United Liberty

Yesterday, I posted an article by Art Laffer about the chances of a double-dip recession due to the expiration of the Bush tax cuts in 2011. Before I go any further, it’s worth noting that Laffer, a Keynesian, tends to be more political in his work. He toes the party line at almost all costs.

My friend, Jorge Gonzalez, notes that not all free-market economists are predicting this, citing information posted over at Carpe Diem by Mark J. Perry.

Perry is referring to the recent model released by the Federal Reserve Bank of New York, which paints a rosy picture of the economy:

The Fed’s model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then in almost every month. For May 2010, the recession probability is only 0.17% (about 1/6 of 1%) and by a year from now in May of next year the recession probability is even lower, at only 0.12%.

According to the NY Fed Treasury Spread model, the recession ended sometime in middle of 2009, and the chances of a double-dip recession through May of 2011 are essentially zero.

Fair enough. Federal Reserve Chairman Ben Bernanke says the economy is recovering, just slowly. He was also blindsided by the recession that hit us in 2008.

Peter Schiff, who predicted the recession (he also debated Laffer on future of the economy in 2006), hasn’t been as upbeat about the recovery as Bernanke, especially after the recent jobs report. He calls it a phantom recovery.

I haven’t seen Schiff outright say or write that we’re are facing a double-dip recession. He is warning of considerable problems, not predicting when those problems will hit.

The likelihood of a double-dip recession is debatable. However, I think we can all agree that the economy is still volatile. Increasing taxes at this time is just asking for more problems, that’s why I think Laffer has a point worth considering.