Science can advance more quickly when there is the ability to construct controlled experiments within which variables and their effects can be isolated. Observational sciences like astronomy or archeology cannot construct direct experiments, but try to create explanations consistent with the more traditional sciences like physics and chemistry and ongoing observation. Economics falls in this latter category without the advantage of some reliance on other sciences. Given the unprecedented nature of today’s economic circumstances, prudence should restrain the certainty of any prediction.
Nonetheless, in terms of our future prospects, the importance of economic growth is conceded by all. If the extremely large spending increases of the Obama plan result in very significant economic growth say 4-5% per year range, growth will generate sufficient government revenue that service on the debt will not strain the economy. The question reduces to what level of growth will result after the implementation of the Obama stimulus package.
Nobel-prize laureate Paul Krugman argues that historical evidence suggest periods of strong economic growth quickly follow high unemployment to support Obama assumptions about growth. There is some plausibility to this view. After unemployment peaks, putting labor back to work should increase output or gross national product. Indeed, Krugman suggests that when Harvard economist Greg Mankiw (who specializes in macro economics as opposed to Krugman’s international trade specialty) arguments otherwise are “evil” wonkishness. Mankiw responded that if Krugman is so sure that he is willing to risk the economy on his prediction, perhaps he might be willing to wagee a small fraction of his Nobel prize. Frankly, aw we shall see the data are so murky, that I would not wager much on either prediction.
Krugmam cites data to support his assumption of growth from Brad Delong.
