27 Aug 2010

History Is a Blank Slate for Austrians and Keynesians

Economics 2 Comments

I’m not going to bother reproducing the charts here, but check out this Paul Krugman post. He first shows what Mark Zandi had predicted (before the fact, presumably) about the Obama stimulus package’s contribution to GDP growth, broken down by quarter.

Then, Krugman shows actual GDP growth by quarter.

Krugman claims that the actual performance of GDP matches pretty closely to Zandi’s prediction, give or take a little lag action as you always must do in macro.

The funny thing is, when I first saw the chart, I thought it exhibited a stunning refutation of Zandi.

When I went back and studied the two charts, after a few moments I figured out what the heck Krugman was even thinking. But truly, it took me a while to even understand how he thought the second chart made Zandi look good.

So let me put it this way: What would the second chart have to look like, in order to blow up Zandi? It’s true I can think of a perfect refutation, but if you give me the same amount of wiggle room that Krugman gave himself, then I’m in like Flynn.

In other words, I am claiming that the actual GDP chart is halfway between one that would clearly vindicate the Keynesian prediction, and one that would clearly refute it. But when Krugman and I both saw the chart, we each “saw” what we already “knew” would be there.

2 Responses to “History Is a Blank Slate for Austrians and Keynesians”

  1. Kathryn says:

    When I clicked through to PK’s blog, I read some of the comments, as I usually do. They are usually (not surprisingly) from great admirers, but this time, most of the comments on the first page seem to be anti-Krugman.

  2. Namron Toi says:

    Zandi’s views on the economy might not be all that they are reputed to be. History will tell us if he was on the right track.