Recent Blog Posts
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The Times' Rorshach Geithner Story
Apr 27 20099:04am EDT -
Sinking Animal Spirits
Apr 27 20098:04am EDT -
Counter-cyclical Urban Policy
Apr 26 200910:04am EDT -
Be Your Own Counterfeiter
Apr 26 20099:04am EDT -
Being Tim Geithner
Apr 25 200912:04pm EDT -
Notes From a Press Conference Naif
Apr 25 20099:04am EDT -
What Good is the News?
Apr 25 20098:04am EDT -
Stressful Enough
Apr 24 20092:04pm EDT -
Not Regretting the Pound
Apr 24 20091:04pm EDT -
Introducing the New Ford Squeeze
Apr 24 20099:04am EDT -
Non-Economic Questions of the Day
Apr 24 20099:04am EDT -
The Stress Test Blind Alley
Apr 24 20098:04am EDT -
Happy Hour
Apr 23 20099:04pm EDT -
Recovery Without Rebalancing
Apr 23 20096:04pm EDT -
The Shape of Your Recession
Apr 23 20095:04pm EDT
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Trading Recession Probabilities
According to InTrade, there's a 58% chance that the US will see a recession in 2008. That number is higher than the 43% probability assigned to recession by economists polled by the WSJ. But there's no real discrepancy there, says Dean Baker:
Economists don't predict recession. Economists don't predict recessions. (I'm not in the fraternity.) Say it one thousand times until it sinks in. Economists, when we are lucky, recognize recessions after we are already in them. The fact that so many economists are now willing to say that we are facing recessions should be viewed as a lagging indicator of a recession. It is very reliable -- I am fairly certain that there has never been a period in which a sizable share of economists forecast a recession and we have not actually been in a recession.
The real question, if Baker is right, is not why InTrade's recession contract is trading so high; it's why InTrade's recession contract is trading so low. There are basically only two explanations: either InTrade's traders are placing too much faith in the literal accuracy of economic forecasts, or else Baker is placing too much faith in economists' inability to predict recessions. If you have little faith in economists, maybe the contract is decidedly cheap at these levels. Here's a live chart:
