Growthology

How India Changed Growth

Growth economics is filled with errors. The Solow residual has become ingrained in conventional wisdom as "technology" when it is really a measure of intangibles. Technology, sure, but also culture, institutions, creativity. Not to mention, conventional wisdom assumes a linear link between more R&D spending and more innovation. What about entrepreneurs?  Most startups I know don't have an R&D budget -- the whole company is a tech gamble!  How can government officials measure that?  They can't.

But the biggest myth of practical growth economics is getting punctured, thanks to India. The CW still hasn't digested the truth yet, because it is still beholden to the idea that manufacturing is the alpha and omega of prosperity.  Well, India has been showing that a country need not "industrialize" to grow. Rather, India is leap-frogging (for the most part) the trail of sweatshop tears by embracing services-led development.  You might call it a Globalization strategy instead of Industrialization strategy. And lest we forget, embracing Industrialization was no guarantee of success. Remember Africa circa 1960?

Here's Ejaz Ghani in a VOX essay:

... India’s growth pattern in the 21st century is remarkable because it contradicts a seemingly iron law of development that has held true for almost two hundred years since the start of the Industrial Revolution (Chenery 1960, Kaldor 1966). This law – which is now conventional wisdom – says that industrialisation is the only route to rapid economic development for developing countries. It goes further to say that as a result of globalisation the pace of development can be explosive. But the potential for explosive growth is distinctive to manufacturing only (UNIDO 2009). This is no longer the case.

... Service-led growth is sustainable because the globalisation of services is just the tip of the iceberg (Blinder 2006). Services are the largest sector in the world, accounting for more than 70% of global output. The service revolution has altered the characteristics of services. Services can now be produced and exported at low cost (Bhagwati 1984). The old idea of services being non-transportable, non-tradable, and non-scalable no longer holds for a range of modern impersonal services. Developing countries can sustain service-led growth as there is a huge room for catch up and convergence.

Maintream economics taught students that services dominate the non-tradeable sector (think haircuts) across distance.  I always wondered what Elvis or Lassie would say to that.  But now I just wonder what the accountants in India would say.  Probably the same.  Woof. 

This is worth keeping in mind the next time someone tells you that "America used to be a place where people made things."  It still is, but that's not the future. In the future, manufacturing will be automated. American factories will quietly produced more stuff with less, or no, workers on the line. Indeed, that trend may make China's industrialization strategy a bad bet over the long-term.

How the Mess was Made

Read David Stockman's tirade about the 30-year fiscal war. Stockman says the U.S. is "hurtling irreversibly toward a budgetary crack-up...." Published in Politico, it nails everyone. This would be great fodder for any classes that covers public finance.

My only quibble is that Stockman doesn't offer solutions. By that I mean he's like a doctor who diagnoses obseity and declares with an ominous scowl, "Be less obese."

Of course! Our government spends more than it taxes, and the gap has been accelerating. But the policy solutions (spend less, tax more) are NOT THE POINT. The point is that the rules that govern fiscal policy-making are broken. If you did not get that message from Evan Bayh's retirement, then you are missing the forest for the trees.

The only discussion worth having now is: What new rules will restore sound policymaking?  There are two tests for rules. One, will the rule work and work robustly over time? Two, can the U.S. enact the rule?  The dilemma is that potential rules may never be able to pass both tests.  As an example, President Obama's "bipartisan fiscal commission" has already passed the first test, but there is a great deal of skepticism if it can pass the second test. Pay-go is another example.  Works for a while, but it has always proved non-robust. Alternatively, rule that would completely satisfy the first test are budgetary Amendments to the Constitution, but again political reality seems to make enactment of these near impossible.  What rules would you like to see?

Let's hope (and suggest) that the President's new commission includes a careful set of recommendations on rules, in addition to the policy options. We've been talking policy options for 30 years, with lone economists like Stockman screaming into the wind, and I don't think that conversation is working.

UPDATE:  Thanks to Asa Hopkins for noting the broken link (now fixed) which should be going to this URL:

http://www.politico.com/news/stories/0210/33412.html

Anticipating Krugman (and SF)

A lengthy New Yorker bio piece on Paul Krugman is on my to-read list. (Hat tip: Tyler Cowen). I've read about half, but want to blog it before I get busy ... 

One of my favorite things about Krugman is that his interest in economics was inspired to some degree by reading science fiction as a kid, especially Isaac Asimov's Foundation.

Krugman explained that he’d become an economist because of science fiction. When he was a boy, he’d read Isaac Asimov’s “Foundation” trilogy and become obsessed with the central character, Hari Seldon. Seldon was a “psychohistorian”—a scientist with such a precise understanding of the mechanics of society that he could predict the course of events thousands of years into the future and save mankind from centuries of barbarism. He couldn’t predict individual behavior—that was too hard—but it didn’t matter, because history was determined not by individuals but by laws and hidden forces. “If you read other genres of fiction, you can learn about the way people are and the way society is,” Krugman said to the audience, “but you don’t get very much thinking about why are things the way they are, or what might make them different. What would happen if ?”

With Hari Seldon in mind, Krugman went to Yale, in 1970, intending to study history, but he felt that history was too much about what and not enough about why, so he ended up in economics. Economics, he found, examined the same infinitely complicated social reality that history did but, instead of elucidating its complexity, looked for patterns and rules that made the complexity seem simple.

Since a wonderful part of being alive is anticipation, I have to say that I am very happy to have Paul Krugman in my life. I have great anticipation for what he will write in 10, 15 years about science and science fiction. My guess is that he will have a voice then, an older man's voice, that he cannot have now. His voice now is very engaged in the trees of our time, not the forest of all time.

Fiscal policy is "out of control" ... so what?

Ken Rogoff, a Harvard professor, and one of the few economists who can claim to be prescient (this January 2008 NBER paper with Carmen Reinhart anticipated the economic fallout from the financial crisis in the U.S.), now warns that fiscal policy is out of control ... here, there, and everywhere.

Speaking in Tokyo, he actually used the phrase "out of control" to describe Japanese fiscal policy (debt to GDP is over 200% there), but also focused on Greece, the EU, and the U.S.  The difficulty to curb fiscal stimulus during a recession means that monetary policy is likely to tighten first, and last week's Fed announcement pretty much fits in exactly with the Rogoff prediction.  Actually, the political economy of fiscal versus monetary policy is something taught in economics classrooms for decades. Rogoff now predicts:

The U.S. is likely to tighten monetary policy before cutting government spending, sending “shockwaves” through financial markets, Rogoff said in an interview after the speech. Fiscal policy won’t be curbed until soaring bond yields trigger “very painful” tax increases and spending cuts, he said....

“Most countries have reached a point where it would be much wiser to phase out fiscal stimulus,” said Rogoff, who co- wrote a history of financial crises published in 2009. It would be better “to keep monetary policy soft and start gradually tightening fiscal policy even if it meant some inflation.”

It's interesting to note the 2008 NBER paper said:

A critical question is whether the U.S. crisis will prove similar to the most severe industrialized-country crises, in which case growth may fall significantly below trend for an extended period. Or will it prove like one of the milder episodes, where the recovery is relatively fast? Much will depend on how large the shock to the financial system proves to be and, to a lesser extent, on the efficacy of the subsequent policy response. (emphasis added)

What are the consequences? 

The first consequence is that the U.S. recovery will be more difficult than it needs to be, followed by a systemic shock. It is impossible to anticipate what the U.S. economy will look or feel like in 2020 after that shock occurs.

The second consequence is global. For growth optimists like Dane, Bob, and me (and our readers, right?), it is very difficult to reconcile the gloomy short-term outlook with all of the historical evidence showing long-term acceleration in economic growth. (I'm reminded of the TED talk Alex Tabarrok gave a year ago). The reconciliation is, of course, growth is heterogenous among countries, states, and cities (people, too, for that matter). Japan and Greece seem determined if not destined to be fiscal train wrecks. America seems to be falling into the same trap, and not just because of next year's projected deficit, but because of the inability to institutionally even think about entitlement realities. So, yes, growth will happen, but it won't surge in nations with fiscal hangovers. Growth leadership starts with fiscal restraint, so we can look at this list of public debt by country to see who has the advantage. Names that stick out: China, Russia, Estonia, Chile, Australia, among others. 

Does America eally want to pass the baton of global leadership? Of course not. Such batons are never passed. They're dropped.

UPDATE: Jim Hamilton makes the case that the Fed discount rate increase is not a signal of tighter monetary policy.  I don't disagree, per above, but I doubt Jim would disagree with the claim that monetary policy is much more likely to tighten before fiscal policy (I give 50-1 odds). And I can guarantee that Jim would prefer to see real fiscal discipline, because he's been writing about that for years.

Waging Politics Through Graphics

For those of you who haven't seen it, this is a recently released graphic being pushed by the Obama Administration to illustrate the recession it inherited and the impact of the stimulus:

 Source.

Although it doesn't quite embody the "golden age" of data visualization that Paul Kedrosky likes to say we're living in, it is a very clever graphic--a "brilliant image" says Ryan Avent. That said, it's not without problems--Drew Conway provides a nice angle.

Has the Great Recession Ended?

This is the question of the moment for many economists and analysts and policymakers, although the relevance of the answer will vary widely across the country. Will someone who has been unemployed for seven months or longer (which is now the average duration) celebrate when the National Bureau of Economic Research (NBER) officially dates the end of the recession?

In a recent research note, William Hester of Hussman Funds examines the four primary indicators tracked by the NBER Business Cycle Dating Committee: Industrial Production, Real Manufacturing and Trade Sales, Real Personal Income Less Transfer Payments, and Nonfarm Payrolls. Many readers won't be surprised to learn that the first two indicators have bounced back nicely, in line with prior recoveries:

Source: William Hester, Hussman Funds 

The Manufacturing and Trade chart is similar, although with not quite the same "V" shape as Industrial Production. Personal Income has risen in the last several months, but so far is merely flat-lining rather than rising. But as you can guess, it's the employment situation that will continue to weigh on the economy:

Source: William Hester, Hussman Funds 

Yikes. Hester points out that the trend of NonFarm Payrolls thus far tracks quite closely the "jobless recovery" that followed the 2001 recession. That recession was said to be over in November 2001, but employment didn't recover for about two years and the bear market persisted for another year. As Hester notes, "it would go against precedent for [NBER] to declare the end of a recession with the mixed signals that are currently in place."

So what do you think? Is the Great Recession over? If it is, does it matter? Don Peck has a very disheartening piece in the newest Atlantic predicting a "long shadow" that will stretch across the economy for several years to come and will even produce a "slow motion social catastrophe," wrecking marriages, cities, and quality of life for whole swathes of the United States.

It's a perpetual temptation for every generation to declare its time to be historic, for everyone to perceive themselves as living through some sort of inflection point. Such time-centrist sentiment often proves unfounded, but occasionally the signals are so overpowering that you can't help wondering: is this the moment when everything changed?

Where in the world are U.S. Troops?

With the hundreds of thousands of U.S. "boots on the ground" in Iraq and Afghanistan, we should wonder how many Americans have been deployed away from home throughout history and whether they have been a force for good (as advertized by the U.S. Navy).  While I am far from having answers to the bigger question, I have been compiling annual Pentagon data on troop deployments for many years now. The latest 2009 update, with help from my colleague Mike Horrell, helped me generate the charts below.

Despite the famous surges into Iraq and Afghanistan, it is surprising that the total level of troops abroad in 2009 is roughly equal to the baseline level (400,000) set during the Cold War era. 

Copycat survey at the WSJ

My pal EJ tells me that the whiz kids at the Wall Street Journal saw our Econ Blogger Survey and quickly made their own version! Ha, nice try.

Oh, apparently they have been doing it for years, once a month even. And my assistant reminds me that I said they were an "inspiration." Okay, so fine.

The summary is that the economists expect interest rates to be held steady by the Fed all summer long and not rising above 1% the entire year.  Inflation remains tame. A quarter of the 8 million jobs lost are structural (that is, permanently gone). Home prices stabilize. GDP growth rate averaging 3 percent. And they even have a report card.  Here's an interesting observation from the article:

One of the key issues holding down job growth is a growing disparity between small and large businesses. This week, the National Federation of Independent Business released a report showing another decline in small business optimism. That stands in contrast to the Business Rountable's survey of chief executives of larger companies released last month that showed a strong increase in sentiment. 

Up snow creek without a shovel

The snow here in northern Virginia is surreal. Three foot icicles on most houses.  Snow drifts up to the top of our bakyard fence.  Plus the whole weirdness of walking over to the neighbor's house for the Super Bowl party through a snow canyon that is our street. With all of our munchkins, this many days off from school has been fun, but is fading quickly to a Nicholsonesque redrum feeling of dread.  I think the 3-year old will snap first.

Just the other day, I was finishing up the last bit of snow shoveling on the driveway. It was at the point where perfectionists like myself enjoy cracking the ice layer and making the driveway totally liberated of all moisture. I was down to the last wedge, masterfully sliding the shovel between the pavement and the iceslab (old Michigan kids know this requires a deft acceleration with the pitching hand). Next came the pivot, ice cracked perfectly, and then another sound. It was a second unwelcome crack of the shovel head itself.

When I went to toss, the snow went sailing over top of the end-of-driveway-igloo, and with it, half of our snow shovel. Our family's ONLY snow shovel.

Sigh ...

Serious thoughts about the Blizzard of 2010? 

First, the name.  I know it is popular to give these kind of big events cute names, but I am particular to old fashioned words that Mark Twain would find in his dictionary. Blizzard fits. The print media - great defenders of the English language - are alternating between Snowpocalypse and Snowmageddon (and now Snoverkill!).  Honestly, those are cute and made me smile, so I am not a total crumudgeon. Still, it bothers me that every scandal is nicknamed affixed "-gate" and every non-scandal seems to get a cute name.  Seriously, is it Toyotagate, yet? (Nah, just 6,600 Google references so far)

Second, Climategate. (We do have irony in abundance here). Subtitle: Does Snowpocalypse Disprove the Climate Warming Pseudo-Consensus? Scientifically, of course not. But this certainly can't help the whole climate change guilt industry. And don't try to pin me down as a "Denier" -- I've favored hefty gas taxes since I started thinking geopolitically back in precocious 1981. Although it is the greatest hoax of our lifetime (and duly deserves the name "The Climate Hoax" instead of lame-o "Climategate), the fact is when the leading "experts" of your movement have corrupted the very name of science they wrap themselves in, and their own universities investigate and report (Penn State on Michael Mann) their behavior, "may be undermining public trust in science," a record-setting blizzard does not help hide the scandal. 

Sure enough, there are snarky and politicized cannon blasts about Deniers not knowing the difference between weather and climate, but as I said, that's really not the point. Partisans use weather to make their climate case all the time. Just look at Al Gore, who loves to open speeches with references to the weather whenever it's ... um ... convenient.

No, the good news in all this is that the Blizzard of 2010 will add pressure to the Climate Hoax, not that climate change isn't happening, but that science was corrupted by politics to overemphasize the case. Why is this good news?  Because the scandal exposes the exploitable weakness of the scientific process. Namely, the weakness of "peer-review" has been exposed. Its hostility to the non-anointed, its clubbishness, its arrogance. Anonymous peer review has its place, but that place is surely not a tyrannical hold of authority. The revolution in academic publishing is the beneficiary: long-simmering changes like open-access, post-publication review, non-anonymous refereeing, and so on. 

Third, Government Failure.  I can't evaluate overall government competence based on this anecdotal experience alone.  But I've seen too many others weigh in on what the blizzard (or say, Katrina) says about the need for bigger government to let this pass. A few years ago, John Edwards (yes, that John Edwards) asked me to attend a nerd-studded group for a 1-day event at UNC about poverty in America. It so happened that Hurricane Katrina struck the gulf coast a few days prior to the event, and it became a topic of discussion. Senator Edwards thought the hurricane had exposed hidden poverty in America. I thought it exposed how nature is terrifyingly powerful, suggesting we not read to much into its lessons for government, partisan views, and so forth. What bothered me then is how much government was getting in the way of grass-roots relief efforts (e.g. turning away volunteer firefighters who did not have proper political correctness certification, e.g. gun-wielding law enforcement from nearby communities turning back walking refugees at bridges around New Orleans). I pointed to the efforts of Wal-Mart, a private firm, using its logistics prowess.

The blizzard today is a small-scale problem compared to Katrina. And yet, coinciding as it does with the somehow relevant victory of the Saints in the Superbowl, I still think there is a lesson here.  Local roads in many places are clearer than major roads. Why? Spontaneous efforts by private citizens are clearing the neighborhood roads, while small-town government is in charge of the major roads.

Some major roads, in fairness, are fine, and God bless the workers in snow plows working night and day. But many stretches are treacherous and filled with slush, mainly the "medium" streets that are not state roads and not neighborhood streets. Why can't governments handle this? Seriously, you should see my neighbor Russ in his Bobcat. The experience confirms for me the danger of big government that overextends its capacity into areas where it should not operate, and by doing so hinders its efficiency in areas of core competency.  Plus, if I am nice to my neighbors on the blog, maybe they will lend me a shovel ...

Fourth, I love technology.  And not just the hot tub and central heating technologies. I love the Internet, the Amazon Kindle, the iPhone, Netflix and FIOS movies on demand which all combined trump the boredom and worry families felt during the Blizzards of 1977 and 1978. Even our local paper, the Washington Post, which was not delivered in recent days, was readable on the web. Which is cool. Blizzard cool.

Let us tax work

It's unbelievable, but higher taxes on work are coming to most states in the Union.

The median increase will be 27.5%. And employers in places such as Hawaii and Florida could see levies skyrocket more than ten-fold.

If anyone wants an easy bipartisan job-creating legislative idea, top of the list is to give states the flexibility to modify the Unemployment Insurance (UI)I system. A smart policy would let states opt out entirely, given that UI is proven to prolong joblessness. There are alternative approaches, but they will be left untested so long as one-size-fits central planning from Washington continues (as it has for decades). Or did I hear that everything is on the table?

Policy Options, KEO part 2

The second set of questions from the Kauffman Economic Outlook Q1 2010 focus on policy options for the U.S. economy.  The summary text from the report itself is copied here:

Despite being a balanced panel in terms of political alignment (16 percent Republican, 19 percent Democratic, 47 percent independent, and roughly 18 percent libertarian/other), there is a strong consensus around many policy recommendations. Seventy-one percent of economics bloggers think the U.S. government is “too involved in the economy,” with only 17 percent calling for greater involvement. When asked what the government should be doing, the only policies with more than 50 percent support are: 1) to increase high-skill immigration (63 percent), and 2) to increase legal immigration at all skill levels (57 percent). Two policies stood out sharply with nearunanimous opposition: increasing business regulation (9 percent) and increasing tariffs (4 percent).

On taxation, the panel was widely in favor of lowering taxes on payrolls (74 percent) and income, both corporate (64 percent) and individual (62 percent). Likewise, there was strong support for higher taxes on gasoline/carbon (68 percent and 57 percent, respectively), and consumption (54 percent). A common battleground for tax policy is progressivity, but 47 percent of bloggers are calling for flatter taxes compared to 26 percent in favor of increased progressivity (i.e., even higher tax rates on higher incomes relative to lower incomes).

According to economics bloggers, the top three variables that policymakers should emphasize in a model of economic growth are human capital, innovation, and economic freedom. In a related question, bloggers were asked to rate the beneficial importance of numerous key players in the U.S. economy. One hundred percent of the panel rate entrepreneurs as “important” or “very important,” and innovation also had unanimous support. Only slightly less important are free trade and education, with nearly all respondents rating them as “important” or “very important.” In contrast, only 30 percent of economics bloggers think labor unions are important, and nearly 70 percent rate them as “unimportant” (numbers may not add to 100 due to non-responses and rounding). Opinion is decidedly mixed on manufacturing, while there is mild support for the importance of big business.

And here are the individual charts (in .gif format) from this section:

 
  

 

As a few observors have pointed out, not all of these policy recommendations might be as popular with a random sample survey of the American public. For example, increasing immigration is arguably a political non-starter. But that has been a top priority here at Kauffman as a boost to economic growth. I was pleased to see this had broad support from the econ bloggers panel, which again I would emphasize is politically balanced. 

Is it biased?  Naturally, a reader of the survey should wonder if this survey is biased. There is a big difference between an ideological bias versus an experiential bias. Indeed, the question of bias goes to heart of survey research. There are random sample surveys (like Gallup) that try to capture public opinion, and most econometric research aspires to the standard of an unbiased sample of observations. The KEO is not of the variety. The Kauffman Economic Outlook is a lot more like a co-authored research paper, with scores of co-authors.  Although some might characterize it as "expert" opinion, that seems to me like a diversionary label and conversation. 

It is trendy these days to hint that economists as a class of thinkers have been discredited for not forecasting the recession. That was the topic of a few panels at the recent American Economic Association conference in Atlanta, where a handful of economists were on hand who expressly had warned of the stock market bubble, the housing bubble, the financial dangers of leverage, various deficits, etc. Indeed, the much-maligned Alan Greenspan mentioned the dangers of Fannie and Freddie more times in Congressional testimony than most Congressman can count. Even if the vast majority of economists and economic commentators warn of the dangers of unsustainable budget deficits, we can never know the exact month when the U.S. will lose credibility and the dollar will fall, but that surely isn't proof of ignorance or failure of the discipline.

The point is that the KEO economics bloggers survey includes numerous voices who warned either of the coming recession or of pitfalls, or both. Even now, the sample includes a balance of opinions that differ on a range of issues.  Thus, finding areas of consensus, especially strong consensus, is a very interesting result.

Specifically, on the issue of taxes, this survey found a consensus for taxing consumption more. That would be unpopular, true. But the finding is not in isolation. Bloggers also overwhelmingly support lower taxes on work (payrolls) and income. The consensus to shift the tax burden should not be couched as a public-versus-expert paradox at all (as the public would probably favor such a change as well). Rather, the finding offers some common ground for policymakers in the years ahead.
 

Did the Unemployment Fever Just Break?

The topline rate of unemployment dropped from 10.0 to 9.7 in this morning's BLS Employment Situation report. Everyone probably had the same reaction I did: "Really??  Or is this some data quirk driven by a collapsing labor force denominator?" 

In fact, the labor force has stopped collapsing. It still has a long way to recover after nearly 2 million stopped looking for work over the last year. The numbers from this survey (the CPS household survey) tend to vary more than alternatives, but the trend lines are more reliable (for instance, one big story today is that the CES payroll numbers were adjusted down by nearly a million jobs. I think the case is closed that payroll figures are not reliable barometers during turning points).

Indeed, my sense that the the recession of 2007-09 might be turning is based on the trend view of the three big CPS components: net employment, net unemployment, and net labor force in the following chart:

   
 
 Hopefully these trends imply a solid employment recovery.  It's too soon to exuberate, first because two data points are not a trend, and second because the Fed will have to raise rates at some point ....

UPDATE: the second chart is not showing title and source line in the original post.  This revised chart should work.  Also, note the turning points I hint at in the title are not those approved by the NBER, rather what looks to appear from this data series only.

What I Meant to Say . . .

Some timely humor, courtesy of here:

And I totally wish I'd had this poster in hand for yesterday's post:

If Only the Public Listened to Economists!!!

Most readers have seen the results of the Kauffman Economic Outlook, a survey of scores of economics bloggers from across the Internet. Kudos to Tim for pulling it together.

Not to sound crankish, but I just wanted to highlight a couple of surprising (to me, at least) reactions the survey results provoked from bloggers:

"Less tax on income, and more on consumption, particularly of energy and emissions. Sadly, the public doesn't seem too keen on the concept."

"In particular, I think we understand better than the typical citizen the role that government health programs play in the outlook for the deficit. And I think we understand better than others that private-sector labor unions are no longer significant."

At the risk of oversimplifying or reading too much into brief remarks, these reactions can perhaps be summarized as: the public is idiotic, economists (and especially economic bloggers) are smarter than the public, so the public should listen more to economists (especially economic bloggers). Such inescapable logic--on the heels of a severe recession that many of these economists swore wouldn't happen just before it actually did--would elicit derisive scoffs from the non-economist-don't-know-what's-good-for-them average members of the public that it seems to be my misfortune to hang around with.

Why So Gloomy? KEO, part 1

The first few questions from the Kauffman Economic Outlook Q1 2010 focus on the overall U.S. economy, and our summary emphasized the gloominess of the blogger's consensus opinion.  Here are the individual charts (in .gif format) from this section:

 
One could say there is no consensus either way based on the first chart, but that is wishful thinking. The natural state of the U.S. economy, historically, is growing.  So even if a majority of the panel say things are "mixed," it is lower than expected.  But the fact that opinion expressed off neutral is 5-1 negative, and the extremes are 5-1 negative, the consensus is powerful. Finally, consider the 20 comments given by survey respondents:

1. Outlook differs strongly from region to region.
2. At the moment, we have growth without new jobs.
3. Output is expanding, but the prospects for job creation are fairly bleak
4. momentum of growth picking, but much weakness
5. It is important to distinguish the real economy from the financial economy and the stock market. The real economy has not benefitted at all from the stimulus. In fact, it has been harmed by it.
6. I actually have a bet with David Henderson of EconLog that we will experience double digit inflation as well as double digit unemployment within the next 6 years
7. The risk of hyperinflation is much greater than the statements of public officials would indicate.
8. All indicators barring unemployment rate have shown ptomise in recent months. But much of the growth is because of the government/Fed measures. It is very difficult to say how would the economy fare minus the stimulus.
9. It looks like we are heading into a weak, prolonged recovery
10. I'd like to be optimistic, but keep seeing the revisions.
11. Another slow down or double-dip recession awaits in 2010
12. While Wall Street is back to profits (using cheaper funds because of US guarantee), Main Street is hurting and will continue to hurt for a long time--without remedying that hurt
13. Seeing a curious blend of caution and new thinking and a scary return to many practices from only two years ago that were reckless.
14. Growth in places like Texas/Wyoming, stagnation or worse in Michigan/California/Rhode Island.
15. Underlying problems have been swept under the carpet
16. Fiscal stimulus, foreclosure prevention, accounting tricks, and inventory restocking enough to elevate GDP. But investment remains weak, debt servicing burdens rising despite low rates, and employment situation continues to deteriorate. Q2/3 should see a second wave of deleveraging and contraction.
17. Labor, GDP, stocks, savings, consumption?? How measured?
18. Data manipulations. Freight traffic and sales taxes are only reliable data left, and they are still pointing downwards. The rest of the markets are based solely on paper fluff.
19. Massive and wrenching re-orderings of the economy still lie ahead -- long term government obligations are unsustainable.
20. I'd like to say "Weak but growing"

And take a close look at chart 3, which asks about growth prospects for the next 3 years for 12 different variables.  Like most of questions in our survey, this one aims for a qualitative answer, not a specific forecast.  There were 5 answer choices for each variable: strongly increasing, increasing, stable, decreasing, and strongly decreasing.  When we average the responses together, four things had average responses near 0.4 (where 0.5 represents mere "increasing"), and neither U.S. employment not U.S. GDP per capita were included.  Those two variables had average ratings of 0.18 and 0.17 respectively, which is closer to stable than increasing.

 

Now, nobody loves the notion of "competitiveness" and Paul Krugman famously savaged it once upon a book.  But we included it in the survey because the phrase is a useful summary of the business/policy environment in the U.S. relative to the world. It strikes me as a sad commentary that zero respondents mark U.S. competitiveness to increase strongly over the next 3 years. Zero. Of the twelve things considered, competitiveness was the only one without a single high mark. Granted, the 83 respondents to this question probably had 83 different reasons (or more) to anticipate weaker relative U.S. competitiveness (and many of them are probably related to the U.S. budget deficit), but that's not very reassuring.

 

 

Data in Excel for Q1 Kauffman Economic Outlook

For anyone interested, here is the excel file with responses to the Kauffman Economic Outlook Q1 2010 survey.  Keep in mind, 85 respondents completed the survey, but no question was mandatory, and many chose to skip a few.  I think the average response is 80 per question.

Download KE_Outlook_Q12010

Inaugural Kauffman Economic Outlook: survey of leading economics bloggers

Here is the first edition of the quarterly Kauffman Economic Outlook: survey of leading economics bloggers:

Download Kauffman Economic Outlook Q1 2010

It is very light on text, heavy on charts.  We offer a brief summary, but hope the collective opinions of the economics bloggers speak for themselves.

UPDATE: Here is a link to a public version of the survey with the exact questions and structure.  It is open to the public and we welcome your participation.  It will be interesting to see if readers of growthology have different opinions than the experts. 

Econ bloggers give DC mixed marks (a.k.a. Congress gets an F)

The question is "How do you grade the performance of the following organizations and institutions? (A = best, F = )"

Average answers (i.e. Grade Point Average) from 85 leading economics bloggers:

2.3    CBO, GAO, and other watchdogs
2.2    U.S. business community
2.0    European Central Bank
1.7    U.S. Federal Reserve
1.6    World Bank / IMF
1.2    Wall Street firms
0.7    U.S. Congress

Here is the chart:

 
What's this all about?  Tomorrow morning, the Kauffman Foundation will be releasing the results of an exciting new survey project that we have been working on for many months.  It is a survey of leading economics bloggers.  All of the questions were generated by and rank ordered by a blogger advisory board.  Today, we are releasing a teaser e-alert with results from one of the questions, a "report card" for major economic institutions.  It is fortunate that the teaser coincides with the major budget discussion because the best grade point average goes to the CBO as part of the Washington watchdog community.  Without the CBO, GAO, and similar watchdogs, Washington would probably be even more dysfunctional.

Maybe it's worth noting that the CBO has a blog?  (And no ... they did not participate in this survey!)