Let’s see what happens if we take (a) total government and (b) federal government expenditures, and divide by actual GDP, not “potential” GDP. We find this:
So granted, despite a relentless decline in total and federal expenditures per dollar of GDP (and a lot of the stimulus increase just filling the hole that the states were digging), government spending per dollar of GDP is the highest it's ever been. Agreed. But if you're using that metric then how can you conclude that "the economy right now is arguably worse than it was during the Great Depression", as Bob does? If you are assessing policy based on levels of government spending and levels of GDP, shouldn't you be measuring performance based on levels too? That also seems to be the highest it's ever been:Huh, how ’bout that? According to this metric, government spending (whether total or just federal) is still higher than at just about any point in the last 50 years, save for the crisis period itself and a few little blips. Couple that with the fact that the economy right now is arguably worse than it was during the Great Depression–both DeLong and Krugman tell us this is so–and it’s a good prima facie case that massive government spending hurts the economy. That should make sense, because it lines up perfectly with commonsense “micro” thinking.
Can someone please explain what Bob Murphy is doing here? It makes no sense to me.
It seems like we should be talking about rates of change, not levels. And it seems to me we should be comparing to a counter-factual of some sort (the output gap), which is precisely what he criticizes as "loading the deck". I don't see how identifying a counterfactual is loading the deck - that's the only way to do good science.
If Bob wants to cite or write up a literature on a persuasive alternative counterfactual that's one thing.
But don't imply that the extant literature is cheating. It's essential to making any scientific claim and it appears to be the most persuasive argument.
This is just like David Henderson's accusation of "proof by assumption". Suddenly going with the extant literature becomes tantamount to cheating - "loading the deck". Why? It seems like a weighty accusation to accuse another analysis of cheating. It seems like you have to have a better case than this if you're going to do that.