It’s All About Framing
The 3q GDP numbers are out, and Robert Wenzel lets his readers know who the better economic forecaster is:
Gross domestic product grew at a 3.5 percent annual rate in 3Q.
This does not surprise me. In fact, I have a bet with Bob Murphy, made in January, that it would. This is what I wrote in January when most economists were saying that the GDP wouldn’t turn positive until 2010:
…my whole point right along has been that the government will maneuver to make the official data look good. The real economy will be a mess.
Murphy predicts that there will be no net growth in real GDP during 2009. Again, expect the real economy to be a mess, but real GDP will turn positive no later than sometime during the second half of 2009
So there you have it, GDP is up and the economy is a mess. Again, I issue the challenge to find me any other economist that said the economy would be up AND a mess.
Now that was very considerate of Wenzel to open up the quote from his January post with an ellipsis. Wouldn’t want to tax his busy readers with irrelevant details. But since Free Advice readers are not day traders making split second decisions, I will give you the full quote and you can see where Wenzel decided to pick it up in the excerpt above:
Bob Murphy has responded to my latest comments regarding our differing views on the direction of the economy.
I continue to believe that Bernanke’s huge money drops will impact the economy to the degree that the official unemployment rate in 12 months will be lower than it is right now. Murphy expects the exact opposite. I note that Murphy expects some of the positive employment to come from the flaky government “stimulus” programs. I concur that it is questionable that the private sector employment label should be applied, if, say, it is “…a new job making solar panels…if it’s dependent on massive subsidies.” But, my whole point right along has been that the government will maneuver to make the official data look good. The real economy will be a mess.
Murphy predicts that there will be no net growth in real GDP during 2009. Again, expect the real economy to be a mess, but real GDP will turn positive no later than sometime during the second half of 2009.
So to summarize:
(1) Wenzel predicted in early January that Bernanke’s huge money drops would mean lower unemployment in 12 months than at the time, contradicting my prediction of higher unemployment in 12 months. Then Wenzel went on to disagree with my prediction of negative GDP growth for 2009 as a whole.
(2) Three months after Wenzel wrote that, Bernanke stopped pumping in new money. The reason I know this is that Wenzel hasn’t shut up about it since that time. (And good for him, because it’s important and he was the first person who made me realize that “inflating Bernanke” was no longer our situation.)
(3) Unemployment has continually risen.
(4) Official 3Q GDP is in fact positive. However, if I’m reading these figures right–and I confess I might not be–it’s not even close that total real GDP in 2009 will be lower than in 2008. Furthermore, 4q GDP would have to be 5% higher than 3Q GDP (when they are at annualized rates) in order for 2009 GDP to be higher than 4 x 4Q 2008 GDP. (Again, I might be getting mixed up; it’s tricky to do these calculations with annualized quarterly figures.) So assuming I set that calculation up correctly, I still think I’m on track to having a correct GDP call, and Wenzel is on track to being wrong.
(5) Wenzel quotes the one part of his January post where we discussed GDP growth, and leads his readers to believe he blew me up. He leaves out the part where the whole premise of his prediction was Bernanke’s money growth (which was choked off back in March) and he leaves out the first bone of contention he picked with me, namely the unemployment rate, which is surely a much more important element of the “official data” that you would think the government would manipulate to keep the masses happy.
Conclusion: I pick on Wenzel a lot because the lad has promise. (In contrast, I pick on Paul Krugman a lot because his work is evil and everyone reads him.) I also am very conscious of the ability of economic forecasters to give a very selective interpretation of their previous writings, in order to paint a flattering picture of their prowess to their readers.
Let me be clear, I totally missed the ball on price inflation in 2009. Part of what happened is that I (and I think Wenzel) assumed back in January that Bernanke was going to keep the monetary floodgates open. Had that happened, I think my price inflation call would have come true, while it’s possible that official GDP stats would have upset me, if only because it gives the BLS statisticians more to play with when prices are rising across the board.
