MSNBC.com is reporting that a majority of economists it surveyed (9 out of 11) are opposed to additional economic stimulus. We think there are a couple of errors in the panel’s prevailing outlook. First is that 2010 GDP and hiring will be sluggish — we expect that both will surprise to the upside in 2010, especially GDP. However, this will be a function of rising volatility more than a return to robust trend growth; we also see a chance that 2011 or 2012 GDP could surprise to the downside.
The prevailing view seems to be that a mild but fragile recovery is underway, and that the public sector should allow the private sector to do the heavy lifting from here. But this view might be relying on a significant ommission of evidence, if public sector (federal government) stimulus and demand have been the primary drivers of recovery thus far. As we’ve noted in recent months, there appear to be important long term factors at work (e.g., demographic ratios, increased private sector saving, slack credit demand) that will cause orthodox economic theories and policy prescriptions to present a serious and growing risk of premature fiscal tightening – again, as in the U.S. in the late 1930s and Japan in the 1990s and 2000s. The views reported by MSNBC lend additional support to our assessment.