I genuinely don't get it.
If a person knew that a project they were working on would be over after a certain number of years, and if other projects didn't come up they would be out of work, and if they couldn't get a job anywhere else is that lost income a "phony" fall in income just because it was already on its way out for other reasons?
It's problematic enough when people define austerity to mean an actual decline in spending, rather than a decline relative to trend (dueling counterfactuals, once again - it always boils down to dueling counterfactuals). Are we now going to adopt the standard that it's only austerity if it is active and politicians really really didn't want to do it?
Sunday, February 10, 2013
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If you think the average person who hears pundits decry so-called "Austerity" in print, TV and radio thinks they're talking about "a decline relative to trend", you're out of touch with what non-economists reasonably believe.
ReplyDeleteA "cut" is a real cut. Less today than yesterday. Calling a "cut" spending more today than yesterday but not as much of an increase as we had the year before is Washingtonian nonsense.
The only "trends" that matter are nominal macro trends like nominal income, because of so-called "stickiness". The government could cut spending or even spending growth without impacting nominal income or income growth.
http://macromarketmusings.blogspot.com/2012/12/paul-krugman-will-not-like-these-figures.html
What the average person thinks is relevant for talking to the average person about economics.
DeleteWhat the average person thinks is not necessarily relevant for talking about how the economy works.
re: "The only "trends" that matter are nominal macro trends"
I agree completely: nominal government spending trends are important to consider.
You REALLY need to go back and review the criticism that David received for that post. This is as bad as citing Sumner saying that Keynesians don't think monetary policy works in a liquidity trap.
I also find it offensive that these things are called "austerity" at all. Austerity is having a hungry belly. Not having to cut single digit percentages from shockingly bloated government budgets rife with excessive compensation and enormous boondoggles.
ReplyDeleteThat's stupid.
DeleteAusterity is anything that's trimmed back from what it was before. "Austere" is attached to all kinds of things. You've got a complaint for everything that comes out of the mouths of people you disagree with, don't you?
Hey, it's not stupid. AFAICT, "austerity" is not (yet) an economics term. It's English. And, to judge by differing definitions in the OED, Webster's, and Longman, even lexicographers are not sure what it means in an economics context.
DeleteMoi, I would prefer it to mean an attempted or actual reduction in the gov't deficit during a period of economic recession or hardship. I would not use it for gov't policy during an economic boom. "Taking away the punch bowl" is not austerity, in my view. :)
Hmmmm... so it's not clear what it means in an economic context, but it's not stupid that John is quite declarative about it? That doesn't seem to make very much sense.
DeleteYou are right - the term isn't nailed down. That's precisely what it's stupid for John to consider it "offensive" because "austerity is having a hungry belly".
Gee, I thought that you were arguing over the definition. :)
DeleteWell I've got a thought on that too, but what is "stupid" is basing that definition on starving children.
DeleteDaniel, so your position is that we should measure cuts relative to the counterfactual...unless the counterfactual involved a cut, in which case we should look at the absolute change?
ReplyDeleteIt seems to me a given sense of the role of government should keep a roughly constant GDP share. So I think of austerity as falling below trend which amounts to falling below expectations. So, yes - but that's my take on the counterfactual. That's just what I think makes sense.
DeleteGranted, government spending ought to increase faster in a downturn. It doesn't make sense to me to call that "austerity", but of course that may not be good either.
I'm open to counterarguments on my second paragraph there, but what bothers me is when people act like there's no austerity if there's no absolute cut. I see no reason to use it that way.