Krugman: 30-40% chance of return to recession in late 2010 ("joining Feldstein & Stiglitz")

[Kurt_and_Hunter]

Krugman Sees 30-40% Chance of U.S. Recession in 2010

Jan. 4 (Bloomberg) -- Nobel Prize-winning economist Paul Krugman said he sees about a one-third chance the U.S. economy will slide into a recession during the second half of the year as fiscal and monetary stimulus fade.

“It is not a low probability event, 30 to 40 percent chance,” Krugman said today in an interview in Atlanta, where he was attending an economics conference. “The chance that we will have growth slowing enough that unemployment ticks up again I would say is better than even.”

Krugman, 56, said growth will slow as the Federal Reserve ends purchases of securities, the Obama administration’s $787 billion stimulus program winds down and companies stop rebuilding depleted stockpiles.

The Princeton University professor joined Harvard’s Martin Feldstein and Columbia’s Joseph Stiglitz, another Nobel laureate, in sounding an alarm for the world’s largest economy during the annual meeting of the American Economic Association. Feldstein yesterday called the fading stimulus “a serious cloud,” and Stiglitz said growth won’t be “robust” soon.

...snip...

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aluoqvsvAwO8

[Kurt_and_Hunter]

1. The prediction of better than 50-50 of unemployment ticking up has electoral implications

If the unemployment rate makes an upward move before the elections there would be a lot of psychological throwing-in-the-towel among independents. (They are a fickle lot by nature... they're independents for a reason.)

[still_one]

2. Gee, maybe I can flip a coin and be just as accurate as he or any other economist is with regard to

predicting

[Kurt_and_Hunter]

3. No, they're somewhat better than a coin flip

I understand the disillusionment, but almost every economist predicting that GDP would turn up in the third quarter of 2009. I can't think of one off-hand who didn't. And GDP did tick up in the 3rd quarter.

Economists make all sorts of valid predictions every day. We make special note of the faulty predictions because they are exceptional. (And sometimes lead to disaster.)

Economics as a weak-as science predictively (versus something like physics) but it's a lot better than a coin-flip.

This prediction may not come to pass but it is not dismissible as meaningless. A reasonable person reading this article would add a few points to their internal sense of the possibility of a new down-turn, and that internal sense should be expected to change as new information comes in.

[high density]

4. Great, 60-70% chance that we're not going 'back' into recession

I mean first it was that the stimulus wasn't winding up fast enough to provide meaningful results, now we're supposed to believe that its effects are going to wind down too fast? What???

I find it amusing that the media reliably ignores Krugman until he has something depressing or otherwise bad to say.

[andym]

5. Translation: Most of improvement is due to stimulus

as it ends, the economy will stall.

my addendum:
Why won't it just grow like before, no (real estate) bubble to feed it.

[northernlights]

6. I think there will be continued stimulus

but they're simply not making a specific "stimulus" bill. The health care reform bill, for example, has a sizeable chunk of stimulus in the form of building 13,000+ new community health care centers. I expect other areas will be similar -- targeted stimulus wrapped in larger bills.

[Kurt_and_Hunter]

7. IMPORTANT CONCEPT: GDP is expressed in relative terms... change.

Krugman has been trying for months to get folks to recognize that the effect of stimulus on GDP runs out much faster than the stimulus itself.

I decide to give you $100/month. That adds $100 to your household income which goes up X% in month one.

In month two it does not go up. You are still glad to have the next $100 but an extra $100 was already in last month's total so now your income is flat.

We measure recessions and growth in terms of change in GDP.

A recession is GDP going down from where it was before. Contraction.

The stimulus spending does not have the same GDP bump over time. Though much money from the stimulus has yet to be spent the stimulus spending's effect on GDP has already largely run its course.

If the government does not increase deficit spending as a percentage of the economy in 2010 then the government will not be causing GDP to go up in the way GDP is expressed... quarter-over-quarter change.

If the stimulus stays the same and the private sector weakens then GDP goes down, even though the government is still spending beau-coup money.

[grantcart]

11. the effect of the stimulus goes beyond the money spent

More important is consumer confidence which seems to be improving.

[Kurt_and_Hunter]

14. Yes, but that factor is not definitive

Consumer confidence in polling is up and can go down just as easily. (Note the almost funny disconnect in Gallup's confidence and spending polling. People are confident, but spending less. It may be that people are learning that their curtailed life-styles are not fatal.)

The effect you cite is part of the general jump-start concept... that some infusion of money begins a virtuous cycle.

I doubt that anything the government (or even the Fed) has done is sufficient to jump-start this economy because the big systemic problem is still sitting there. Housing continues to be over-priced. We may get another leg down or we may get five years of flat but the bottom line is that the housing anchor isn't going anywhere anytime soon.

Yes, stimulus spending has had a benign effect on consumer confidence. That does not, however, mean that any such improvement is sufficient to restore the economy to growth.

The little datums we have gotten used to accepting in stride, in the way one accepted daily casualties in Iraq, should be shocking, whether we are too numbed to be shocked by them. The idea of a healthy consumer sector in a nation where outlandish percentages of mortgages are two months late, where an amazing number of properties are under water, where unemployment is 10%...

I cannot speak for Mister Krugman but I see no reasons to assume an under-lying growth environment and I don't see evidence from which to deduce one. I see a lot of less bad.

(All these year-over-year numbers are comparisons to the nadir of the worst financial shock of our lifetimes so these are very easy comparisons.)

There are no natural sources of rebound out there. Our recovery looks like a mix of cyclical inventory build at new depressed levels, Government deficit spending and a modest stock market mini-bubble due largely to the fact that no asset class is performing (except gold?) and investment money has to go somewhere. (With interest rates so low there's little point keeping it in a bank.)

There is a deep, deep sense that these things rebound naturally because that has been recent experience, but there's no reason to think that in this instance because this has very little to do with business cycles and commodity shocks. You do not rebound naturally from a bubble collapse. It takes a long time.

L-shaped recovery.

[TexasObserver]

8. Recommend

[Drunken Irishman]

9. Do...60-70% chance it doesn't return?

[vaberella]

10. Yeah...but I think the poster wants us to expect the worst and

to understand that Summers'and Geithner are fucking us over. But I could be reading too much into it.

[Kurt_and_Hunter]

12. Nah, the poster is merely reporting something

I don't care who is blamed for the problem. It is hard enough to get some folks here to recognize that there is a problem at all, and that calling people names (naysayer, doom and gloomer) does put food on anyone's table.

I think Krugman's analysis is of general interest. It's not definitive, but it's worth what it's worth.

Within the story he puts unemployment rising late 2010 at better than 50% which ought to be of interest to the many prognosticators of the 2010 elections here.

[nightgaunt]

13. Such an optimist!

With nothing changed in the way that will remedy the cause of the present depression we are in for more of the same, with less to fight it with. If war should break out against Iran (warhawks in Israel and USA want it) that could flat line our economy for most of us. The ultra rich will be prepared for it. Then what do we do? Cancel all New Deal ideas and programs to fight the ever expanding war? What do you think?