first problem is that, while Krugman has opined that strong growth now may just be a "blip" that will disappear once inventories are restocked, he has also refused to say that a double-dip recession is more liikely than not. Most recently, he gave odds of 30% to 40% that a double dip would occur -- meaning a 60% to 70% chance that the economic expansion will continue! So, in fact, Krugman believes that more likely than not, the economy will grow throughout this year.
The second problem with Krugman's prognostication is that he has a record of being very, very wrong. Consider his record from earlier this decade:
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September 20, 2002
"This is the way the recovery ends — not with a bang but with a whimper.... right now it looks as if the economy is stalling..."
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October 4, 2002
the key point is that this isn’t your father’s recession — it’s your grandfather’s recession. That is, it isn’t your standard postwar recession, engineered by the Federal Reserve to fight inflation, and easily reversed when the Fed loosens the reins. It’s a classic overinvestment slump, of a kind that was normal before World War II. And such slumps have always been hard to fight simply by cutting interest rates.
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May 29, 2003
"We have a sluggish economy, which is, for all practical purposes, in recession..."
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May 14, 2004
"An oil-driven recession does not look at all far-fetched."
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May 27, 2005
"If housing prices actually started falling, we'd be looking at [an economy pushed] right back into recession."
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August 29, 2005
"But if the process doesn’t go smoothly - if, in particular, the housing bubble bursts before the trade deficit shrinks - we’re going to have an economic slowdown, and possibly a recession. In fact, a growing number of economists are using the "R" word for 2006."
*
August 7, 2006
"Suddenly — really just in the last few weeks — people have starting talking seriously about a possible recession."
December 1, 2006
"Right now, statistical models based on the historical correlation between interest rates and recessions give roughly even odds that we’re about to experience a formal recession. And since even a slowdown that doesn’t formally qualify as a recession can lead to a sharp rise in unemployment, the odds are very good — maybe 2 to 1 — that 2007 will be a very tough year."
As a commentator put it at the beginning of 2008:
Krugman has correctly predicted 9 out of the last none recessions.
In case you missed it, the above list shows that during every single year of the 2002 - 2007 expansion, Paul Krugman called for a recession.
It isn't he's a permabear, although his prognostications above have generally been overbearish. It's actually worse. When did Paul Krugman think there wasn't a recession? Well,
* on
February 24, 2001, just when in fact a recession was starting:
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With one exception, the economic data don't support such gloomy views.
More recently, here he is,
* on
December 29, 2007,explaining that
The housing bust has lived up fully to my expectations. So far, however, the economy has held up surprisingly well (ask me again in a few months). How come?
It’s the exports, stupid.
Of course, we were, in fact, one month into the Great Recession.
In January 2008, he changed his mind.
* on
March , 2008:
"If the recession started in January 2008, then that would mean July 2010 is the first month we have anything that feels like a recovery."
Then he changed his mind again.
* In May 2008,
May , he was proclaiming that:
Cross your fingers, knock on wood: it’s possible, though by no means certain, that the worst of the financial crisis is over. That’s the good news.
We all know what happened after that. He was eeing nothing but Doom and Gloom ahead when
* on
March 31, 2009, he said:
"So far, there’s nothing pointing to a fundamental turnaround this year, or next, or for that matter as far as the eye can see."
Within 3 months, output bottomed, the industrial economy turned around, layoffs declined, and the jobs numbers, while still negative, went from ( - 700,000) to ( - 11,000) over the next 8 months.
* By
August , 2009, he was conceding that in fact a recovery had started:
Paul Krugman: "Yeah, things probably growing but, you know, at a snail's pace. We are in recovery, [but] it's going to be recovery that feels like recession to most people."
Of course, when he said that, we know the economy was already growing at a rate in excess of 2% a year.
And what about job growth? Well, here's what he said
* on
August 24, 2009:
"In 2001-2003 the job market continued to get worse for a year and a half after GDP turned up. The bad times could easily last longer this time."
By last week, he was conceding that, well, actually, employment might actually be picking up right now.
In summary, while Krugman is a brilliant, Nobel Prize winning economist, as a prognosticator he is no better than anybody else, and based on the above, perhaps worse than most. I will add that if you click through to his predictions, most of his economic analysis is terrific. It is only his conclusion - that generally "we are about to/not to have a recession" - that was incorrect.
I understand what Krugman is doing, and I agree with Calculated Risk, who says this morning that
On the recession probabilities, I think Professor Krugman is warning policy makers about complacency, similar to his Monday column: That 1937 Feeling.
I believe the same policy objective, with which I agree, lies behind Krugman's about face on the November jobs number of ( - 11,000) which he originally called "a good number" but three days later changed his mind to say that anything short of constant monthly reports of +300,000 were not!
But, if the front pager were looking for an example of an economist who saw recessions coming at all of the wrong times, but missed it in real time, then Paul Krugman is a great example. So the idea that because he is prognosticating a "blip" of economic growth, the rest of us who are more (cautiously) optimistic, -- and have been right so far -- have now been proven wrong and should stfu, is patently ridiculous. The front pager should have kept his November 5 skepticism about economists in mind, and not accepted Krugman's opinion as Holy Writ just because it agreed with his bearishness.