• Facebook
  • Twitter
  • Subscribe
  • RSS

Economy Shrank Nearly 3% In First Quarter

Economy Heartbeat

Last month, the Commerce Department revised its initial assessment for economic growth in the First Quarter sharply downward with a report showing that the economy had shrunk by 1% during the first three months of the year. As with the anemic report that had been initially put out, much of the downturn was attributed to the unusually brutal winter that had impacted parts of the country ranging from the Northeast to the South and Mid-West. With the release of the final revision today, it is clear that the economy shrank by even more than first thought between January and March, but it isn’t clear what that means for the future:

WASHINGTON—The U.S. economy contracted at a worse pace than previously estimated in the first quarter, marking its sharpest pullback since the recession ended five years ago.

Gross domestic product, the broadest measure of goods and services produced across the economy, contracted at a seasonally adjusted annual rate of 2.9% in the first three months of the year, according to the Commerce Department’s third reading released Wednesday. That was the fastest rate of decline since the first quarter of 2009, when output fell 5.9%.

Commerce had previously estimated output fell by 1% in the first quarter as manufacturers drew down inventories rather than produce new goods and as unusually harsh weather kept consumers at home and shut down work sites. Exports also declined after a surge late last year.

In its third GDP reading, based on newly available data, Commerce said first-quarter consumer spending and exports were even weaker than previously estimated.

Economists surveyed by The Wall Street Journal had predicted Wednesday’s report would revise GDP growth down to a 2% decline.

The economy’s first-quarter stumble has once again dashed hopes the recovery was in the process of switching into a higher gear. Early second-quarter data indicates the economy has improved this spring as warmer weather helped release some pent-up demand. Macroeconomic Advisers recently forecast the economy will grow at a 3.6% annual rate in the April to June period.

But the depth of the first-quarter decline in output means growth over the first six months of the year likely fell below the economy’s average rate of just over 2% since the economy emerged from recession in June, 2009. That is below the U.S. economy’s longer term growth rate of just over 3%.

Five years into the recovery, high unemployment and stagnant incomes continue to restrain consumer spending, which accounts for more than two thirds of U.S. economic output. Consumer spending grew by a 1% pace in the first quarter, revised down from the previous estimate of 3.1%. Commerce said the downward revision was primarily the result of weaker health-care spending, though it also revised lower its estimate of spending on goods.

Reuters notes that the downturn isn’t just related to the weather:

The Commerce Department said on Wednesday gross domestic product fell at a 2.9 percent annual rate, the economy’s worst performance in five years, instead of the 1.0 percent pace it had reported last month.

While the economy’s woes have been largely blamed on an unusually cold winter, the magnitude of the revisions suggest other factors at play beyond the weather. Growth has now been revised down by a total of 3.0 percentage points since the government’s first estimate was published in April, which had the economy expanding at a 0.1 percent rate.

The difference between the second and third estimates was the largest on records going back to 1976, the Commerce Department said.

Neil Irwin provides some analysis:

What makes the sharply negative number all the more stunning is that it didn’t feel like an economic contraction at all in the first quarter. Employers kept adding jobs. Many measures of business activity and consumer confidence were stable. And forecasters are expecting a healthy pop of growth in the second quarter, which ends next week.

But the economy was hit by an unlikely combination of negative forces that conspired to turn what seemed set to be another quarter of so-so growth into a considerably more gloomy experience.

Economists had expected the revised number to show contraction, though they expected a less bad number than the one that materialized. One key thing they missed: Consumer spending, the mainstay of economic activity, was far weaker than either government numbers or private analysts had thought — particularly spending on health care.

Previous G.D.P. numbers, released in late May, showed that health care spending contributed 1 percentage point to economic growth. The new report now finds that health care spending actually subtracted 0.16 of a percentage point from the growth rate. The health care spending data in G.D.P. is a measure of how much President Obama’s health reform law is reshaping health care spending patterns, and it is now showing opposite results from those reported two months ago, when the first-quarter data was initially released.

But other causes of the first quarter contraction were already well known. Businesses pulled back on their inventories, which subtracted 1.7 percentage points from growth (an earlier estimate had been 1.6 percent).

And the rough winter weather threw a wrench in many categories of business activity, slowing home building activity (residential investment subtracted 0.13 percentage points) and commercial building work (which subtracted 0.22 percentage points). Trade was a further drag, as exports fell sharply and imports rose a bit.

The conventional wisdom since the initial report of First Quarter economic activity has been that the numbers for this time period would be somewhat anomalous thanks largely to the impact that severe cold and heavy snow had on economic activity over a wide swath of the economy. Indeed, most forecasts for the Second Quarter and headed into the rest of the year call for positive growth, albeit something more in the range of 2.5% to 3% at most, which is good but hardly great. As Irwin notes, though, the numbers during the First Quarter were down for reasons that can’t be attributed to just the weather itself, suggesting that there could be underlying issues that will impact the economy going forward. Additionally, as Irwin goes on to note at the link, the fact that the economy can be sent into such a sharp downturn, even if it only turns out to be brief one, is a sign that the economy as a whole is not nearly as healthy as we would like to think, and that additional unexpected events could send the economy south yet again. In the coming months, that could be anything from a hurricane that hits along the Gulf Coast or the East Coast, or increased gas prices due to rising tensions in the Middle East.  One sign that the Second Quarter may be troublesome can be seen in the May Durable Goods report released today, which showed orders shrinking by an unexpected 1.0%. While other economic data has been more positive, a number like this does not bode well for a robust bounce back from a weak First Quarter.

Related Posts:

About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. C. Clavin says:

    Hows that austerity thing working for you now?

    Like or Dislike: Thumb up 10 Thumb down 8

  2. Jack says:

    It looks like this administration will be calling for the “Son of Stimulus” in order to try and look like they are doing something. And of course our illustrious president and his family must still take their annual $2.5 million summer vacation, so the economy should pick up very soon.

    Isn’t trickle up poverty wonderful?

    Poorly-rated. Helpful or Unhelpful: Thumb up 5 Thumb down 23

  3. C. Clavin says:

    So we have near historically low tax rates and effective tax rates are stupid-low…the deficit is being reduced at a rapid rate…and the size of Government is smaller now than it’s been in a long time.
    So where is the economic boom that all of this was supposed to lead to?

    Like or Dislike: Thumb up 14 Thumb down 5

  4. stonetools says:

    Sooo… sequester caused austerity DOES shrink the economy.
    Maybe Doug might want to revise his earlier columns about how the sequester wouldn’t hurt the economy. But then that would require a fact based reappraisal of his position, so hey, let’s just discuss the weather.

    Hot debate. What do you think? Thumb up 14 Thumb down 6

  5. Cletus says:

    We finally get some real news after bullshit reports of a recovery. I’m sure Dems will blame the GOP, a horrible winter, and anything else that deflects blame. I love how the numbers are always being significantly revised like Consumer spending which accounts for more than two-thirds of U.S. economic activity. It increased at a 1.0 percent rate, not the 3.1% rate that was originally delivered. With millions of people out of work with no real chance to secure a FT job, consumer spending will continue to be weak. We also have weak demand across most key sectors.

    Corporate profits & the stock market are great though. Our Fund raiser in Chief recently attended his 388th fundraiser since being in office. Think about that number and it is beyond ridiculous. The priority is to keep the illusion of a strong economy while protecting donors corporate profits.

    Like or Dislike: Thumb up 8 Thumb down 11

  6. C. Clavin says:

    @Cletus:
    So Cletus…lots of bitching and moaning there…but no suggestions.
    What would you do?

    Like or Dislike: Thumb up 8 Thumb down 5

  7. Rob in CT says:

    Well that sure is a crappy number. We’ll see what happens in Q2 (which, if the weather argument is right, should see a rebound), of course, but this is worse than the usual “muddling through” we’ve been doing. Muddling through wasn’t good enough, but it was better than contraction.

    The economy has sucked since (at least) 2008 and honestly I think a case could be made that it’s sucked since 2001 (and the sorta-kinda-boomish looking thing before ’08 was just fairy tales and pixie dust). Household debt overhang is still huge. There has been some deleveraging, but not nearly enough. Absent a serious effort to help people deleverage (most likely involving significant transfers, btw), that deleveraging will take a long time and be a constant drag on the economy. Or it won’t happen at all and thus both constrain economic growth and set us up for another nasty event in the future.

    In short: sh*t is f*cked up and bullsh*t, and has been for some time.

    Like or Dislike: Thumb up 12 Thumb down 0

  8. al-Ameda says:

    @Cletus:

    We finally get some real news after bullshit reports of a recovery. I’m sure Dems will blame the GOP, a horrible winter, and anything else that deflects blame.

    Yes, I too, really miss those early days of 2009 when the economy was shedding jobs at a rate of 700,000 per month, Americans had lost nearly 25%, or $18 trillion in wealth, and the housing and stock markets had both plunged reflecting the massive loss of wealth.

    Although it happened as a result of the 2008 financial crash and before his inauguration, I, like most conservatives, blame our “Fund Raiser in Chief.”

    Like or Dislike: Thumb up 8 Thumb down 3

  9. Hal_10000 says:

    @C. Clavin:

    Flat government spending (after a $400 billion hike in FY 2009) and low taxes ≠ austerity. In countries practicing austerity, taxes have gone way up and spending has been cut.

    Also, I’m not completely sure, but I think we did have bad winters in the past. At some point, that explanation begins to run a bit thin.

    Like or Dislike: Thumb up 3 Thumb down 7

  10. rudderpedals says:

    Those other countries raising taxes while practicing austerity have other priorities and don’t print their own currency. We can print our way out of this sluggishness.

    Like or Dislike: Thumb up 5 Thumb down 1

  11. humanoid.panda says:

    @Cletus: If the government fakes first draft of its numbers, why doesn’t it fake the corrections?

    Like or Dislike: Thumb up 6 Thumb down 1

  12. humanoid.panda says:

    @Hal_10000: So, what would be your alternative solution. You concede taxes are too low, and seem to agree that lower spending breeds recession. What is it that Obama is doing wrong?

    Like or Dislike: Thumb up 2 Thumb down 1

  13. humanoid.panda says:

    From what i’ve read about these numbers, the first quarter was truly an aberattion, and we will resume slow, frustrating, below-trend growth in the second quarter. That won’t change unless something drastic changes, and it seems that historical precedent indicates that the two only ways to escape an overhang like this is either a massive stimulus caused by a national emergency (maybe global warming will oblige..) or a period of inflation that will erode some of the debt overhang.

    However, one bright spot in the horizon is that healthcare spending actually dropped in this quarter. As the rest of the report, it is probably an aberration, but it is another indication that healthcare spending is slowing down. In the medium term, that might be huge news: healthcare costs swallowed basically all wage growth in the aughts…

    Like or Dislike: Thumb up 4 Thumb down 2

  14. Cletus says:

    @C. Clavin:

    The first thing I would do is to be Honest about the Situation to the American public instead of the usual political spin. I would then go back to Infrastructure Spending which is very much needed in most states. You put people to work on roads, bridges, rail., and the creation of new water resources. Of course this is not a new idea as Dems and the GOP have bickered about this the last few years. The GOP does not want to raise taxes to pay for it and is worried about pork projects. the government needs to incentivize the private sector to partner with them in. Private funds with special tax breaks should be the primary source of capital for infrastructure spending. The private sector will also require some level of assurance from the president that they will be not be hindered by new taxes and new regulatory actions if they partner with the government in this. I believe this is the best and only way to create jobs and improve the economy.

    Like or Dislike: Thumb up 4 Thumb down 2

  15. C. Clavin says:

    @Hal_10000:
    It’s certainly is austerity compared to the norm….I’m speaking specifically of Government austerity.
    Over 2 million public sector jobs lost, on net.
    Government employees per capita…down.
    Government expenditures per capita…down.
    Government accounts for over a 3rd of the GDP…nearly 40%…if the Government share of the GDP is shrinking…then something has to take up the slack…plus more if we are to see growth. We were promised that shrinking the Government and cutting taxes was the road to the promised land.
    I think we can all see now…that idea is as much pie in the sky BS as the rest of Republican economic theory is.

    Like or Dislike: Thumb up 4 Thumb down 4

  16. C. Clavin says:

    @Cletus:

    I would then go back to Infrastructure Spending which is very much needed in most states.

    Obama has been begging for this and Republicans refuse. But above you said it was wrong to blame Republicans…I don’t get the logic.

    Private funds with special tax breaks should be the primary source of capital for infrastructure spending.

    How does that work? What is the model? And keep in mind…tax breaks are an expenditure the same as if Government paid directly for the work.

    Like or Dislike: Thumb up 7 Thumb down 2

  17. Hal_10000 says:

    We were also promised that an economic stimulus and Obamacare were the keys to the promised land. We were promised the quantitative easement would get us started. Yet the economy has been anemic for five years (and this big downspike happened just as Obamacare was implemented). Government does take up 40% of GDP. Yet studies of its effects show that the economic multiplier is mixed, with values ranging from 3 to under 1 (meaning it’s a net negative on the GDP).

    You might able to argue from the current data that the supply side is wanting. But it’s hardly an argument in favor the demand side either.

    Like or Dislike: Thumb up 3 Thumb down 7

  18. humanoid.panda says:

    @C. Clavin: One way to make it work is to establish an infrastructure bank. Republicans have of course blocked this.

    Like or Dislike: Thumb up 2 Thumb down 1

  19. C. Clavin says:

    @Hal_10000:

    But it’s hardly an argument in favor the demand side either.

    The entirety of the problem is demand side. Fix that — fix what ails us.
    Obamacare…health care spending is down significantly…which is actually a drag on the GDP.
    The stimulus was designed for a recession about half as bad as it actually was…and it was loaded up with the Republican economic cure-all…tax cuts which are worthless as stimulus.
    You cannot with a straight face tell me that adding back the over 2 million jobs lost in the public sector would not drastically alter the picture.

    Like or Dislike: Thumb up 1 Thumb down 3

  20. michael reynolds says:

    I think we’re focusing on the less interesting fact. The more interesting fact is that health care spending dropped.

    Repeat: with Obamacare now finally in effect, health care spending dropped. Which would be the exact opposite of the scare predictions from critics of Obamacare.

    Like or Dislike: Thumb up 8 Thumb down 4

  21. Cletus says:

    @C. Clavin:

    It’s naiive to think that One Party is completely right and the other is entirely wrong. I won’t deny there are elements of the GOP that are against everything Obama proposes, but there are also enough moderate GOP senators & Congressmen to pass some type of legislation. The main issue the GOP has is how the $$ for the projects will be generated. Having the president sign off on the Keystone Pipeline and eliminating corporate loopholes would be a good compromise but actually getting US corporations to start paying more taxes would be the easiest solution,

    the Center for Effective government really illustrates the best solution,

    “Why Are Camp, Obama and Members of Congress from Both Parties So Stubbornly Committed to Not Asking More of Corporations?

    While there are significant differences in the corporate tax plans offered by Camp and Obama, at the end of the day, both arrive at the same troubling place: they don’t ask corporations to collectively pay any more toward the cost of the government than they do today. The president’s plan will do more to increase equity between corporations, ridding us of those companies that endlessly show up on the list of highly profitable corporations paying little or no taxes. But unlike a majority of the American people, neither the president nor the Ways and Means chairman believe corporations should be asked to pay a greater share of the costs of public services and public investment.

    In the 1950s, when Republican Dwight Eisenhower occupied the Oval Office, corporate tax receipts paid nearly a third of the federal government’s bills; today, corporate taxes pay less than a tenth of the cost of the federal government.

    Leaders of both parties who champion cutting corporate taxes are quick to trot out a concern that high U.S. tax rates undermine the competitiveness of U.S. corporations in the global marketplace. It is hard to find any evidence of this at a time when U.S. corporate profits are at all-time highs and U.S. CEO pay is once again exploding. Corporate profits as a percent of GDP exceed 12 percent (they were in the seven percent range back when Ike was president), while corporate taxes as a percent of GDP are less than two percent (compared to about six percent of GDP when Eisenhower led the nation).

    A new report by Citizens for Tax Justice, released the same day that Camp released his tax plans, found that the average large profitable U.S. corporation paid just 19.4 percent of its income in federal income taxes between 2008 and 2012, far below the posted 35 corporate tax rate. Perhaps more surprising was CTJ’s finding that two-thirds of the multinational companies it studied paid a higher foreign tax rate than they paid on their U.S. earnings – 12 percentage points higher, on average.

    So if corporations are already paying sharply lower taxes at home than abroad, why are they fighting so tenaciously for lower U.S. tax rates? It could be the same reason they fought so hard the last time corporate taxes were dramatically cut in 1986: they could use lower U.S. tax rates to press foreign nations to cut their tax rates. There’s been an international tax rate war ever since – one result of which has been the erosion of fiscal resources and the under-resourcing of public investment in many countries around the world.

    Why Are We Holding Infrastructure Spending Hostage to Tax Reform?

    Both Obama and Camp have conditioned their infrastructure investment proposals on undertaking corporate tax reform. Washington leaders have been promising comprehensive tax reform for the last two years. Most observers think it will be at least two years and perhaps four years or more before serious reform occurs.

    Every year of delay means another $100 billion in the pockets of those who are gaming the system and using lax international tax rules to pad their profits. Every year wasted also means another $100 billion drained from the Treasury – money not available for infrastructure spending or any other public need.

    A far better idea is to fix the sinkholes in the tax code that allow this anti-social and unpatriotic behavior to continue unchecked. Closing the sinkholes in the tax code would allow us to raise an extra $100 billion a year to fix the sinkholes, potholes, and leaking water systems in our communities. And these investments would create jobs – a lot of them. The Center for Effective Government’s 2013 report, The Bridge to Prosperity, concluded that spending the additional $124 billion a year needed to bring our entire infrastructure (roads, bridges, schools, water systems, and levees/dams) up to current standards would create 2.5 million new jobs.

    There aren’t too many things that liberals and conservatives agree on in this country – one is that we need more jobs, another is that we need to fix our infrastructure, and a third is that we need to eliminate offshore tax loopholes that allow large and very profitable corporations to get away with paying little to no federal income taxes”

    Like or Dislike: Thumb up 2 Thumb down 2

  22. michael reynolds says:

    @Cletus:

    I won’t deny there are elements of the GOP that are against everything Obama proposes, but there are also enough moderate GOP senators & Congressmen to pass some type of legislation.

    This is demonstrably false. No such rational GOP creatures exist. See: immigration reform. See also: the last six years.

    Like or Dislike: Thumb up 9 Thumb down 4

  23. stonetools says:

    @Hal_10000:

    We were also promised that an economic stimulus and Obamacare were the keys to the promised land. We were promised the quantitative easement would get us started. Yet the economy has been anemic for five years

    Let me introduce you to NobelPrize winning economist Paul Krugman, alias Krugtron the Invincible.He predicted the financial crash of 2008, then predicted the financial crisis would be far worse than right wing economists predicted. He predicted that the suggested Obama Administration fiscal stimulus-then hailed as a triumph of moderation and “reasonable bipartisan compromise” was half the size it should be. and that as a result recovery would be slow and haltingand that five years after tjhe undersized stimulus the economy will still be sluggish. He also predicted that the European economies with more severe austerity policies would do even worse. He predicted that right wing economists worried about rekindled inflation were dead wrong and that deflation was the greater worry.He also predicted that Republicans would ride public dissatisfaction with the “failed” stimulus to poltitical recovery and that they would steadfastly block any further efforts at stimulus because economic stagnation helped them politically.
    So far he has been right on every count, so much so that right wing economists no longer contest his predictions: they simply bitterly complain that he should be more gracious about being so often right.
    If you want answers to the issues you raised, read Krugman :you’ll learn something.

    Like or Dislike: Thumb up 7 Thumb down 4

  24. C. Clavin says:

    @Cletus:

    I won’t deny there are elements of the GOP that are against everything Obama proposes, but there are also enough moderate GOP senators & Congressmen to pass some type of legislation.

    This ignores the facts in evidence. I wish it were true…Conservatism has much to offer. But today Republicans are not Conservatives. Nothing can pass if Boehner won’t bring it to a vote and the Tea Bag caucus won’t let him bring it to a vote.

    Like or Dislike: Thumb up 4 Thumb down 4

  25. Cletus says:

    @C. Clavin:

    Do you have ever look at things from the GOP Perspective? I know its easy to reflexively blame the GOP for everything, but Obama’s been in the office for 5+ years. The time to really do this was in 2009 when the Dems had complete control over the government. Instead of focusing on Jobs and improving the economy, Obama rammed his healthcare bill through.

    There is though still enough GOP support in the house and Senate to pass an Infrastructure bill. The Dems need to do a better job laying out more specifics on where the money is coming from and how the money will be spent. That involves compromises with the GOP and not through executive action. I hope that something can be worked out after November.

    Like or Dislike: Thumb up 3 Thumb down 2

  26. rjs says:

    you should say at a 2.9 RATE…the number is annualized; actual shrinkage was 0.7%

    Like or Dislike: Thumb up 2 Thumb down 0

  27. Hal_10000 says:

    @stonetools:

    Yes, I’m familiar with Krugman, who did successfully predict he 2008 crisis and as he did ten of the last two recessions. I’m also familiar with the way Krugman plays with numbers, calling the UK budget “austerity” when the economic numbers were bad then saying the same budget had “abandoned austerity” when the economic numbers were good. I’m familiar with his trick of cherry-picking the Argentine and Japanese economic data so he can ignore the deep problems in their economy. I’m familiar with him pretending Ireland’s ongoing problems are a result of “austerity” instead of an extremely ill-advised bank bailout. I’m also familiar with his long habit of ignoring any data that doesn’t fit his thesis (i.e, 1929-1936 in the US, the early 90s, the entire last two decades for Japan). The fundamental problem is that, after admitting the demand in 2008 was inflated by a real estate bubble, he keeps advocating that we should essentially reinflate demand to that level. And the problem is that between stimulus spending and quantitative easing, we are well beyond what he claimed was necessary to turn the economy around. And there is growing body of evidence that economic multiplier of spending is low and possible below 1.

    I don’t know what the answers are. But I think we need some ideas beyond MAWR SPENDING!

    Like or Dislike: Thumb up 4 Thumb down 3

  28. Hal_10000 says:

    @michael reynolds:

    Or the drop in HC spending could confirm that we are headed back into a recession. Healthcare spending also dropped significantly in 2009 when the recession began. I don’t think we’ll know anything until Q2 numbers come out. And maybe not even then.

    Like or Dislike: Thumb up 2 Thumb down 0

  29. C. Clavin says:

    @Cletus:

    There is though still enough GOP support in the house and Senate to pass an Infrastructure bill.

    C’mon…that’s a fantasy. Republicans won’t even bring it up for a vote. If they brought it up there might be enough bi-partisan support…but that’s why Republicans won’t bring it up.

    The time to really do this was in 2009 when the Dems had complete control over the government. Instead of focusing on Jobs and improving the economy, Obama rammed his healthcare bill through.

    He did…he passed the stimulus. Unfortunately it was designed for a recession half the size of the one that existed…because at the time no one realized how bad it was. In addition it was loaded with tax cuts for Republicans…which are notoriously ineffective as stimulus. In addition Obamacare reduces th deficit which supposedly Republicans care about…but still didn’t vote for a program that was their own idea.
    And lastly…Democrats never had complete veto-proof control. That’s another myth.

    Like or Dislike: Thumb up 3 Thumb down 2

  30. C. Clavin says:

    @michael reynolds:
    Yeah…but you wait……
    Seriously though…every single one of their predictions was wrong.
    Along with every single one of their economic theories.

    Like or Dislike: Thumb up 1 Thumb down 4

  31. stonetools says:

    @Hal_10000:

    You sure misunderstand Krugman. His successful predictions are based precisely on the Keynesian models that so well explained the great Depression, in contrast to conservative models . He also is very cognizant about Japan:in fact its his understanding of Japan that makes his predictions so accurate according to Noah Smith:

    It’s really kind of amazing. And in case there was any doubt as to KrugTron’s prognosticatorial puissance, just ask the experts, who found that he pummeled all other pundits in prediction prowess, getting 14 out of 15 predictions right.

    So it’s fair to ask: What is KrugTron’s Blazing Sword? How does he keep vanquishing the Robeast of the Week?

    Well, Krugman himself will tell you that his secret weapon is simple, elementary Keynesian economics – a rough-and-ready IS-LM view of the world, backed up by sophisticated “liquidity trap” models like this one. In those models, low aggregate demand will always keep the economy trapped in a low-inflation, low-interest-rate world.

    But I’m not so sure. Keynesian models aren’t really used for forecasting the world; they’re used as guides for policy. A Keynesian model, be it IS-LM or Liquidity Trap, tells you “If you do fiscal policy, the economy will respond thus.” It doesn’t tell you how the economy will do in total; that is jointly determined by policy and by the external “shocks” that the Keynesian models (like all macro models) take as given.

    Keynesian models didn’t predict that unconventional monetary policy (QE2) would be insufficient to raise expectations of future inflation, and thus would be unable to bust us out of the liquidity trap. Nor did Keynesian models predict that private investors would be willing to ignore the possibility of a U.S. sovereign default, thus allowing the U.S. to avoid a spike in interest rates.

    But Krugman did predict both of these things.

    And here’s the most interesting one. Krugman’s earliest prediction victory came at the expense of John Paulson, one of history’s most successful investors (although unlike the Robeasts pictured above, Paulson didn’t seek out a battle with Krugman; he was set up as the anti-Krugman by a writer at Businessweek). In 2010, Paulson predicted a strong economic recovery. Such a recovery, if it had come, would have busted us straight out of the liquidity trap and allowed monetary policy to cause inflation. Paulson backed up his bet with billions, and rolled snake eyes.

    Think I’m going to go with Krugman over the numerous right wing hacks who are always wrong and who insist that returning to the gold standard, austerity, “Austrian economics”, tax cuts, “restructuring”, monetarism-anything but plain old-fashioned Keynesian “government spending” will rekindle economic growth.
    After the 2008 financial crisis, China responded with a big financial stimulus- and its economy came back fast. So did South Korea. Of course right wing hacks ignore those examples, because hey, facts are stupid.

    Like or Dislike: Thumb up 3 Thumb down 2

  32. rudderpedals says:

    “Less Spending”, “Small Government” and “Strong Dollar”, harmful yet popular slogans.

    Like or Dislike: Thumb up 1 Thumb down 0

  33. anjin-san says:

    there are also enough moderate GOP senators & Congressmen to pass some type of legislation.

    Can we have some names?

    Like or Dislike: Thumb up 8 Thumb down 0

  34. al-Ameda says:

    @anjin-san:

    there are also enough moderate GOP senators & Congressmen to pass some type of legislation.
    Can we have some names?

    Eric Cantor?

    Like or Dislike: Thumb up 2 Thumb down 0

  35. michael reynolds says:

    @Hal_10000:

    Well, what we know right now is that we are not in a recession, though one may be on the horizon, and contra all the right-wing predictions, healthcare spending is not increasing astronomically.

    So far, the Obamacare haters have been wrong about every single one of their predictions.

    Like or Dislike: Thumb up 5 Thumb down 3

  36. Hal_10000 says:

    @michael reynolds:

    I don’t think the Obamacare “haters” have been entirely wrong. Insurance prices did go up significantly. We couldn’t keep our plan if we liked it. The only met the expectations for enrollment by lowering them. The projected costs have increased. To the extent that is has “worked” it has done so because of ad hoc adaptations (some of which where Republican demands) to the predictable wave of cancelled policies and price increases.

    @stonetools: The Keynesian models explain the Great Depression if you only choose the data you want. Ex: they go on about how 1937 proves their point but ignore about a dozen year on either side that contradict it. The Keynesian models also completely failed in the 1970’s when we had high inflation and high unemployment, which the models said was impossible.

    Krugmans prediction “track record” is not a sign of his brilliance, but a sign of his tendency to qualify his predictions, to make predictions that few really dispute, to make very few actual predictions or usually make negative predictions (e.g., the economy won’t do better unless we get a bigger stimulus). His most famous “prediction” — the financial crisis — was predicted by a lot of people (Roubini in particular). Peter Schiff predicted it. Numerous financial journalists talked about it. That’s an improvement over the dunderheads on TV, but hardly definitive.

    Like or Dislike: Thumb up 3 Thumb down 1

  37. al-Ameda says:

    @Hal_10000:

    I don’t think the Obamacare “haters” have been entirely wrong. Insurance prices did go up significantly. We couldn’t keep our plan if we liked it. The only met the expectations for enrollment by lowering them. The projected costs have increased. To the extent that is has “worked” it has done so because of ad hoc adaptations (some of which where Republican demands) to the predictable wave of cancelled policies and price increases.

    I understand your points here but, I have to ask you, where were you when, for the 15 year period from about 1995 to 2010, group health insurance premium rates were increasing at an annual rate of over 3 times the rate of inflation.

    I know this because I worked in 3 organizations where an important part of my financial responsibilities were employee benefit contracts. During that period every year I’d get a notification letter – informing us that a 9%, 10%, 15%, or 18% increase in plan rates was on the way. I honestly believe that most people have a selective memory on this, or that they’re unaware because their company was paying a large share of their health insurance premium costs.

    We had to do a lot of maneuvering to mitigate those cost increases.

    None of that was due to ACA.

    Like or Dislike: Thumb up 2 Thumb down 1

  38. stonetools says:

    @Hal_10000:

    I don’t think the Obamacare “haters” have been entirely wrong. Insurance prices did go up significantly. We couldn’t keep our plan if we liked it. The only met the expectations for enrollment by lowering them. The projected costs have increased. To the extent that is has “worked” it has done so because of ad hoc adaptations (some of which where Republican demands) to the predictable wave of cancelled policies and price increases.

    The Obamacare haters predicted disaster. Right now, Obamacare is a major success. How do we know?Republicans and conservatives have stopped talking about it and when they rarely mention it, they talk about “fixing” , not repealing it when they do mentiion it. By summer’s end, they’ll stop calling it Obamacare and start calling it the ACA.

    @stonetools: The Keynesian models explain the Great Depression if you only choose the data you want. Ex: they go on about how 1937 proves their point but ignore about a dozen year on either side that contradict it. The Keynesian models also completely failed in the 1970′s when we had high inflation and high unemployment, which the models said was impossible.

    Actually it’s the classical economists and the Austrians who couldn’t explain the Great Depression. Such collapses couldn’t happen, they said, and they all recommended austerity as the way to solve the problem-which made it worse.What ended the Great Depression? The gigantic sustained stimulus we call World War2. On this most economists agree.

    Krugmans prediction “track record” is not a sign of his brilliance, but a sign of his tendency to qualify his predictions

    Man , conservatives truly hate it that Krugman and liberals have overwhelmingly been right and conservatives wrong about economic policy over the last six years. They just simply deny it, obscure it, and minimize it. Seriously, you’re not fooling anybody here-well, maybe yourself and other conservatives.

    Like or Dislike: Thumb up 4 Thumb down 2

  39. anjin-san says:

    We were also promised that an economic stimulus and Obamacare were the keys to the promised land.

    The way I remember it, we were promised we would avoid a depression and get the economy moving forward again, and we were promised that people who did not have insurance before would be able to get it, as well as people with pre-existing conditions. We got those things.

    Like or Dislike: Thumb up 2 Thumb down 2

  40. anjin-san says:

    I don’t think the Obamacare “haters” have been entirely wrong. Insurance prices did go up significantly.

    Insurance prices have been going up significantly for a long, long time. They might as well have predicted the sun would rise in the morning. (worth noting there was not a peep from the right when insurance prices doubled under Bush)

    Now we are starting to get a handle on health care costs, something that did not seem possible not so long ago.

    Like or Dislike: Thumb up 1 Thumb down 2

  41. Rob in CT says:

    The projection is for about a 10% increase, which is right in line with pre-ACA yearly increases. And of course the ACA broadened coverage, so a typical increase + more people covered with better insurance = win.

    It’s not as big a win as we’d all like, of course! We want to get medical care cost inflation down to match up more with regular ‘ole inflation, and 10% is way, way, way higher than ~2%. So much work remains to be done. Even the countries with single-payer have been struggling to contain cost inflation (luckily for them, they held down costs much better in the past, so they are inflating from a much lower level). It’s a tough nut to crack. If the GOP would like to offer some constructive ideas to deal with that issue, they can go right ahead. [I won't be holding my breath]

    Like or Dislike: Thumb up 0 Thumb down 0

  42. Rob in CT says:

    @Rob in CT:

    Oops, I’m mixing up premium increases with overall healthcare spending. Not the same thing! Premiums are going up as normal (but normal is bad), but overall spending has been pretty flat over the past several years, which is good but also probably at least partly due to a depressed economy.

    Like or Dislike: Thumb up 1 Thumb down 0

  43. MUCHY says:

    @michael reynolds: OBAMACARE IN FULL EFFECT? LAUGH OUT LOUD….employer mandates are postponed until the mid term elections this year. Wait till everybody looses their employer coverage like the individual market…+ I can’t wait to see how much more taxes I have to pay next year….I’m sure it’s going to be wonderful.

    Like or Dislike: Thumb up 1 Thumb down 3