A fortune teller who is constantly adjusting his predictions for the future when they are repeatedly falsified by events is likely to lose credibility after a while. Unfortunately the same does not hold true among economists. That is why a Washington Post article on the prospects for future growth treats the varying perspectives among economists as carrying equal weight.

Some of the economists have had their predictions for the economy repeatedly falsified by events, starting with the initial crash which they never thought possible. Some in this camp now insist that we are on a permanently slower growth path. This prediction is a sequel to their earlier prediction that the economy would bounce back quickly even without any special boost from fiscal or monetary policy. There were also many orthodox mainstream economists who, like those at the Congressional Budget Office, also expected the economy to bounce back quickly whether or not there was a boost from government stimulus.

On the other hand, at least some of us Keynesian types saw the housing bubble and yelled at the top of our lungs that it would collapse and bring about a severe recession. We also warned that demand would not bounce back quickly since there was nothing to replace the construction and consumption demand generated by the bubble. And we pointed out that we would not be likely to see deflation since wages are sticky downward.

In all of these predications were we shown right, but in Washington policy debates being shown right counts for little as the Washington Post tells us today.

 

Thanks to Robert Salzberg for corrected typos.

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