
Krugman Sees Possible U.S. Recession with Little Fed Wiggle Room - paulpauper
https://www.bloomberg.com/news/articles/2019-02-11/krugman-sees-possible-u-s-recession-with-little-fed-wiggle-room
======
throwaway5752
_" Krugman isn’t alone in seeing a gloomy outlook for the world’s biggest
economy. U.S. chief financial officers in a Duke University survey published
in December overwhelmingly said they expect a recession within two years."_

edit: [https://www.cfosurvey.org/wp-
content/uploads/2018/12/Q4-2018...](https://www.cfosurvey.org/wp-
content/uploads/2018/12/Q4-2018-US-KeyNumbers.pdf)

 _" Nearly half (48.6%) of US CFOs believe that the US will be in recession by
the end of 2019 and 82% believe that a recession will have begun by the end of
2020. CFOs are even more pessimistic in most other regions of the world:
Africa (97% believe that a recession will have begun no later than year-end
2019), Canada (86%), Europe (66.7%), Asia (54%), Latin America (42%)_"

~~~
refurb
Given that we've had a 10 year bull run in the stock market, predicting a
recession in the near future isn't exactly a risky bet.

~~~
throwaway5752
You would think so, but there was a pronounced movement lower in the PDF I
linked to in sentiment in the last two quarterly survey results.

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SovietDissident
Whether he happens to be correct or not (a broken clock is right twice a day),
Krugman has zero credibility. He has a Nobel Prize, so people listen to him,
but the man is a dyed-in-the-wool Keynesian who takes no responsibility when
his prognostications fail to materialize again and again.

Where are the specific examples, you ask? There's an entire podcast devoted to
smashing his (often-contradictory) arguments:
[https://contrakrugman.com/](https://contrakrugman.com/)

~~~
dmix
I don't trust Krugman simply for how willing he is to jump into rabid
politics. I never trust a political ideologue when it comes to intellectual
matters. As it shows they are very likely to value defending their 'tribe'
(and attacking the other tribe) over having an open intellectual perspective
on issues.

And of all the different intellectual pursuits economists seem to have the
easiest time skirting around issues when the data doesn't match their
idealized worldview.

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rfinney
A very old joke: economists have predicted 9 out of the last 5 recessions.

~~~
ahelwer
I mean really though, why do people even care about "economist/analyst
predicts X" stories at all these days? If you're around markets for any period
of time (or read Taleb) you know they know nothing and their predictions are
worse than useless. It's just garbage information noise and the people who say
or publish it should be embarrassed that they think they can predict the
future.

~~~
atomical
There is a lot of noise and one can never time the market, but I think many of
us are interested in analysis because we have a general interest in the
economy.

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joshe
Worth listening to the interview in full (and ignoring the headline).

Krugman: A recession seems possible now. I'm most worried that we raised
interest rates too soon and won't be able to lower them enough to restart
economy. Also current administration isn't super competent, if something
complicated happened they would make mistakes.

Headline writer: Krugman promises recession.

Don't just read the headline, dig in to what the competent people are actually
saying.

Some details:

The federal funds rate in mid 2007 was 5.25%, it's now at 2.4%.
([https://fred.stlouisfed.org/series/FEDFUNDS](https://fred.stlouisfed.org/series/FEDFUNDS)).

Also the Bush administration gets a lot of hate, but his and then Obama's
economic team did an awesome job managing something that could have been very
very bad.

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paganel
Is there a recent enough article documenting the frequency of the word
“recession” in the news articles from the last 3-6 months? I’m asking because
I remember reading an article in The Economist printed in the first part of
2008 where some economists had shown a correlation between the use of the word
“recession” in mass-media and the probability of a recession actually taking
place.

~~~
ajross
Uh... and why would such a correlation be notable? I mean, at the peak of
expansions[1] everyone likes to predict recessions. That's literally the same
logic as noting that people in the tropics tend to search "hurricane" in
August and concluding that the resulting storms are Google's fault.

[1] Check the stock market or some other favorite grown metric. Things hit a
peak level about a year ago and have been mostly flat ever since. This is what
the peak of a growth cycle looks like; every one can see that.

~~~
toasterlovin
Bad analogy. There is a plausible mechanism by which consumer sentiment—and,
thus, the economy as a whole—can be influenced by media reports. There is no
similar mechanism by which the weather can be influenced by media reports.

~~~
ajross
Bad logic. The presence of a plausible hypothesis doesn't prove causality!
This mistake is like 80% of bad science. How many times are we going to repeat
it?

The counterfactual I provided is just an obvious example of the fallacy. The
real meat of the argument was in that post too -- it's far more likely (Occam
and all) that people are predicting recessions because every dummy can see
that a recession is likely following the end of an expansion than that there
is some kind of magical effect on public thinking.

This is just politics. You don't want your favored entity to get blamed for a
recession, so you find a way to make that recession the "fault" of your
political enemies. But no, growth cycles are cycles for a reason, and we don't
_need_ "fault" to describe what happens.

~~~
toasterlovin
I was commenting strictly on your analogy. I agree that correlation does not
equal causation.

~~~
pessimizer
The entire point of the analogy is that it is well known that sentiment does
not affect the weather.

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rc_kas
How can I best make money off this coming recession?

~~~
dqpb
Save cash now. Wait until the recession forces other people sell their
investments. Buy those investments at a discount.

~~~
77pt77
Why not short in the meantime?

~~~
Matticus_Rex
If you're very sure of a time horizon, sure, but holding shorts is costly. If
you mispredict by a year, it's going to cost you.

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Nelkins
I hate autoplay so much. Firefox 66 can't come soon enough.

~~~
deadlydose
Why wait? about:config

media.autoplay.default (1 for disabled, 2 for site by site basis)

media.autoplay.allow-muted false

~~~
Nelkins
Thank you so much for this.

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DeonPenny
Theres like 20 article saying there will and won't be a recession a day on
bloomberg. Check out there youtube it's literally everyone giving their
opinion.

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tomcam
On the day after Trump’s election, Krugman wrote:

> So we are very probably looking at a global recession, with no end in sight.
> I suppose we could get lucky somehow. But on economics, as on everything
> else, a terrible thing has just happened.

Are you sure you want to make investment decisions based on his predictions?

------
RickJWagner
Here's an article from 2016 (3 years back!) where Krugman predicted a global
recession.

"The economic fallout of a Donald Trump presidency will probably be severe and
widespread enough to plunge the world into recession, New York Times columnist
Paul Krugman warned..."

Glancing over 3 year's worth of employment, GDP and stock data, it seems safe
to say Krugman is sometimes simply wrong. Very, very wrong.

[https://www.politico.com/story/2016/11/krugman-trump-
global-...](https://www.politico.com/story/2016/11/krugman-trump-global-
recession-2016-231055)

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elcapitan
"By 2005 or so, it will become clear that the Internet's impact on the economy
has been no greater than the fax machine's."

~~~
jacobolus
An economist’s prediction about the impact of new technology 8 years out is
not comparable to an economist’s prediction about the near future of the
economy or the effectiveness of government intervention.

Dragging this quotation out anytime Krugman says anything is weak and lazy.
Pick any person who routinely makes a broad range of public predictions about
what will happen in the medium term, and you will find some they got
hilariously wrong.

~~~
pnw_hazor
What has he got right?

"But what is certain at this point [12/2017] so far in Trump's presidency is
that anyone who sold stock on the basis of predictions by liberal "experts"
like Larry Summers or Paul Krugman or Steve Rattner missed out on a 30%-plus
surge in their financial wealth. At some point the market will take a tumble
and these discredited gurus will shout "see."
[https://www.investors.com/politics/columnists/and-the-
hits-j...](https://www.investors.com/politics/columnists/and-the-hits-just-
kept-coming-the-greatest-false-predictions-of-2017/)

~~~
bb88
He predicted 2008 back in 2005.

[https://www.nytimes.com/2005/05/27/opinion/running-out-of-
bu...](https://www.nytimes.com/2005/05/27/opinion/running-out-of-bubbles.html)

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lostmsu
I see a possibly alive cat in a box.

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zozbot123
It's notable that Krugman is now saying that there was "lots of room" to lower
interest rates during the 2008 recession - he certainly didn't see it that way
at the time, and was very vocal about this view. Does this mean that he has
finally changed his mind?

Regardless, I don't think we'll be seeing anything like a recession this time
around - the Fed has learned from their screwup in 2008 and won't make the
same mistakes again.

Edit: A slowdown in growth as a result of e.g. problems in Europe or China
might happen, but this would _not_ be a "recession" as commonly understood. It
would look very different in the data (inflation, unemployment rates and the
like) and the appropriate policy response would be completely different as
well.

Edit 2: And the Fed did a lot more than just "lowering interest rates" in a
direct, trivial sense (and they _had_ to, since interest rates _were_ indeed
quite low even before the Great Recession was widely acknowledged as such. I'm
not sure why people - including Krugman - are now suggesting otherwise). I
don't think many people would disagree that these policy measures were highly
effective, but Krugman used to be a very vocal skeptic.

~~~
cromwellian
You are reading it wrong. There was lots of room to lower rates in response to
the 2008 crisis because the rates weren’t low before the recession.

After they were lowered to almost the zero bound there was not much else to
do.

This one around, they are already low before the recession hits. The situation
is not the same, hence the Fed has less wiggle room.

And thanks to the tax cuts, and a deficit nearing $1 trillion in a boom
economy, there will be less wiggle room for fiscal stimulus vs tax cuts or
spending as well, because the deficit will skyrocket if government revenues
fall in a recession.

Krugman is being consistent and logical here.

