Krugman's World Turns Upside Down

Anything can happen with any one set of data points. That said, if this month's trend continues Paul Krugman and his merry band of Keynesian econometric forecasters are going to be proved so wrong they may be moved to writing horse racing tout columns for the New York Post. And, if anything Krugman and his type looove to forecast out trends from data.

In the data released today, unemployment is lower than Keynesians expected and producer price inflation is higher than Keynesians expected. Just the opposite of the trend Krugman is expecting in the economy. He thinks the economy is in terrible state.

This is what Krugman wrote just last week:

under depression conditions — which is what we have now

Here's his year ago forecast on inflation:

There’s really nothing here to shake my view that deflation, not inflation, is the threat.

So what do the numbers released today show?

New U.S. claims for unemployment benefits dropped to a 3 1/2 year low last week.

Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 366,000, the Labor Department said. That was the lowest level since May 2008. Krugman-type Keynesian forecasters expected the number to come in at 383,000 to 400,000. Pfft.

Producer price inflation picked up in November, coming in at 0.3% for the month, according to the BLS. Year-over-year, producer prices are now climbing at 5.7%. Krugman-type Keynesian economists had expected a 0.2% rise in November.

Bottom line: Krugman-types are completely off on what is going on in the economy. They are underestimating the improvement in the unemployment situation and are underestimating the developing price inflation.The pain is only going to get worse for Krugman in the months to come.