Friday, February 1, 2013

The Division Between Economists and Pundits

     As Krugman says the real difference of opinion on things like deficit, debt, and austerity is between economists and pundits. After Krugman did Scarborough's show the other day, he claimed that it was "Krugman against the world" when Krugman said that the economy would do better if we ran deeper deficits now and at least in the short term didn't worry over debt.

  "Neil Irwin has a very good piece on economists versus pundits on the deficit, which is however marred by a half-hearted attempt to squeeze the issue into a standard views-differ-on-shape-of-planet framework — neither side understands the other’s concerns, they’re talking past each other, etc..
Actually, I understand perfectly well where the deficit scolds are coming from; I just don’t think it makes any sense, for reasons I’ve explained at length, and which Irwin mostly lays out as well. (Missing from his analysis is the sheer difficulty of telling a story about how we get in trouble even if investors get worried about our debt)."
    "There’s no comparable level of understanding on the other side; indeed, Joe Scarborough and, as far as I can tell, Bowles/Simpson/Peterson etc. are under the delusion that my views are way out of the economics mainstream, whereas the truth, as Irwin says, is that very similar if less colorfully expressed views are held by many and probably most economists in the business world, major policy institutions like the Fed and the IMF, and so on."

      "There isn’t any symmetry here; my side of the debate is actually paying attention both to the numbers and to the arguments of the other side, while the Very Serious People only listen to each other."

     A key in Scarborough's argument is that all the people he was citing weren't even economists.  

      "His argument also runs counter to what I have been saying in Congress and in the media since 1994. So it would be no surprise that the guy who wrote this, and this, and this and this over the past week would take exception to Mr. Krugman's words. But most of our viewers did not tune in to hear me talk over the Nobel Prize winner. They tuned in to hear Paul Krugman. So I
did my best to give him space."

         Read more:

        "Again, who encompasses this Western world? In a way there are two questions: is he right that this is the conventional wisdom? Assuming it is, does this make it right? Of course not. History is replete with examples of the conventional wisdom of the time being wrong."

      I'm not sure that it's the conventional view of economists. It is certainly that of David Brooks' media. Yet how are people like Brooks, David Gregory, Bob Woodward, and Scarborough economists?

    "But maintaining calm was not as easy for Council on Foreign Relations president Richard Haass, who agrees with former Joint Chief chairman Michael Mullen, that longterm debt poses the greatest threat to America 's national security. Richard took exception to the suggestion that deficits don't matter and that longterm debt can be pushed to the side for years to come . Mr. Haass, Admiral Mullen and former Clinton chief of staff Erskine Bowles all believe that entitlements and debt are the most pressing challenges we face as a country over the next few decades."

     We see a smiliar phenomenon-the economists vs. the pundits on the suprise drop in GDP released Wednesday. The GOP rather nakedly took the bad news a more "leverage" and the VSP in the media seemed to think that it hurts the President's position in some-unexplained way.

     "One of top Politico stories of the day tells readers that, in the wake of yesterday's economic news, President Obama has a "GDP problem." After noting that the drop in economic growth was "largely due to a drop in government spending," the article adds:
Nonetheless, the politics are unambiguously terrible for Barack Obama ... and it gave an adrenal jolt to the a GOP messaging establishment left supine by the Mitt Romney mirage and recent soul-searchy infighting.
      "Politico's report added that Democrats "will try to spin" the news, but the party's "narrative" is "not very convincing" and burdened by "weakness."

      "It's almost as if facts, evidence, reason, and a cursory understanding of economic policy no longer matters at all. In reality, the economy shrank a little in the last quarter because of spending cuts, but the party demanding more spending cuts has suddenly received "an adrenal jolt" -- the Republican National Committee seemed inexplicably giddy after the GDP report was released -- even though it's now blisteringly obvious their agenda would undermine economic growth."

     "Any why are those who've been proven wrong acting like they've been proven right? Apparently it has something to do with whether D.C. media types are "convinced" by your "narratives."
For those who still take policy seriously, and still believe a sustained economic recovery is possible, the facts are readily available: the people who seemed happiest yesterday by discouraging economic news have it backwards, and are pursuing policies that would make the problem worse, not better."

     Meanwhile in the real world-of economists-it's clear that the suprise contraction doesn't mean much-just a blip on the radar screen from a one off contraction. Scott Sumner is an economist. Here's what he has to say:

      "The government measures GDP in two different ways; GDP and GDI. The Gross Domestic Income measure is generally regarded as the most accurate, but unfortunately the complete data comes out one month after the flash estimate of GDP. Hence the press tends to report the GDP numbers.Fortunately, the BEA does report most of the GDI data at the same time as GDP. Today’s report shows the reported part of NGDI rising from $13,430.2 bill in Q3 to $13,569.5 billion in Q4. About 4.1% at an annual rate. The same 4% track we’ve been stuck in since mid-2009. When the missing data is reported (interest and corporate earnings) the number will be revised, but is still likely to be much higher than the 0.5% reported growth in NGDP during Q4. That number made no sense in light of the steady job growth in Q3 and Q4."


     "Most analysts are, rightly, shrugging off the surprise report of an actual decline in 4th quarter GDP. It will probably be revised away, and in any case it’s the result of one-off factors: a drop in inventories and a quirky sharp decline in defense spending."

      And now the market has given its verdict: the economists have it. We saw job creation of 157,000 last month and the Dow now crossed 14,000 for the first time since 2007-it's esentially come back to its 2007 highs.

       It seems to me that this is also a rebuke to those permabears who still think we're going to retouch those 2009 lows. If we're able to get and stay over 14,000 this will suggest this is quite unlikely.






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