Wednesday, July 28, 2010

Missing George Bush...

...well, not really. But fiscal policy was clearly and unequivocally more expansionary under the Bush administration than it has been under the Obama administration. Commenters seemed to think I was crazy in the other posts, but they cannot alter the state of facts and evidence. This is all readily available to the public. This isn't secret data I'm looking at. It's simply a question of thinking critically about it.

Jonathan, for one, clarified his comment on that last post, and perhaps I jumped the gun in interpreting what he was saying. The shock of what's in the data still stands, though. We've seen a $40 billion increase in real government spending in the second quarter of 2009, and a $16 billion increase in real government spending in the third quarter of 2009.
If we total the change in government spending since Obama entered office (and that we have data for) we get an increase of only 20.8 billion real dollars. Of course there are some adjustments because we're talking in real dollars, but we're only looking a year back in time so it doesn't make that much of a difference. Krugman was advocating 2 trillion dollars of stimulus.
In other words, the fiscal stimulus we've actually done is ONE PERCENT of what the Keynesians suggested ought to be done. That's a f^&*%ing rounding error, people. This is why it's so frustrating to hear people say of Keynesianism "oh we tried that already".
Jonathan's recent comment in the last post is very well taken. It's quite possible some future economist could still get some empirical estimate of the fiscal multiplier out of this mess. That will be a valuable academic endeavor, and hell - as an aspiring macroeconomist I am excited at the prospect of being a part of that scientific effort. And certainly while the government in general is not engaging in fiscal stimulus, we could theoretically say that Obama and Congress are (albeit at about a third the pace required). As a scholar I can appreciate that.
But as an American citizen with a sister entering the job market, a mother in law recently retired and relying on her investments, and a new neice and nephew coming into this society I'm infuriated. My wife and I are doing OK, but a lot of people aren't. Ignorance is no excuse for thinking that we're doing anything about it.


  1. And I should add - for all I know the roughly 20 billion quarterly increase in real government spending we saw under Bush may have been a legitimate structural growth rate. In other words, if Obama had seen 20 billion growth each quarter (rather than for the first year and a half!), much of that would just be the natural growth rate to match the growth in the economy as a whole.

    You would have to go even beyond that to be stimulative above trend.

  2. I feel I oughta make this correction -
    so 2 trillion dollars in 2009 is apparently 1.82 trillion dollars in 2005. These real dollars are 2005 dollars, so we saw a 20 billion dollar increase when Krugman (and many others) suggested a 1.82 trillion dollar stimulus in 2005 dollars.

    That means we did somewhat more than 1% of what was suggested by prominent Keynesians - but still nothing to write home about. Nevertheless, the difference oughta be pointed out.

  3. And again, that's COMPLETELY ignoring the steady state growth path, which might get us back down to 1% anyway.

  4. Just a quick note about the stimulus package which we had in Australia...

    It was $42 billion over 2 years, which represents roughly 2% of Australia's GDP. By contrast, the amount recommended by Krugman would be comparable to approximately 13% of US GDP on the same metric, by my calculations. Keynesian John Quiggin called it "modest" and criticised it for being concentrated largely in one sector, and I believe some treasury officials even said it was too small.

    This stimulus package was largely spent on cash transfers (which the evidence suggests were saved or used to pay down debt), a disastrous home insulation scheme and scandalously overpriced school halls.

    Nonetheless, Keynesians hailed this relatively small (but nonetheless extremely controversial) stimulus package as unequivocal proof of the effectiveness of Keynesian fiscal stimulus, because Australia narrowly avoided a technical recession. Oh, and true to what I've come to call the Keynesian "employment fetish", because it "created jobs" (and very costly ones at that).

    Of course, I understand the point you are trying to make - we shouldn't write off Keynesian fiscal stimulus on the basis of the US experience, since the Feds spending has essentially "cancelled" the states spending.

    Yet I can't help thinking that if the US economy was in a better state at the moment, Keynesians would be trumpeting even this small spending increase as clear proof of the success of Keynesian aggregate demand management.

  5. Thanks for the info on Australia, Sebastian.

    Well, as Jonathan points out, I think we might still be able to say something about the stimulus. I don't think Keynesians have to sit on their hands, and I do think the way this downturn has played out has confirmed a lot of Keynesianism. I'm certainly more solidly a Keynesian now than I was two or three years ago. I'm simply saying as a citizen it's hard to be enthused.

    I suppose we can think of it this way - normally, to put it simply and avoid the more detailed liquidity preference issues - what you want to do is "lean against the wind". There was a time when government would blow back and forth with the wind. Today, we're standing firm, not leaning in either direction.

    That is better than nothing, and I think Keynesians can say that at least - but it doesn't mean its encouraging policy.


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