Don Boudreaux, what say you?

At Cafe Hayek, Don Boudreaux writes, in a post titled "What say you, Keynesians?":

"One data point proves nothing – but it is suggestive that Germany’s economy (including employment) is starting to boom (as reported here by The Economist) while the US economy continues to sputter: government in the former nation is following a policy of (relative) fiscal austerity while government in the latter nation is following a policy of wild-spending and deficit-bloating fiscal expansion."

I didn't know what to make of this when I read it last night. I don't know Germany that well. I know that they weren't hit as hard in the first place and that their banking sector came out largely unscathed which seems... ummm... important to mention. But besides that I honestly didn't know how accurate Don's characterization of the fiscal policies of the two countries was. Since he failed to furnish any data on that, I decided to check for myself. Readers of the blog know that I've been tracking the miserable trend in government spending in the U.S., and pointing out that you can only think we've done anything like fiscal stimulus if you're only looking at the federal government - if you look at all government spending, fiscal stimulus has been largely absent. The feds are filling the hole that the states are digging, that's essentially what things have amounted to.

Anyway, I checked out German and American quarterly percentage change in public spending, and here it is:

Fig. 1 Quarterly percentage change in government spending

It's somewhat hard to compare, but it certainly doesn't look like the U.S. is trouncing Germany in fiscal policy, does it? Particularly in more recent quarters, Germany seems to be spending more in the public sector than the U.S. - and in the first quarter of 2010 (the last year of German data I found), they're beating the U.S. substantially. But let's take these figures and look at cumulative quarterly percent change to see if my eye-balling it is meaningful:

Fig. 2 Cumulative quarterly percent change in government spending

These data seem to confirm my suspicions - for most of the crisis, Germany has been outpacing the U.S. in government spending and the gap isn't closing because Germany has kept up its fiscal policy. This is due to two factors:

1. Germany has stronger automatic stabilizers which are so integral to German political economy that Merkel doesn't even think to mention it on the public stage - and certainly not when she's brow-beating other countries about austerity.

2. The U.S. is a federal system where a substantial portion of government spending is done at the state and local level. Germany is too, of course, but the German Länder don't seem to have the pro-cyclical proclivities that U.S. states do.

If Don checked the data, he'd realize he doesn't quite have the case he thinks he does. As a rought cut, Germany seems to have stronger, not weaker, fiscal stimulus than the U.S. does, particularly in early 2010 (which of course is going to make a big difference in GDP numbers that come in now). I don't think this is firm evidence in favor of Keynesians either, but it's certainly not evidence against us.

Add to these stubborn facts that Germany didn't have nearly as bad a crisis as we did in the first place, and I'm really struggling to see Don's point. Perhaps he can tell us.


*All data is from Eurostat's national accounts. I compared their figures for the U.S. to the BEA's, and they look quite comparable - a few small discrepancies probably due to different national accounts definitions. If you look at earlier posts of mine on U.S. public spending trends, you'll see essentially the same pattern in the BEA data that I present here in the Eurostat data.