May 17, 2009 - By New
York Times Writer Paul Krugman
That’s the headline of this WSJ article. And it’s
true that most of the economic forecasters they surveyed don’t
want more stimulus. But the question is why.
And here’s the thing: it’s NOT because they think
a solid recovery is on the way. On the contrary, their outlook
is quite bleak: on average, the surveyed economists expect
unemployment to rise to 10 percent, still be 10 percent in
June 2010, and fall only to 9.5 percent by the end of 2010.
And a fair number of the forecasters — including Jan
Hatzius of Goldman, whose analysis I follow closely, and has
been spot on so far — think that unemployment will actually
rise through 2010.
So they’re not saying that everything’s OK, no
stimulus needed. They’re saying that they don’t
like stimulus. And why should you be surprised? These are business
economists; they’re generally conservative.
Aside from the value judgments, one thing I find really puzzling
in this set of forecasts is the view on inflation. Remember,
here’s what has been happening to wages in the face of
high unemployment:
Now, if you think that unemployment is going to be at or above
current levels for the next 18 months, wouldn’t you think
there would be a significant risk of deflation? In fact, however,
the average forecast is for an inflation rate of 1.7 percent
next year. What’s the logic?
Bottom line: when I look at those unemployment projections,
they look very bleak, and suggest that we’re in serious
danger of falling into deflation. That is, to me they make
the case FOR another stimulus.
Read more of Paul
Krugman's Articles
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