You have focused on the second part of my diary which points out that while many on this website began forecasting a housing crash that would lead to a US recession more than one year ago, not only has there not been such as crash, but though unit sales have fallen, prices have not. Jerome and others may yet be correct, that there will be a housing crash leading to a US recession, but let's just highlight right now that so far those projections are absolutely wrong, and I, amongst others, would forecast that there will be no US recession in 2006 or 2007 (what I've said all along, btw).
The main question of my comment remains: Do unfulfilled (as yet) forecasts disqualify Krugman's concerns?
I went into economic details in other post, below. The situation of falling volumes but steady prices is a predictable stage of a crisis. Are you optimistic of what will follow?
I think WC should read this differently. It would be reasonable to take this article as a nailing of colours to the mast. I assume most (all ?) previous articles were suggesting a future (date unspecified) recession. In effect, this article offers a time-limit. If there is no serious recession within the next year, then Krugman's predictions were incorrect.
the problem with economists like Krugman is that some people are actually modifying their investment decisions based on what he says. Not just the "fat cats" either, but the smaller guys that are putting their earnings into 401k plans for retirement. Krugman's "the sky is falling" approach has likely kept a lot of small investors in bonds over the last 4 years. the S&P 500 closed at 830 the week of March 3, 2003. Last Friday's close was 1387. that is a 67% increase foregone, if you are a Krugman follower. Luckily there are other economists who write regularly and with reasoned economic thought. so we can all pick our own guru, or set of gurus, to influence our choices.
Does Krugman tend to get into the doom-and-gloom bit a lot? Yes. But he was also warning us about irrational exuberance long before Greenspan decided it was time to pay attention. (Recall now that Greenspan is, once again, following Krugman -- this time on housing. Krugman has not become one of the most highly regarded economists on the planet by being stupid. People listen to him because history shows that he tends to know what he's talking about.) Anyone who invests based upon the words of a series of columns belongs at McDonald's, not on Wall Street. What Krugman can give people is a good description of big-picture issues.
It's the difference between macroeconomics and finance. Finance guys are great, if you need to open a college fund for your kids, or need a plan for retirement, but they don't, in my experience, know much about macroeconomics. (Note that finance guys tend to be Supply-Siders while economists tend to be Keynesians with a little Neoclassicalism mixed in. Finance guys also tend to speak in absolutes with regard to the macroeconomy, while economists are, as always, two-handed in their analyses -- hence Krugman's ending.) If you want short-term advice, talk to AG Edwards. But if you want serious discussion of what problems we may face, on the national and global levels, talk to Krugman.
If we make it through this downturn without a recession, and get back up to the trend or higher with consistency, I think it will be fair to say Krugman was wrong. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
