Arguments about the Output Gap, 2017

Reader JohnH asserts pgl makes up crazy output gaps. My search of Economists View turns up this 2017 exchange. I don’t see a “crazy”  assertion by pgl (certainly not as crazy as the Friedman view of a -18% gap), even if it was in disagreement with CBO’s assessment (and Furman’s) at the time, that the economy was near full employment.

The exchange (in response to Furman):

pgl said…
I guess Jason Furman is inviting the wrath of some with his title. The last line summarizes his post:

“Adding this 0.5-percent growth in labor inputs and 1.3-percent growth in productivity yields the 1.8-percent annual potential growth rate.”

OK – even if we accept his premise, we should not accept his other assumption that current output = potential output. If the output gap is around 5% as I and others have argued, output growth can exceed potential growth by 1% from now until 2021. So a little arithmetic tells us that we can have growth rates closer to 3%.

ReplyWednesday, March 22, 2017 at 01:25 AM
BenIsNotYoda said in reply to pgl…
5% output gap would be huge. I would like you to present evidence that speaks to this. Very interested.

ReplyWednesday, March 22, 2017 at 04:47 AM
BenIsNotYoda said in reply to BenIsNotYoda…
I agree with pgl that growth rate of 3% is achievable. Upper limit of 2% is a ridiculous conclusion.

ReplyWednesday, March 22, 2017 at 04:50 AM
JohnH said in reply to BenIsNotYoda…
pgl is known to make up whatever output gap he wants, then to call others liars for citing official estimates…

Personally, I think I was closer to CBO than to Friedman, and was skeptical of -5% output gap, that -5% (or larger) estimate was backed up by statistical (as opposed to bean-counting) approaches, such as the Blanchard-Quah methodology (see DeLong):

Figure 1. Cumulative GDP growth deviation; DeLong edit of Coibion, Gorodnichenko, Ulate. Source: DeLong (2017).

BQ 2017 indicates something like a 10% output gap, very large, but not as large as the Friedman gap of  -18% at end 2015.

Bottom Line: Unlike GDP, there is no “official series” for output gap. CBO’s comes closest in the sense that a government agency estimates it and as part of its mission reports it. But for instance, there is no official Fed potential (although there is a green book estimate; there are also many internal Board estimates based on a series of methodologies, as well as estimates throught the Federal Reserve bank research departments). There is a US output gap reported by the OECD, but that’s not what anybody would say is the official estimate of potential GDP. So we can “make up” estimates of the output gap, in a way we can’t “make up” the GDP number, or the CPI number…


27 thoughts on “Arguments about the Output Gap, 2017

  1. Macroduck

    So Johnny reached back five years to quote himself making a slanderous accusation? And did so in a sort of pretense that his slanderous claim from five years ago has the weight of authority? Gads, what a twit!

    1. pgl

      I knew Jonny boy was making this up. The debate over the output gap was an important issue but not one that Jonny boy remotely understood. But you knew that already.

    2. pgl

      It seems Jonny boy has replied by making up more things I allegedly said and giving us a link to a serious paper that Jonny boy finds “humorous”. Of course Jonny boy does not understand the paper he links to, he clearly has changed his tune regarding me, and best of all he is claiming I suggested the output gap in 2016 was near zero, which is clearly not want I was asserting back then.

      Yes – Jonny boy’s perfect record of getting EVERYTHING wrong is intact.

    3. JohnH

      Actually I reached back 8 years ago for the exchange I was referring to. In that thread, I used estimates of the output gap from two reputable sources–IMF and OECD. For the UK, the 2014 figures are -1.234 and -0.626, respectively. For the US, they are -3.532 and -3.236. pgl proceeded to assert that “The US gap is at most 2% and maybe zero” but provided specific identification of his source, no specific link, no specific citation, and no substantiation. Hence, I concluded that he had made it all up, as he does so often. At least, the IMF and OECD had some official imprimatur, so their numbers were worth consideration.

      What I find humorous is the wide range of opinion on the US output gap. If you accept pgl’s assertion that it was maybe zero, then the IMF and OECD were 3.236%-3.532% off. In 2016 Justin Weidner and John C. Williams found the range of estimates to be 3.7% in 1Q15 with the CBO estimate showing an output gap of 2.7%. For 2014 they were higher. At the time pgl’s claim that the “the US gap is at most 2% and maybe zero” could not be independently verified,”

      BTW–I never asserted pgl makes up crazy output gaps. What I was saying is that without clear identification of his source, it has to be assumed that he is just making things up…

      1. pgl

        Watch Jonny boy weasal out of his claim I made up gap numbers! Of course that prior EV exchange was your being Cameron’s fiscal austerity cheerleader where you claimed falsely that UK real wages rose even though the facts were that they fell a lot.

        1. JohnH

          Fact is, in his response to my output gap numbers from OECD and IMF, pgl never did provide a source for his claims for a “2% maybe zero” output gap. So I still believe that he made his numbers up….just like his claim that I was Cameron’s cheerleader!

          Come on, pgl…where’s the beef? Where did you source those numbers on the output gap?

    1. Moses Herzog

      Unless Menzie is taking flack for copyright issues (I don’t think blog hosts should be held responsible from commenters’ errors) ltr is largely harmless. He’s annoying as hell, but I don’t think that’s against the law. An argument can be made he’s racist, but he takes it right up to the line where he could be given the benefit of the doubt.

  2. pgl

    Thanks for reminding me of the interesting exchange with BenIsNotYoda. And especially grateful that you weighed into this debate from way back then.

    Yea – JohnH lied recently about his alleged “contribution”. But we know he had to be lying as he never understood what this debate was about. Jonny boy does indeed have serious emotional issues.

  3. pgl

    Thanks for reminding me of the interesting exchange with BenIsNotYoda. And especially grateful that you weighed into this debate from way back then.

    Yea – JohnH lied recently about his alleged “contribution”. But we know he had to be lying as he never understood what this debate was about. Jonny boy does indeed have serious emotional issues.

  4. pgl

    The Jason Furman discussion in early 2017 casted doubt on Trump’s claim that his policies would lead to growth = 4% per year for the next decade. Trump’s claim was not as crazy as Gerald Friedman’s claim but Furman made the case that we could gets only 2% growth.

    So how did this all work out? For the 3 three years following 2016QIV, average annual growth was 2.5%. A tad higher than 2% but not nearly 4%. And as we all know – real GDP fell dramatically in 2020. Yes it has recovered somewhat but we have abandoned TrumpEconomics in favor of BidenEconomics.

    1. pgl

      “The Blue Chip consensus of private forecasters is slightly more optimistic, with a 2.2 percent projection for long-run growth.”

      Furman notes this and then makes his case that potential GDP would grow by only 1.8%.

      I checked what CBO was saying at the end of 2016 and their estimated gap was still just over 2%. So according to Furman we had finally hit full employment by 2019Q4. Maybe but as I was suggesting back then, the gap might have been around 5%. Dr. Chinn noted why I said this back then.

      Of course Jonny boy is off on one of emotional rants claiming I said back then that the gap was zero. Yea – Jonny boy is indeed that dumb. But forget this worthless troll. I may not agree with everyone word Furman writes or what our host writes. But I do appreciate adult conversations from people who get these issues.

  5. JohnH

    What I said back in 2015: ;”Justin Weidner and John C. Williams have a rather humorous paper showing various measures of the US output gap which range from -2.0 to plus 2.0.

    The only two organizations that I’m aware of that provide comparative output data statistics are the IMF and OECD. For the UK, the 2014 figures are -1.234 and -0.626, respectively. For the US, they are -3.532 and -3.236.

    So much for the ‘output gap’ as a useful indicator. It all in the eye of the beholder.”

    Of course, for pgl, none of the above are correct so he has to come up with his own seat of the pants estimate, which is neither readily available nor comparable across countries. Yes, indeed, the eye of the beholder…for partisan political purposes.'”

    pgl’s reponse: “Huh? The US gap is at most 2% and maybe zero.” [no citation of source] Then he mentions CBO without identifying it as his source.

    My response: “Yet another source for the output gap! Like kinds of Coca Cola, it seems that the choices grow exponentially! YES, CBO does estimate 2% at the end of 2014. And your seat of the pants estimate is presumably the one at zero, even though US per capita GDP has grown only 0.12% per year since 2008?”

    1. pgl

      So your new claim is that you think the output gap is not an important issue because there may be disagreements with how large it was when Gerald Friedman wrote his little paper? Not only is this a far cry from your original LIE about what I allegedly said – you are also telling us that Dr. Chinn’s careful review of this issue is a total waste of time.

      No little Jonny boy – your dishonest and stupid rants are the waste of time.

      1. JohnH

        I never said that the output gap is not an important issue–in theory. In practice, however, calculated output gaps are all over the place, making them practically useless…except for partisan debate.

        1. pgl

          If Jonny boy thinks CBO is “partisan” he is as pathetic as he is stupid. This slander would get Jonny boy banned from most economist blogs.

        2. JohnH

          It doesn’t matter if the CBO is partisan or not. With the plethora of “output gaps” published, partisan hacks can shop them to make their point….which is exactly what pgl did back in 2015 when a picked a number from some unidentified source, probably from the seat of his pants.

    2. pgl

      “The estimates reported in the original Economic Letter were based on data through the first quarter of 2009.”

      Huh – their original paper was published in Economic Letters and little Jonny boy thinks it is a “humorous paper”? I’d like Dr. Chinn’s opinion as to whether this journal is the joke Jonny boy thinks it is. After all my view may be biased as I have published in this journal.

      Hey Jonny boy – how many papers have you published there or anywhere else?

      1. JohnH

        pgl still hasn’t realized that the paper was updated to 2015 and shows CBO updates for that year…and the “output gap” from 1Q15 is very different from pgl’s.

    3. pgl

      I’m going back to there 2009 paper since little Jonny boy does not know how to:

      One standard estimate of potential output is that of the Congressional Budget Office (CBO 2001), which bases its calculations on estimates of the component parts of potential output….In the first quarter of 2009, the output gap fell to -6.2%.”

      A lot of economists back then thought the gap was larger. But wait:

      “The Laubach and Williams estimates of the output gap generally look similar to those of the CBO, but sizable discrepancies between the two arise over the most recent decade…The Laubach and Williams estimate of the output gap in the first quarter of 2009 is -2%, one-third as large as the CBO estimate.”

      This is followed by a thoughtful discussion of what may have been driving these significant differences. One should read their paper for yourself as little Jonny boy is misrepresenting everything by his stupid cherry picking. But the adults here knew that already.

        1. pgl

          I did dumbass. I was clearly referring to their original paper which of course you could not have read as you can’t even read a short comment.

        2. pgl

          Are you referring to this paper?

          Laubach, Thomas, and John C. Williams. 2003. “Measuring the Natural Rate of Interest.” Review of Economics and Statistics 85(4, November) pp. 1063-1070.

          They have updated but note the topic is the Natural Rate of Interest not the output gap. I know all of these terms are byond little Jonny boy’s grasp. But John Williams writes on more than one thing and with different co-authors. Little Jonny boy can’t even read the title of his papers.

    4. Macroduck

      I noted this out earlier, but since Johnny is at it again, I’ll repeat my point. John y is treating his comment from five years ago as it his view matters. He’s pretending that he has some sort of authority. It’s a joke.

      Johnny is less than nobody. He’s a paid agent of Russia’s criminal regime. Everything he writes is aimed at corrupting discussion, preventing honest exchange and either justifying Russia’s invasion or driving wedges between those who support Russia’s victim, Ukraine.

      1. pgl

        It is worse than that. Jonny boy has once again LIED about what he wrote 5 years ago. And yea – he is clearly lying about what I was saying. Thankfully our host remembers my old position even as he and I had somewhat different views.

        1. JohnH

          How could I lie about what I wrote five years ago, when the commentary in question was from 1Q2015, not 2017?

          pgl just loves to move the goalposts!

  6. pgl

    “The US gap is at most 2% and maybe zero”

    Notice two things: (1) Jonny boy provided no links to this alleged quote from me; and (2) as our host correctly points out I was suggesting back then that the CBO may be underestimating the gap back then with me putting it closer to 5% (based on sound reasoning that our host cites).

    Yea Jonny boy is lying here. It is a parade of pointless lies at that. But that is what little Jonny boy does 24/7.

    I get the sense that Macroduck wants this stupid worthless lying troll banned. Look – he is dragging down this blog with this sort of garbage the same way he polluted Thoma’s blog.

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