Paul Krugman won the Nobel Prize in Economic Sciences last year for his theories on how economies of scale affect international trade patterns.
Paul Krugman DID NOT WIN the Nobel Prize for his ability to predict, identify or time business cycles!
However, I do have to give him credit, he did “predict” the current recession in early 2008 when it was obvious to most everyone else.
“The signs point increasingly to an imminent, or perhaps already begun, recession.”
January 11, 2008 Click here to read.
He also “predicted” a recession in 2007.
“A majority of Americans thinks we’re already in recession. And there’s some chance they might be right.”
December 11, 2007 Click here to read.
He also “predicted” a recession in 2006.
“Right now, statistical models based on the historical correlation between interest rates and recessions give roughly even odds that we’re about to experience a formal recession. And since even a slowdown that doesn’t formally qualify as a recession can lead to a sharp rise in unemployment, the odds are very good — maybe 2 to 1 — that 2007 will be a very tough year.”
December 1, 2006 Click here to read.
He also “predicted” a recession in 2005.
“But if the process doesn’t go smoothly - if, in particular, the housing bubble bursts before the trade deficit shrinks - we’re going to have an economic slowdown, and possibly a recession. In fact, a growing number of economists are using the “R” word for 2006.”
August 29, 2005 Click here to read.
He also “predicted” a recession in 2004.
“An oil-driven recession does not look at all far-fetched.”
May 14, 2004 Click here to read.
He also “predicted” a recession in 2003.
“We have a sluggish economy, which is, for all practical purposes, in recession…”
May 23, 2003 Click here to read.
He also “predicted” a recession in 2002.
The key point is that this isn’t your father’s recession — it’s your grandfather’s recession. That is, it isn’t your standard postwar recession, engineered by the Federal Reserve to fight inflation, and easily reversed when the Fed loosens the reins. It’s a classic overinvestment slump, of a kind that was normal before World War II. And such slumps have always been hard to fight simply by cutting interest rates.
October 4, 2002 Click here to read.
What about 2001? That’s when we had our last “official” recession which the NBER said began in March 2001. Krugman must have predicted that one….right? OOPS! Actually he said the claims of a recession were unfounded within a few weeks of the official start of the decline on February 21, 2001. BRILLIANT! Click here to read the whole thing…there’s some really good stuff in there, such as:
One hears that George W. Bush likes to give people nicknames. So I hereby propose that he himself be known as Chicken Little. After all, he has been running around saying ‘’The sky is falling! Hurry up and pass my tax cut!'’ And that of course means that we should dub Dick Cheney, who has been the administration’s point man for economic pessimism, Chicken Big Time.
With one exception, the economic data don’t support such gloomy views. The unemployment rate has ticked up slightly, but it is still lower than anyone would have thought possible only a few years ago — and in much of the country labor markets remain tight. Business payrolls actually expanded faster from November through January than they did in the previous three months.
Meanwhile, though the growth in consumer spending and business investment has slowed, there has been no collapse. Housing starts are actually up. Manufacturing output did fall sharply in the last few months of 2000, but this was mainly the result of inventory effects: companies produced too much in the face of slowing demand, found that they had accumulated excess inventories, and temporarily slashed production in order to clear their warehouses. Production of most manufactures stabilized last month, and unless demand takes another fall should soon recover.
Had enough? How about a few more.?. In May, June, July and again this past week, Krugman has said optimistic stuff like he would “not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer.” What a prophet!
I know that happy stuff may sound familiar given that even non-Nobel Laureates have been yapping about the end of the recession that most of them never predicted, not even in 2008, 2007, 2006, 2005, 2004, 2003, or 2002. So hearing Krugman say it isn’t really that insightful is it?
Frankly, hearing Krugman’s positive tone is a bit odd given that he said this on March 31, 2009. “So far, there’s nothing pointing to a fundamental turnaround this year, or next, or for that matter as far as the eye can see.” Click here to read. I have no clue what he could have seen in April and May to convince himself that the negative business cycle had gone from having no end in sight to being over by August or September.
I really don’t have a problem with Bernanke or Krugman or any other economist saying whatever they want. I don’t care whether they wrap all their predictions in double talk and conditional statements (”perhaps”, “might”, “odds are”, “possibly”) so they can avoid accountability for their failures or take credit when they turn out correct….even if it takes as long as 5 years to come true. I understand that the media loves to get quotes from economists, especially ones that have Nobel prizes on topics that have nothing to do with investing or business cycles.
My concern comes in when it looks like investors are making decisions on this nonsense. Please do your own thinking. Evaluate how much money you would have made or lost if you actually invested based upon any of his forecasts.
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