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Politics : Politics for Pros- moderated
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From: LindyBill6/7/2009 6:09:04 PM
   of 793772
 
The forecasters and the forecasts

By Tyler Cowen on Economics

Hugo Lindren has just written a very interesting portrait of some of the major forecasters and their economic forecasts. In New York I was asked a number of times about my own forecast. I offer it with trepidation but here goes:

1. The next year will see significant recovery in terms of published economic magnitudes.

2. "Dormant inflation" will spring to life, at some point quite rapidly, and the Fed will choose to tighten. Five to six percent inflation for a while would be OK but we will be faced with the prospect of more than that and the Fed will choke it off and prevent it.

3. We will see a "double dip" recession, with the second dip more closely resembling the 1979-1982 experience than did the first dip. It's not just that the Fed may make an error in the timing of tightening; there may truly be no good path from here to there.

4. There will be yet a third dip to the recession, resulting from our current fiscal choices. At some point borrowing costs will rise and taxes will go up. There's a chance of a financial crisis for our government, especially if Chinese growth does not hold up.

5. Ten years from now, the United States will have settled into a lower long-term average growth rate, in part for policy-driven reasons and in part for demographic reasons.

6. There is still some chance that our current situation leads directly into a much bigger downturn. This will depend on international factors, not on the internal dynamic within the U.S.

I do not put any of this forward with great confidence. marginalrevolution.com
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