Gambling on the Economy

I saw an interesting bit over at Bloomberg Businessweek about how to think about the trajectory.  It’s colorful, gangsta-esque title is “Krugman or Paulson: Who You Gonna Bet On?” On the one hand, you have Paul Krugman warning of a depression without very tall cash-on-the-barrelhead government spending monetary outlays.  On the other, you have billionaire Henry Paulson literally putting his money on a recovery:

Paulson’s latest 13f filing with the Securities & Exchange Commission indicates nearly $2.995 billion of Bank of America common stock and $2.052 billion of Citigroup common. Despite healthy advances from their spring 2009 lows, banks may have more room to run, particularly if Paulson is correct in the estimate he made to investors that housing prices will rise as much as 10 percent next year.

Since his initial forays in banks, Paulson has ventured into riskier assets like casino stocks and vacant residential land in the utterly busted Florida and Southern California markets. As a private hedge fund manager, Paulson is not obliged to provide a complete picture of his investments; long positions could be hedged with shorts and derivatives that he does not have to divulge. But nothing in either his statements or reports about what he’s buying suggests he is anything less than upbeat about the economy right now.

I’m not sure that’s a fair comparison, because Paulson is simply betting on certain sectors, some of which benefit handsomely from government policies.  So his bets don’t necessarily represent a “stimulus v. no stimulus” type of comparison.

What is it about people wanting to bet Krugman? Last year, in what New York Magazine hailed as “the nerdiest bet ever,” Greg Mankiw threw down and bet Krugman about the administration’s GDP forecast.

Paul Krugman suggests that my skepticism about the administration’s growth forecast over the next few years is somehow “evil.” Well, Paul, if you are so confident in this forecast, would you like to place a wager on it and take advantage of my wickedness?

Who knew economists could be so catty?