Feldstein v. Lazear on the Size of the Output Gap by EconoSpeak (ProGrowthLiberal)

Lazear wants us to believe that the economy could have continued to grow by 3.4% per year since 2007QIV even though average growth was less than 2.5% for the 2001 to 2007 period. If that claim had any credence then potential real GDP would have been almost $15.3 trillion as of 2011QIV as opposed to actual real GDP being only $13.4 trillion. In other words, Lazear wants us to believe that the current GDP gap is 12%. Not that anyone should believe such nonsense but isn’t it interesting that Dr. Feldstein is worried that we may be overestimating the GDP gap.

Republicans are simultaneously pushing two themes. One theme is that current Federal Reserve policy is endangering an inflationary spiral, which seems to be the concern of Dr. Feldstein. The other theme is that the Obama Administration is somehow making the recession worse, which Dr. Lazear was so happy to echo. Funny thing – these two themes appear to be contradictory.

(via Thoma)