Not what it seemed: GDP fall is steep

Associated Press:

WASHINGTON (AP) - The economy contracted at a staggering 6.2 percent pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.

The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.

A much sharper cutback in consumer spending - which accounts for about 70 percent of economic activity - along with a bigger drop in U.S. exports sales, and reductions in business spending and inventories all contributed to the largest revision on records dating to 1976.

Looking ahead, economists predict consumers and businesses will keep cutting back spending, making the first six months of this year especially rocky.

Meanwhile Greg Mankiw thinks the Obama administration's forecasts are a bit too rosy. The Obama forecasts are on the left (no pun intended):

2009: -1.2% -1.9%
2010: +3.2% +2.1%
2011: +4.0% +2.9%
2012: +4.6% +2.9%
2013: +4.2% +2.8%

Accumulating the difference, you find that Team Obama projects about 6 percent higher GDP in 2013 than do private forecasters.

As the eminent American philosopher Yogi Berra says: "It's tough to make predictions, especially about the future."

Catching on, Sumner and his 15 minutes of fame

Getting viral on the internet is still pretty much a black-box enterprise. And of course, luck has something to do with it.

Prior to this over-extended 15 minutes of fame, Bentley economist Scott Sumner toiled in macro obscurity. But a lot of the flash out of the pan starts would with who you know -- or rather -- who knows you.

I am still piecing together how I suddenly went from obscurity to semi-obscurity yesterday. I had sent Brad Delong my piece on Friedman and Schwartz, and he was kind enough to link to it (without comment.) I assume that Tyler Cowen saw that link, and his very kind comments suddenly pushed my blog into the public eye. Then Arnold Kling also had some nice things to say here.

Now that I have readers, I obviously need some new material. Please be patient as my teaching responsibilities (and my cold) will slow things down for a few days. However, this weekend I plan two of what I hope will be my best posts. So please stop back later. I greatly appreciate all those who commented. I will reply to recent comments later today.

Ironically, I had already been planning a post to send to some of my favorite pragmatic libertarians (such as Tyler Cowen, Will Wilkinson, Deirdre McCloskey, Robin Hanson) on a non-monetary topic (my recent research on cultural values and neoliberalism.) I’ll try to have that ready by Sunday. By Saturday you can expect a longer than average post on rational expectations, policy lags, and monetary transmission mechanisms that will give you an idea of how I developed my somewhat unorthodox take on monetary theory. I think you will find it interesting.

DeLong and Cowan, that's pretty much the A-team of econ bloggers projecting their own form of the Oprah effect. Get there and you can get far. Professor Sumner may regret the new workload and the glare but that's the price you pay when you are "Oprahsized."

The against-the-grain theory is explained here.

Taking on the sacred cow, the mortgage interest deduction

No policy better demonstrates how the tax code distorts the market than the federal income tax deduction for mortgage interest. Ed Glaeser offers a modification to this gem.

In action, the law of unintended consequences of biofuels

It takes a large carbon footprint to grow biofuel. I would think we would have learned this lesson by now.

More on the deleterious effects of converting land for biofuels from Knowledge Problem.

Shovel Ready in Massachusetts

The Boston Business Journal is reporting that Governor Deval Patrick has released his list of the state's "shovel ready" projects. The projects will vie for a piece of the recently-passed, $789 billion stimulus package. As expected, Boston leads the list of municipalities with projects" ready to go" with $1.1 billion.

Wherever the money is spent you can count on big labor to be there ready to push for Project Labor Agreement designations on any major construction project. Non-union firms are already raising the red flag. That's because PLAs are costly, anti-competitive measures according to BHI's past research. But PLAs aren't the only problem. The state's higher than national average prevailing wage law will also mean fewer projects will be undertaken.

Meanwhile, how well will unemployed workers in Massachusetts benefit considering the huge influx of construction funding? According to ProPublica, a journalism site that tried to measure how well any benefits align with the high unemployment states, Massachusetts will do much better than high unemployment states such as Michigan and Nevada.

The 78-page "wish list" (dated 2/9/09) from the Governor's office is here.