Thursday, March 22, 2012

Who Cares About Reality When You Got Estimates Of Misleading Concepts?

"G.I." at the Economist has an odd argument against the theory that a recession causes permanent damage to the level of output, namely that the Congressional Budget Office revised up its estimate of "potential GDP" after the recession of 2001.

But considering that growth has been the weakest since the 1930s in the decade that followed, and was relatively weak even before the 2007-09 recession the view that "potential growth" had risen was clearly wrong.

I have written before about the problems with the concept of potential GDP.


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