Sunday, April 27, 2008

Luskin At It Again

Don Luskin again proves his status as the clown, or con artist, of economic commentary.

This time he argues "$119 Oil Won't Stop Economic Growth". In one sense that is correct, since first of all there is no economic growth to stop since America is in a recession. And secondly, the high oil price is largely a result of monetary inflation, so the higher price is simply stopping the monetary expansion from boosting real output. However, Luskin is of course a recession- and inflation denier, so he is still wrong even about that.

Just to illustrate that he is a con artist deliberately trying to deceive his readers, one can see his reference to how economic growth was supposedly "almost 33%" between 2002 and 2007. By that he is referring to nominal growth, which was 32.2%. Normally you round 0.2 down, not up, but that is only a minor error. A far bigger error is characterizing nominal growth as economic growth. Nominal growth is a result of both economic growth and inflation, and characterizing it all as growth means defining inflation as growth. Of course, by that standard, Zimbabwe is the by far fastest growing economy in the world.

He also again confuses the issue of a U.S. downturn and a global downturn when he says that economic growth drives the oil price and not the other way around. It is indeed true that global economic growth, particularly growth in Asia, is driving up the oil price. But that does not mean that the higher oil price reflect economic growth in the U.S.-or that it won't other things being equal deepen the recession.


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