NYT columnist, and winner of the Nobel Prize in economics, Paul Krugman, in a recent blog post, challenges Mankiw's use of unit root in his argument and further challenges Mankiw's overall attack on the Administration's forecast. The post is titled, Roots of evil (Wonkish).
Mankiw has obviously taken offense to Krugman's use of the headline Roots of evil,and writes:
Paul Krugman suggests that my skepticism about the administration's growth forecast over the next few years is somehow "evil."Then Mankiw, who probably makes enough in royalties as best selling text book author to handle the next AIG bailout round all by himself, pulls out his wallet, and puts this challenge to Krugman:
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?I hasten to add that the title of Mankiw's post is, Wanna bet some of that Nobel money?
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? I am not much of a gambler, but that is a bet I would be happy to take the other side of (even as I hope to lose, for the sake of the economy).
Actually, this is just a slightly different version of the Murphy-Wenzel wager--We haven't won our Nobel Prizes, yet (The Committee is obviously taking care of the old guys first)--so we are keeping the wager a bit more manageable until we get the calls.
But, since Krugman has gotten the call, my advice to him is go "all in" versus Mankiw. He should lay down the roughly $1,098,000 of Nobel award money, and bet. Obviously, he doesn't believe in Austrian Business Cycle Theory (ABCT), but I find myself on the same side of the debate as Krugman versus Murphy and Mankiw. ABCT will put him over the top, given the astounding money printing that Fed chairman Bernanke is orchestrating, IF it continues. We have nothing to fear, Paul, as long as Bernanke keeps up the printing. I say, "let it ride."
Let me get this straight: Massive Fed printing in 2008-2009 will yield higher REAL (that means "inflation-adjusted," and not the Wenzel's-idiosyncratic-definition-of-"real") GDP in five freaking years!?!?!
ReplyDeleteI am really wondering what you think the downside to money printing is. You think it will reduce unemployment in the short run, you think it will boost the output of goods and services over the next five years... Does the hassle of changing price tags really trump all those advantages that you concede it has?
If you want to make an additional bet I would be more than happy to. I am far far more confident that Team Obama's forecast for CPI-adjusted GDP growth over the next five years is way too high, than I am about the 2009 forecast I made with you.
LOL.
ReplyDeleteI'm pulling Krugman's leg a little bit here, and egging him on. Giving him some grief that ABCT is in his corner.
In actuality,I have no idea what's going to happen five years out. It will depend on what Bernanke does over the next five years!
At five years out, we could very well have such strong price inflation that there will be riots in the streets, where there won't even be anyone around to go out and collect price and GDP data.
That said, you have to know that the gvt will monkey with the deflator so that real GDP will be way overstated. Thus, I don't think that Krugman's bet would be a necessary loser--even if the economy is a wreck.
Further, don't forget, I continue to state that any "recovery" is going to be a distorted recovery because of the Fed printing.
The GDP numbers will be phony and the employment gains will come from non-productive gvt work.
No way to really know now, but I don't think you can rule Krugman a loser right now. The GDP gains will be phony, but they could show phony growth.
But, officially, given the way the Fed has been changing direction, I will only stick my neck out for no more than 12 month forecasts.