Friday, December 24, 2010

The Economy for 2011 Still Screwed - Or Is It?

When I was surfing through the news this morning I came across this article in the NY Times from Sewell Chan about economists thinking the economy will be growing during 2011:

WASHINGTON — Eighteen months after the recession officially ended, the government’s latest measures to bolster the economy have led many forecasters and policy makers to express new optimism that the recovery will gain substantial momentum in 2011.

Economists in universities and on Wall Street have raised their growth projections for next year. Retail sales, industrial production and factory orders are on the upswing, and new claims for unemployment benefits are trending downward.

Despite persistently high unemployment, consumer confidence is improving. Large corporations are reporting healthy profits, and the Dow Jones industrial average reached a two-year high this week.

Given how often economists make wrong predictions and are then "surprised," my first inclination was to conclude that things will not only not get better but are likely to get worse.

But then I did a quick check of der Google for "Economists predictions 2011" and discovered that Arthur Laffer has predicted a massive collapse of the United States economy in 2011.

Day-uhm! Talk about your being conflicted! So many times we see how wrong the economists are in their predictions that an ounce of sense says we have to bet against the conventional economic wisdom. But then to bet against the conventional wisdom is to be on the side of the often stupendously wrong Arthur Laffer, who is often wrong but never in doubt.

I guess I'll just have to stay the middle ground and predict that the economy will not get appreciably better in 2011 for most people but may not sink quite as far as Laffer predicts. Of course, even the conventional wisdom folks aren't being all that rosy eyed in their predictions since this Reuters blog post has Goldman Sachs predicting unemployment to peak at 10.75% in mid 2011 which would have figures for un and underemployment most likely officially over 20%.

Comes to that, Laffer may well turn out to be correct although most likely not for the reasons he would suspect. In fact, I'd be willing to wager that he thinks the incoming Republican House majority is a good thing that might forestall the collapse while my view is they will most likely hasten it.

And because I can:

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