Friday, January 9, 2009

Murphy versus Wenzel

A debate is about to take place. I think it will help us all sharpen our economic analytical skills. Bob Murphy and I are both seeking to understand how the economy acts. This is not some nonsense Krugman style attack going on here. Murphy has thrown down the gauntlet regarding my post The Case for Optimism (Sort Of) In a comment to the post he writes:

Well good, since you and I normally enthusiastically agree with each other, I'm glad we finally have a way to separate the man from the boy. I think the economy over the next 3 years is going to be absolutely awful. The government has literally taken over large chunks of the financial sector, and now the Fed is engaging in discretionary injections of hundreds of billions of dollars to specific firms. The gross federal debt already went up by over $1 trillion in 2008, and we've got an incoming president who openly called for wealth redistribution and just nominated an explicit socialist to oversee the nation's energy markets.And you're saying what again? "Sure, but Bernanke is flooding the system with a bunch of paper money." :)
I rush to point out that I did close my post this way (emphasis added)
My (Sort Of) addendum to his original title to his article, The Case for Optimism, is because the economy will "recover" sooner than most expect, but ultimately the result will be an enormous growth in the inflation rate, and that is nothing to be optimistic about at all.
I think what is going on is that I am being a little more specific than Murphy. That is why I put "recovery" in quotes. The "recovery" will show up in the numbers most watch, such as a reversal in the downward trend in unemployment and an uptick in GDP, while brewing underneath will be a vast inflationary fury that will ultimately cause major, major havoc for the economy,---inflationary havoc, not recessionary havoc. And I also made this clear in my post:

...ultimately the result will be an enormous growth in the inflation rate, and that is nothing to be optimistic about at all.
So Bob, over to you. Let's see how close, or far apart, we are. What do you see happenning to unemployment over the next 6 to 12 months?

1 comment:

  1. OK let's each come up with a range in which we are "confident" for unemployment but also (official) real GDP growth.

    Also, let's break out private sector jobs for the unemployment call. I.e. if Fed prints a bunch of money to lend to the Treasury which then hires people to dig ditches, that doesn't solve the unemployment problem.