Tuesday, May 24, 2011

Storm Clouds?

I generally prefer an optimistic tone to our blog posts. There is plenty of pessimism out there to satisfy anyone looking for it and in the long run I am definitely an optimist.  That said, there are reasons to be nervous about the ongoing economic recovery.  Here is an editorial from this morning's Wall Street Journal, where Stanford economist Ronald McKinnon predicts that we are again entering a period of Stagflation, that dreaded economic malady that we haven't seen since the late 70's.  Here is another WSJ piece, this time about how Nobel Economist Robert Mundell thinks we are headed for deflation and another recession.  Finally, SmartMoney says we are in a stock market bubble.

I have no idea if any of these predictions is correct, although my experience tells me that most predictions are wrong and it is nearly impossible to identify the correct predictions in advance.  Harvard Economist Greg Mankiw recently wrote an Op-Ed in the New York Times where he admits that economists really have no predictive skills:

"So those are the three questions that puzzle me most as I read the daily news. If you find an economist who says he knows the answers, listen carefully, but be skeptical of everything you hear."

Since we really can't predict what will happen next, I'll end with some good news.  This CNN article says that going on vacation can make you smarter! Maybe we could get all of the economists to go on vacation for a while.