A true test

"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today" Lawrance Peter

Economists tend to hedge their predictions around with enough qualifiers that they are never proved wrong. Today we have an exception.

The government’s economists have put our taxpayer money where their mouth is – betting that this new plan (to use $100 billion of the TARP funds and government funded insurance against possible losses) will tempt private investors into buying toxic assets. They are betting (a) that they can find investors willing to buy them, and (b) that this will unfreeze the banking system.

Paul Krugman, a Nobel winning economist, thinks they are dead wrong. See his Op-ed piece Financial Policy Despair in Monday’s New York Times.

It will be an interesting and pretty clear test of the two theories. If only there weren’t so much riding on it.