Monday, December 3, 2012

Can you shame Keynesianism with one graph?

David Beckworth seems to think so.

I don't know why he doesn't have percentage change in government spending too. Take a look at my version, which puts everything in the same units and takes it a little further back.

I see well above average government growth (with monetary policy) pulling the economy out of a nose-dive. NGDP settles as government spending growth slows to zero. NGDP of course doesn't slow to zero because with the immediate crisis over private spending picked up, as we all know.

We think that private investment helps growth for the exact same reasons we think government spending does (Keynes develops almost everything in his argument with just consumption and investment after all!).

I see nothing in this that makes me worry about the Keynesian story at all. I see the impending problems with government spending as a potential drag on growth this year. Maybe the Fed will help out with that. They seem to have been eating their Wheaties more consistently lately. An NGDP target and fiscal policy to assist would be ideal, although an NGDP target and fiscal consolidation is better than just fiscal consolidation. But memories of 2008 and 2009 are not encouraging.

FRED Graph

1 comment:

  1. Like every other "graph," all this chart shows is that Mark Twain was right. There are lies, damn lies, and statistics.

    I thought we learned on the first that that expectations are what matter. If so, where does the chart show how expectations worked through the entire process? And, to measure a multiplier, one has to ask, over what period of time did those expectations work?

    The chart shows nothing.

    And, keep in mind, I am not a pure Krugman Keynesian.


All anonymous comments will be deleted. Consistent pseudonyms are fine.