So perhaps this constitutes a predictive difference between myself and Arnold Kling’s PSST school. I want to reiterate that while my best guess at this point is that PSST is not an important way to think about modern business cycles, my guess is that it is important both in growth and labor market dynamics.

Anyway, it seems that Pawlenty and maybe Obama have said that the US can achieve 5% growth. Sorry I am not up on details, this is a busy summer.

Its my understanding that this claim has been ridiculed by numerous folks.

I, however, will predict that the US will achieve an average 5% real growth over a sustained period say 12 quarters more starting with in five years. So I guess that’s like saying “within the next 8 years”

Perhaps, Arnold and I can make this into a bet.

While this doesn’t directly conflict with PSST and isn’t guaranteed under and AS-AD paradigm, it should be more likely if they’re really is such a thing as an Output Gap. Thus there should be some bet that both of us would find fair.

Now to be clear I don’t think that Obama or Pawlenty or Romney will have anything to do with this. Maybe the Fed will. More likely, at this point, is that the downturn will snapback on its own once household balance sheets are repaired. As long as the government doesn’t actively seek to stop this I think there is a reasonable chance this will occur within 5 years or so.

Now there are lots of reasons why this prediction could be wrong but AS-AD could be right. However, the good thing about a bet is that as long as its more likely to be right under my view of the world there is some wager that both me and someone who disagrees with me should be willing to accept.

Edit: unnecessary crankiness removed