May 28, 2002
From the desk of Jane Galt:Predictive validity seems to be
Predictive validity seems to be slipping. On the one hand, Krugman doesn't blame all our woes on the Bush administration; on the other hand, he ruins an otherwise great column about the recovery we're all waiting for with bated breath by proclaiming that the real reason people were wrongly predicting that we'd be in recovery by now was that they falsely equated George Bush with Ronald Reagan.
Not anyone I know. Everyone with an actual job in the financial industry, as opposed to the financial pundit industry, is well aware that Reagan and Bush took over in very different economic climates.
Because of this strange obsession Krugman has with saying something bad about the Bush administration in every single column, he wastes valuable inches drawing pointless distinctions between the Bush administration and the Reagan administration when he could be discussing the stupid fantasies on which otherwise intelligent people did base their predictions of a recovery. Interestingly, Krugman seems willing to do anything, including praising Reagan, to get in a shot at Bush.
He misses an opportunity to talk about the various putative causes of recent recessions, and discuss how this one might be the same as, or different from, its predecessors. This recession seems to be very different from the last two recessions, which were classic monetary boom-bust cycles; or from the '73 recession, which seems to have been driven by oil prices. But we get none of that.
He does do something great, though. He poses the question "what will lead us into a full-fledged recovery?" and then answers "Beats me." Bravo.
Why do economists make so many wrong predictions? Because they're pressed for a sure prediction. There may be dozens or hundreds of variables going into that prediction, many or most of which are uncertain; yet the public doesn't want to hear them natter on about housing starts and durable goods inventories; it wants a sound byte. Which is what reporters give them, even if they do explain the uncertainties. It gets trimmed to "Greenspan says things are looking up" or some such. So Krugman has taken the bold step of saying that he doesn't know, rather than making a tenative bad prediction because his editors demand it.
The rest of the column after that point is very good; he says things that one may have noticed subconsciously, but not really verbalized; most notably, that the economy seems stuck in place, with consumer spending defying expectations by staying strong, and business investment defying expectations by staying weak. In other words, we're treading water.
Overall, good column. And I'm going to give this a PV of .5, bringing us to 3.5 out of 4.
Posted by Jane Galt at May 28, 2002 10:32 AM | TrackBack | Technorati inbound links