July 10, 2009, 8:24 am
Economists oppose more stimulus?
by 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.