I have had several readers send me a blogpost from Scott Sumner saying that the Keynesians have been dishonest in not owning up to the fact that they were wrong in predicting a recession in 2013. The argument is that supposedly us Keynesian types all said that the budget cuts and the ending of the payroll tax cut at the start of 2013 would throw the economy back into recession. (Jeffrey Sachs has made similar claims.)
That isn't my memory of what I said at the time, but hey we can check these things. I looked at a few of my columns from the fall of 2012 and they mostly ran in the opposite direction. The Washington insider types were hyping the threat of the "fiscal cliff" in the hope of pressuring President Obama and the Democrats to make big concessions on Social Security and Medicare. They were saying that even the risk of falling off the cliff could have a big impact on growth in the third and fourth quarter of 2012.
My columns and blogposts (e.g. here, here, here, here, and here) were largely devoted to saying this was crap. I certainly agreed that budget cutbacks and the end of the payroll tax cuts would dampen growth, but the number was between 0.5-0.8 percentage points. This left us far from recession. (All my columns and blogposts from this time are at the CEPR website, so folks can verify that I didn't do any cherry picking here.)
I know Paul Krugman is the real target here, not me, but we've been seeing the economy pretty much the same way since the beginning of the recession. If he had a different story at the time I think I would remember it. But his columns and blogposts are archived too. I really don't think anyone will find him predicting a recession in 2013, although I'm sure he also said that budget cuts and tax increases would dampen growth.
Anyhow, I'm generally happy to stand behind the things I've said, and when they are proven wrong I hope I own up to it. But I don't see any apologies in order. No recession happened in 2013 and none was predicted here.
I see that Alex Tabarrok has found a quote from me from May of 2013 in which argued that the economy would not grow fast enough to make a significant dent in the unemployment rate in the near future:
"It is absurd to think that the economy has enough momentum to make any substantial dent in unemployment in the foreseeable future."
Since that time, the unemployment rate has fallen by roughly 2.0 percentage points. That would certainly qualify as a "substantial dent." Interestingly, growth over this period averaged just 2.8 percent. With potential growth generally put between 2.2-2.4 percent (potential growth is the rate needed to keep pace with the growth of the labor force) this difference of between 0.4-0.6 percentage points would ordinarily not be enough to make a substantial dent in the unemployment rate. In fact, if we look at the employment to population ratio (EPOP), the percentage of the population with jobs, it rose by just 0.6 percentage points over this period. At that rate, it would take approximately a decade to get back to the pre-recession EPOPs.
What I had not anticipated is the large number of people who would give up looking for work and drop out of the labor force over the next year and a half. The labor force participation rate fell from 63.4 percent in April of 2013 (the most recent data available when I wrote the column) to 62.7 percent in December of 2014. This drop corresponds to roughly 1.7 million people leaving the labor force. In past recoveries the labor force participation rate rose as more people got jobs.
Anyhow, I will own up to having gotten this one badly wrong. I did not expect people to be leaving the labor force as the economy recovered. I expected that participation rates would follow past trends. I still expect that this will be the case going forward, so I do think both the EPOP and the labor force participation will rise in the next couple of years, assuming that the economy continues on its modest growth path.