Paul Krugman’s predictions from 1998
David Henderson directs us to these. David is skeptical, and so is this source (and Megan), but I think Krugman was more right than wrong, at least if you allow him some slight rewordings. Here were his picks, noting that he offers more discussion and context at the first link:
* Productivity will drop sharply this year. Nineteen ninety-seven, which was a very good year for worker productivity, has led many pundits to conclude that the great technology-led boom has begun. They are wrong. Last year will prove to have been a blip, just like 1992.
* Inflation will be back. Wages are rising at almost 5 percent annually, and the underlying growth of productivity is probably only 1.5 percent or less. Sooner or later, companies will have to start raising prices. In 1999 inflation will probably be more than 3 percent; with only moderate bad luck–say, a drop in the dollar–it could easily top 4 percent. Sell bonds!
* Within two or three years, the current mood of American triumphalism–our belief that we have pulled economically and technologically ahead of the rest of the world–will evaporate. All it will take is a few technological setbacks or a mild recession here while Europe or Japan recovers a bit.
* The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"–which states that the number of potential connections in a network is proportional to the square of the number of participants–becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's.
* As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; ten years from now, the phrase information economy will sound silly.
* Sometime in the next 20 years, maybe sooner, there will be another '70s-style raw-material crunch: a disruption of oil supplies, a sharp run-up in agricultural prices, or both. And suddenly people will remember that we are still living in the material world and that natural resources matter.
I'll number them 1-6. On #1, Krugman should not have committed to the time frame of one year, but overall, in my view, productivity hasn't done well since he wrote. A lot of the measured per worker gains come from firing unproductive people, or overvaluing the contributions of the finance, health care, government consumption, and education sectors, not from much expanding the actual production possibilities frontier. I'll be writing more on this, and while it involves some complex issues, overall I side with Krugman.
On #2, Krugman was wrong about inflation returning, in part because he was overly optimistic about wage growth. #3 is debatable, and while one of the modal claims is wrong about Europe and Japan, he was not obviously wrong about the United States.
On #4, we may soon be reaching "peak internet." Parts of #4 and #5 may sound ridiculous, and Krugman did underestimate how much people have to say to each other, and the future of the information economy. Nonetheless, keep in mind the information technology sector has not contributed net job growth over the last decade. Smart, curious people consistently overestimate the economic impact of information technology, in part because it improves their own lives so much. #6 turned out to be true.
That's a mixed record, as anyone would have, but more insightful I think than the critics are granting.
Many of Krugman's current false (modal) predictions stem from his claims that if left-wing politicians would "get tough" and take their case directly to the public, good progressive results will follow. I view that claim as a move into a non-scientific mode of thought. While it is sometimes true, usually it is not, and there is plenty of political science literature on how hard it is to form a winning political strategy through rhetoric.
Without such a view, however, Krugman would have to entertain the possibility that moderate outcomes, or sometimes observed outcomes, are more likely second-, third-, or fourth-best efficient than he would like to admit. If you took away this one rather weak prop of his worldview, he could quite readily turn into a conservative, of course in the literal rather than the right-wing partisan sense.