I Win My Recession Bet
Two years ago, I made the following bet with a brave young economic pessimist, Jackson Taylor:
$200 on whether or not America will have
a recession, defined as two consecutive quarters of negative real GDP
growth, in the next two years. Q4 of 2017 being the end of the period.
But if that quarter happens to be negative, then we can look to the next
one to see if we were or were not in the middle of a recession.
Fourth quarter U.S. GDP numbers are now in, showing +2.6% annualized GDP growth. Since growth was positive in every preceding quarter since the bet, I have clearly won. The commendable Jackson prepaid, so we are all settled up.
Why did I make this bet? As I explained at the time:
Base rates. U.S. quarterly GDP growth is about 3%, and there’s a high
short-run positive correlation for quarterly growth. So we’re extremely
unlikely to have negative GDP growth for the next two or three
quarters. The chance we actually get two consecutive quarters of
negative growth before the clock runs out therefore seems well below 50%
to me, making this a good bet.
By my count, this leaves me at 16 wins, 0 losses for my public bets.