Sunday, February 19, 2012

Krugman, Austerity, and Growth: No, no, no, no, no..., no, no, no, no.

Krugman has a post up plotting change in government spending against change in real GDP and getting a positive relationship. The only sentence I really agree with is "it's a bit striking, isn't it". Yes, it is. It's first-step towards proof that should encourage people to look at the question more.

But this is obviously very bad empirical reasoning, and the worst part is - Krugman knows that. Indeed he lists several reasons not to take this scatterplot seriously. I'll add another reason - take a look at the scattered points and ignore Poland, Latvia, and Ireland (you can even keep Greece in if you want). Do you see a clear story anymore? I don't.

And none of that is to say that I disagree with Krugman on austerity. You all know I agree. But it's this kind of low-quality latching onto whatever buttresses your point attitude that gets sophomoric libertarians yammering on about the Romer-Bernstein chart. This is exactly the wrong way to approach macroeconomic empirics.

I'm not saying you always need a fancy model when you discuss these things. Tell a compelling narrative that makes your case about a compelling counterfactual or justification. Krugman is often quite good this, and that approach is not only sound - it's well suited to a blog. Point being - identify your damn models, people. You aren't doing your viewpoint any favors by defending it with sloppy evidence.


  1. I am fairly convinced that a good portion of what PK writes has no primary purpose other than generate controversy. He's no dunce, so I have to assume that his secondary purpose is something like selling papers, or controversy for the sake of controversy, or being able to say "I MUST be right, look at 'those' people, who disagree with me. I rarely read him anymore, because of idiotic articles like the one you called out.

  2. As he now followed up with a post on 1930-1962, I was wondering where you get data from that time... FRED starts in 1947?

  3. Thanks for this post, Daniel. You're right, if you take out those 4 outliers, the whole thing changes dramatically. I also wonder what would happen if you did the same scatterplot, but with total spending instead of spending on goods & services.


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