My money’s on Mankiw. The bet was offered by Harvard economist Greg Mankiw over the projected growth of the United States economy between 2008 and 2013. The growth rate the Obama administration is using is 15.6%. Earth to Obama administration.
Mankiw asserts that the projected growth rates are overly optimistic. Paul Krugman has not taken the bet. He does have that Nobel and so knows how to preserve capital.
And what about those Keynesian expenditure multipliers we all know and love? According to a new paper by John F. Cogan, Tobias Cwik, John B. Taylor, and Volker Wieland, they don’t amount to much. In fact, federal stimulus spending, or increases in “G” in the GDP = C + I + G + Xn model, generate much smaller output and employment effects than Keynesian modeling predicts. The paper concludes:
“The multipliers are less than one as consumption and investment are crowded out. The impact in the first year is very small. And as the government purchases decline in the later years of the simulation, the multipliers turn negative.” (p. 18)
That’s negative, as in for each dollar of government spending, RGDP decreases. If these authors’ macroeconomic simulations are correct, the stimulus package is bad for the economy.
I would have to agree that the growth rates are overly optimistic. I never understood why numbers of that nature aren’t slightly played down to start with… It’s always better in the public eye to exceed a low balled goal (as long as it’s not obviously low balled) than to fail to meet a higher goal.
Good point. And revised estimates usually get closer to accuracy. Political axes, though, tend to distort projections.