I am traveling all week and have to keep this short and sweet. Here’s a chronicle of what happened in yet another exchange of blogfire with my favorite Keynesians:
==> Brad DeLong said, “There are no signs in the pace of technological progress, in the level of investment…[or in several other factors–RPM]…to suggest that the path of growth of U.S. sustainable potential GDP is materially lower today than was believed back in 2007.”
==> I pointed out that even within DeLong’s own conceptual framework, he was speaking nonsense, because investment is down. Capacity is growing more slowly now, than in 2007.
Right, exactly Dr. Krugman. And since–like I said–investment is down, so is the growth in capacity, aka “potential GDP.” Here’s the official chart showing year/year growth in real potential output, from that non-stupid organization, the CBO (so you know it’s right):
Incidentally, as I am a fount of magnanimity, I actually calibrated the above chart to end in 1q 2014. So that last data point you see is the CBO’s estimate of what the growth rate of potential GDP will be, for all of 2013.
As the above chart shows, in 2007 “real potential GDP” was growing at just under 2.5 percent per year. Yet now, the CBO predicts that in 2013 it will only grow about 1.8 percent (just eyeballing the chart). So that’s a drop of about a fourth. Is a 25% drop not “material”?
We thus have an ironic situation in which Krugman actually proved my original point. He could’ve easily titled his post, “Brad, Next Time Just Follow My Lead and Ignore Murphy–It’s Safer.”
Welcome to my world, kids; my life is full of episodes just like this. For those of you following me on Facebook, now you understand why I have such an odd sense of humor. It’s the only way I’ve found to preserve my sanity.