Posts Tagged ‘Keynesian’

I thought the Organization for Economic Cooperation and Development had cemented its status as the world’s worst international bureaucracy when it called for a Keynesian spending binge even though the global economy is still suffering from previous schemes for government “stimulus.”

But the International Monetary Fund is causing me to reconsider my views.

First, some background about the IMF. Almost all of the problems occur when the political appointees at the top of the organization make policy choices. That’s when you get the IMF’s version of junk science, with laughable claims about inequality and growth, bizarrely inconsistent arguments about infrastructure spending, calls for massive energy taxes,

By contrast, you do get some worthwhile research from the career economists (on issues such as spending caps, fiscal decentralization, and the Laffer Curve).

But that kind of professional analysis gets almost no attention. The IMF’s grossly overpaid (and untaxed!) Managing Director seemingly devotes all her energy to pushing and publicizing bad policies.

The Wall Street Journal reports, for instance, that the IMF is following the OECD down the primrose path of fiscal recklessness and is also urging nations to throw good money after bad with another Keynesian spending spree.

The world’s largest economies should agree to a coordinated increase in government spending to counter the growing risk of a deeper global economic slowdown, the International Monetary Fund said Wednesday. …the IMF is pushing G-20 finance ministers and central bankers meeting in Shanghai later this week to agree on bold new commitments for public spending.

Fortunately, at least one major economy seems uninterested in the IMF’s snake-oil medicine.

The IMF’s calls will face some resistance in Shanghai. Fiscal hawk Germany has been reluctant to heed long-issued calls by the U.S., the IMF and others to help boost the eurozone’s weak recovery with public spending.

Hooray for the Germans. I don’t particularly like fiscal policy in that nation, but I at least give the Germans credit for understanding at the end of the day that 2 + 2 = 4.

I’m also hoping the British government, which is being pressured by the IMF, also resists pressure to adopt Dr. Kevorkian economic policy.

The International Monetary Fund has urged the UK to ease back on austerity… IMF officials said the Treasury had done enough to stabilise the government’s finances for it to embark on extra investment spending… The Treasury declined to comment on the IMF report. The report said: “Flexibility in the fiscal framework should be used to modify the pace of adjustment in the event of weaker demand growth.” …Osborne has resisted attempts to coordinate spending by G20 countries to boost growth, preferring to focus on reducing the deficit in public spending to achieve a balanced budget by 2020.

But you’ll be happy to know the IMF doesn’t discriminate.

It balances out calls for bad policy in the developed world with calls for bad policy in other places as well. And the one constant theme is that taxes always should be increased.

I wrote last year about how the IMF wants to sabotage China’s economy with tax hikes.

Well, here are some excerpts from a Dow Jones report on the IMF proposing higher tax burdens, tax harmonization, and bigger government in the Middle East.

The head of the International Monetary Fund on Monday urged energy exporters of the Middle East to raise more taxes… “These economies need to strengthen their fiscal frameworks…by boosting non-hydrocarbon sources of revenues,” Christine Lagarde said at a finance forum in the United Arab Emirates capital. …Ms. Lagarde called on the Persian Gulf states to introduce a valued added tax, which, even at a relatively low rate, could lift gross domestic product by 2%, she said. …Ms. Lagarde, who on Friday clinched a second five-year term as the IMF’s managing director, also urged governments in the region to consider raising corporate income taxes and even prepare for personal income taxes. Income taxes in particular could prove a sensitive move in the Gulf, which in recent decades has attracted millions of workers from abroad by offering, among other things, light-touch tax regimes. Ms. Lagarde also wants to discourage “overly aggressive tax competition” among countries that allow international companies and wealthy individuals to shift their wealth to lower tax destinations.

Wow, Ms. Lagarde may be the world’s most government-centric person, putting even Bernie Sanders in her dust.

She managed, in a single speech, to argue that higher taxes “strengthen…fiscal frameworks” even though that approach eventually leads to massive fiscal instability. She also apparently claimed that a value-added tax could boost economic output, an idea so utterly absurd that I hope the reporter simply mischaracterized her comments and that instead she merely asserted that a VAT could transfer an additional 2 percent of the economy’s output into government coffers. And she even urged the imposition of income taxes, which almost certainly would be a recipe for turning thriving economies such as Dubai back into backward jurisdictions where prosperity is limited to the oil-dependent ruling class.

And it goes without saying that the IMF wants to export bad policy to every corner of the world.

The IMF chief said taxation allows governments to mobilize their revenues. She noted, however, that the process can be undermined by “overly aggressive tax competition” among countries, and companies abusing the system of international taxation. …She argued that the automatic exchange of taxpayer information among governments could make it harder for businesses to follow the scheme.

And don’t forget that the IMF oftentimes will offer countries money to implement bad policy, like when the bureaucrats bribed Albania to get rid of its flat tax.

P.S. Now perhaps you’ll understand why I was so disappointed that last year’s budget deal included a provision to expand the IMF’s authority to push bad policy around the world.

P.P.S. In other words, American taxpayers are being forced to subsidize the IMF so it can advocate higher taxes on American taxpayers! Sort of like having to buy a gun for the robber who wants to steal your money.

P.P.P.S. Though I’ll also be grateful that the IMF inadvertently and accidentally provided some very powerful data against the value-added tax.

Read Full Post »

I never watched That ’70s Show, but according to Wikipedia, the comedy program “addressed social issues of the 1970s.”

Assuming that’s true, they need a sequel that addresses economic issues of the 1970s. And the star of the program could be the Congressional Budget Office, a Capitol Hill bureaucracy that apparently still believes – notwithstanding all the evidence of recent decades – in the primitive Keynesian view that a larger burden of government spending is somehow good for economic growth and job creation.

I’ve previously written about CBO’s fairy-tale views on fiscal policy, but wondered whether a new GOP-appointed Director would make a difference. And I thought there were signs of progress in CBO’s recent analysis of the economic impact of Obamacare.

But the bureaucracy just released its estimates of what would happen if the spending caps in the Budget Control Act (BCA) were eviscerated to enable more federal spending. And CBO’s analysis was such a throwback to the 1970s that it should have been released by a guy in a leisure suit driving a Ford Pinto blaring disco music.

Here’s what the bureaucrats said would happen to spending if the BCA spending caps for 2016 and 2017 were eliminated.

According to CBO’s estimates, such an increase would raise total outlays above what is projected under current law by $53 billion in fiscal year 2016, $76 billion in fiscal year 2017, $30 billion in fiscal year 2018, and a cumulative $19 billion in later years.

And here’s CBO’s estimate of the economic impact of more Washington spending.

Over the course of calendar year 2016,…the spending changes would make real (inflation-adjusted) gross domestic product (GDP) 0.4 percent larger than projected under current law. They would also increase full-time-equivalent employment by 0.5 million. …the increase in federal spending would lead to more aggregate demand than under current law. …Over the course of calendar year 2017…CBO estimates that the spending changes would make real GDP 0.2 percent larger than projected under current law. They would also increase full-time-equivalent employment by 0.3 million.


If Keynesian spending is so powerful and effective in theory, then why does it never work in reality? It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Nixon, Ford, and Carter in the 1970s. It didn’t work for Japan in the 1990s. And it hasn’t worked this century for either Bush or Obama. Or Russia and China.

And if Keynesianism is right, then why did the economy do better after the sequester when the Obama Administration said that automatic spending cuts would dampen growth?

To be fair, maybe CBO wasn’t actually embracing Keynesian primitivism. Perhaps the bureaucrats were simply making the point that there might be an adjustment period in the economy as labor and capital get reallocated to more productive uses.

I’m open to this type of analysis, as I wrote back in 2012.

…there are cases where the economy does hit a short-run speed bump when the public sector is pruned. Simply stated, there will be transitional costs when the burden of public spending is reduced. Only in economics textbooks is it possible to seamlessly and immediately reallocate resources.

But CBO doesn’t base its estimates on short-run readjustment costs. The references to “aggregate demand” show the bureaucracy’s work is based on unalloyed Keynesianism.

But only in the short run.

CBO’s anti-empirical faith in the magical powers of Keynesianism in the short run is matched by a knee-jerk belief that government borrowing is the main threat to the economy’s long-run performance.

…the resulting increases in federal deficits would, in the longer term, make the nation’s output and income lower than they would be otherwise.

Sigh. Red ink isn’t a good thing, but CBO is very misguided about the importance of deficits compared to other variables.

After all, if deficits really drive the economy, that implies we could maximize growth with 100 percent tax rates (or, if the Joint Committee on Taxation has learned from its mistakes, by setting tax rates at the revenue-maximizing level).

This obviously isn’t true. What really matters for long-run prosperity is limiting the size and scope of government. Once the growth-maximizing size of government is determined, then lawmakers should seek to finance that public sector with a tax system that minimizes penalties on work, saving, investment, risk-taking, and entrepreneurship.

Remarkably, even international bureaucracies such as the World Bank and European Central Bank seem to understand that big government stifles prosperity. But I won’t hold my breath waiting for the 1970s-oriented CBO to catch up with 21st-century research.

P.S. Here’s some humor about Keynesian economics.

P.P.S. If you want to be informed and entertained, here’s the famous video showing the Keynes v. Hayek rap contest, followed by the equally clever sequel, which features a boxing match between Keynes and Hayek. And even though it’s not the right time of year, here’s the satirical commercial for Keynesian Christmas carols.

Read Full Post »

I don’t know whether to be impressed or horrified by Paul Krugman.

I’m impressed that he’s always “on message.” No matter what’s happening in America or around the world, he always has some sort of story about why events show the need for bigger government.

But I’m horrified that he’s so sloppy with numbers.

My all-time favorite example of his fact-challenged approach deals with Estonia. In an attempt to condemn market-based fiscal policy, he blamed that nation’s 2008 recession on spending cuts that took place in 2009.

Wow. That’s like saying that a rooster’s crowing causes yesterday’s sunrise. Amazing.

Let’s look at a new example. This is some of what he recently wrote while trying to explain why the U.S. has out-performed Europe.

America has yet to achieve a full recovery from the effects of the 2008 financial crisis. Still, it seems fair to say that we’ve made up much, though by no means all, of the lost ground. But you can’t say the same about the eurozone, where real G.D.P. per capita is still lower than it was in 2007, and 10 percent or more below where it was supposed to be by now. This is worse than Europe’s track record during the 1930s. Why has Europe done so badly?

Krugman answers his own question by saying that the United States has been more loyal to Keynesian economics.

…what stands out from around 2010 onward is the huge divergence in thinking that emerged between the United States and Europe. In America, the White House and the Federal Reserve mainly stayed faithful to standard Keynesian economics. The Obama administration wasted a lot of time and effort pursuing a so-called Grand Bargain on the budget, but it continued to believe in the textbook proposition that deficit spending is actually a good thing in a depressed economy.

I have to confess that alarm bells went off in my head when I read this passage.

If Krugman was talking about the two years between 2008 and 2010, he would be right about “staying faithful to standard Keynesian economics.”

But 2010 was actually the turning point when fiscal policy in America moved very much in an anti-Keynesian direction.

Here’s the remarkable set of charts showing this reversal. First, there was zero spending growth in Washington after 2009.

Second, this modest bit of fiscal restraint meant a big reduction in the burden of government spending relative to economic output.

Wow, if this is Keynesian economics, then I’m changing my name to John Maynard Mitchell!

So is Krugman hallucinating? Why is he claiming that U.S. policy was Keynesian?

Let’s bend over backwards to be fair and try to find some rationale for his assertions. Remember, he is making a point about U.S. performance vs. European performance.

So maybe if we dig through the data and find that European nations were even more fiscally conservative starting in 2010, then there will be some way of defending Krugman’s claim.

Yet I looked at the IMF’s world economic outlook database and I crunched the numbers for government spending in the biggest EU economies (Germany, UK, France, Italy, Spain, Netherlands, Sweden, Belgium, accounting for almost 80 percent of the bloc’s GDP).

And what did I find?

Contrary to Krugman’s claims, total government spending in those nations grew slightly faster than it did in the United States between 2009 and 2014.

So on what basis can Krugman argue that the U.S. had a more Keynesian approach?

Beats the heck out of me. I even looked at the OECD data on deficits to see whether there was some way of justifying his argument, but those numbers show the biggest reduction in red ink (presumably a bad thing according to Keynesian stimulus theory) took place in the United States.

But I will close by acknowledging that Krugman’s column isn’t just focused on fiscal policy. He also argues that the Federal Reserve has been more Keynesian than European central banks. My impression is that both the Fed and the ECB have been keeping interest rates artificially low, so I’m not sure that’s an effective argument (or an effective policy!), but I’ll leave that issue to the folks who specialize in monetary policy.

P.S. If you want additional examples of Krugman’s factual errors, see here, here, here, here, here, here, here,here, here, and here.

Read Full Post »

I don’t know which group is more despicable, Greek politicians or the voters who elected them. In both cases, they think they’re entitled to other people’s money.

But since the “other people” in this case happen to live in nations such as Germany and Finland, and those folks don’t want to write blank checks to a bunch of moochers and looters, Greece faces a difficult choice.

Either the Greeks behave like adults and rein in their bloated public sector. Or they throw a tantrum, which presumably means both a default on payments to bondholders and a return to the unstable drachma currency.

My guess is they’ll eventually go with the latter option.

But maybe there’s hope for Greece. One of the Prime Minister’s chief economic advisers, an out-of-the-closet communist, has announced his resignation. Here are a few of the details from a story in the EU Observer.

Giannis Milios, a member of Syriza’s central committee and long time economic advisor to Greek prime minister Alexis Tsipras, resigned Wednesday… A professor of economic policy who defines himself as a Marxist, Milios is considered one of the most loyal members of the left-wing party.

So does this signal a shift to more mature and sensible policy?

Perhaps not. According to an article in the Wall Street Journal, the problem in Greece isn’t really the communists. It’s the American leftists like Paul Krugman!

Germany, many other governments and senior policy makers in Brussels believe…that recklessness has been encouraged by misguided political and economic philosophies and bad advice from abroad. It isn’t so much that many in Mr. Tsipras’s Syriza party are Marxists—the eurozone can handle followers of the bearded 19th-century German philosopher. It is more that they are seen to be excessively influenced by a 20th-century British economist—John Maynard Keynes—and his living Anglo-Saxon disciples. At finance ministers’ meetings in Brussels, Mr. Varoufakis has been accompanied by American economists James Galbraith and Jeffrey Sachs. From across the Atlantic, the new government gets strong rhetorical backing from Paul Krugman, Joseph Stiglitz and others.

Wow, this is remarkable. Who would have guessed that run-of-the-mill American leftists are more damaging to economic policy than communists!

I guess this is because the Marxists are probably harmless crazies who hang out in coffee houses and gripe about the capitalist class.

The American leftists like Krugman, by contrast, do real damage because they use discredited Keynesian theory to argue that politicians should be spending even more money to “stimulate” an economy that’s in a crisis because of previous bouts of government spending.

Sort of like trying to get out of a hole by digging even deeper.

What’s amazing is that Krugman and other American statists are pushing bad policy when there are successful examples of nations escaping fiscal crisis with genuine spending cuts.

John Dizard wrote an interesting article about Greece for the Financial Times. He began his article by quoting Krugman, who wrote that the plans of the crazy Greek government are “not radical enough.” Dizard also shared another quote from Krugman, which criticized proponents of lower spending because “the best the defenders of orthodoxy can do is point to a couple of small Baltic nations.”

So Dizard decided to compare Greece with those Baltic nations of Estonia, Latvia, and Lithuania.

There are…some practical lessons to learn from…the contrasting ways that Greece has dealt with the world after the global financial crisis compared with the relatively poor Baltic states. Greece took a path of gradual fiscal adjustments weighted towards tax increases, accompanied by a partial debt default. The Baltic states adopted rapid and deep cuts in their state expenditure and current account deficits.

And here’s a shocking bit of news, though it won’t be surprise to folks in the real world. The Baltics have done far better.

The big issue in the Baltic states is upward wage pressure from tight labour markets. That is what we call a high-class problem. This understates the Baltic countries’ achievements. …They also did this without much benefit from concessionary multilateral finance or international debt haircuts.

Dizard looks at some of the differences between the Baltic nations and Greece.

There were virtually no dismissals from the Greek civil service over this period. Salaries were cut, but public sector staffing was reduced with lay-offs of temporary contract workers and early retirements. This had the effect of reducing already low service levels and transferring costs from payrolls to pension obligations. Latvia fired one-third of its civil servants. …The tax burden [in Greece] on salaried workers, compliant domestic businesses and property owners was substantially increased. In contrast, the Baltic states have fairly flat and relatively low tax rates.

All this is music to my ears since I’ve already written about the successful spending cuts in the Baltic countries.

And I particularly enjoyed having the opportunity, back in 2012, to correct the record when Krugman tried to blame Estonia’s 2008 recession on spending cuts that occurred in 2009.

P.S. Since today’s column focused on the statist ideas of Paul Krugman and because he’s a leading voice for the notion that more government spending somehow “stimulates” growth, I can’t resist sharing an explanation of Keynesian economics I gave back in 2009 as part of some remarks to Colorado’s Steamboat Institute.

Feel free to watch the whole video, but fast forward to 3:30 if you’re pressed for time. I’m being snarky, of course, but I also think my debunking of so-called stimulus is spot on.

P.P.S. By the way, the above video is from the Q&A portion of my remarks. If you watch my my actual speech, and if you pay attention about the 1:35 mark, you’ll see I was talking about the importance of having government grow slower than the economy’s productive sector back in 2009 even though I didn’t unveil Mitchell’s Golden Rule until two years later.

P.P.P.S. Since we’re picking on Krugman, here’s something that’s making the rounds on Twitter.

Good ol’ Professor Krugman praised the European approach of bigger government back in 2010, and everything that’s happened since that point has made his assessment look foolish.

Sort of reminds me of the time he attacked me for my gloomy assessment of California and claimed that the Golden State’s job market was strong. But it turns out that California had the 5th-highest unemployment rate in the nation.

P.P.P.P.S. Let’s close with the observation that the mess in Greece shouldn’t be blamed on Krugman. Sure, he’s giving bad advice, but Greek politicians deserve the lion’s share of the blame. Moreover, to the extent that outside advisers get blamed, we should remember that economists like Joseph Stiglitz and Jeffrey Sachs also are involved, and in some cases exercising more influence than Krugman.

Read Full Post »

I’m tempted to feel a certain degree of sympathy for Paul Krugman.

As a leading proponent of the notion that bigger government stimulates growth (a.k.a., Keynesian economics), he’s in the rather difficult position of rationalizing why the economy was stagnant when Obama first took office and the burden of government spending was rising.

And he also has to somehow explain why the economy is now doing better at a time when the fiscal burden of government is declining.

But you have to give him credit for creativity. Writing in the New York Times, he attempts to square the circle.

Let’s start with his explanation for results in the United States.

…in America we haven’t had an official, declared policy of fiscal austerity — but we’ve nonetheless had plenty of austerity in practice, thanks to the federal sequester and sharp cuts by state and local governments.

If you define “austerity” as spending restraint, Krugman is right. Overall government spending has barely increased in recent years.

But then Krugman wants us to believe that there’s been a meaningful change in fiscal policy in the past year or so. Supposedly there’s been less so-called austerity and this explains why the economy is doing better.

The good news is that we…seem to have stopped tightening the screws: Public spending isn’t surging, but at least it has stopped falling. And the economy is doing much better as a result. We are finally starting to see the kind of growth, in employment and G.D.P., that we should have been seeing all along… What held us back was unprecedented public-sector austerity…now that this de facto austerity is easing, the economy is perking up.

But where’s his evidence? Whether you look at OMB data, IMF data, or OECD data, all those sources show that overall government spending has been steadily shrinking as a share of GDP ever since 2009.

And deficits also are shrinking as a share of economic output according to all these measures, so there’s still “austerity” regardless of whether we’re looking at the underlying disease of government spending or the symptom of red ink.

I sliced and diced the data to see if there was some way of justifying Krugman’s hypothesis and the only numbers that are (vaguely) supportive are the ones from the IMF that show total government spending (federal, state, and local) has increased by an average of 2.3 percent annually over the past two years, after increasing by 1.3 percent per year over the prior three years.

On that basis, one could sort of argue that Krugman is right and “austerity is easing.”

But if that’s his definition of victory, then I’m more than willing to let him be the winner. If we can constrain the public sector so that it grows at 2.3 percent annually, we’ll be complying with my Golden Rule and the burden of government spending will continue to slowly but surely shrink as a share of GDP.

And we’ll definitely have much better fiscal policy than we had between 2002-2009, when overall government spending rose by an average of 7.1 percent annually.

So does this mean Krugman and I are on the same page? During the Los Angeles riots in 1992, Rodney King famously asked, “Can we all get along?” Assuming Krugman is being serious, the answer in late 2014 is yes. It’s time to join hands and sing Kumbaya!

But you may sense a slight tone of sarcasm in my remarks, and that’s because Krugman surely doesn’t want government to “only” grow by 2.3 percent annually. He simply wants to justify his hypothesis that the economy’s improving performance is somehow due to less austerity. Even if that means he’s implicitly endorsing genuine spending restraint.

In other words, Krugman actually is being slippery and misleading in his analysis of American austerity.

But that’s nothing compared to his analysis of so-called austerity on the other side of the Atlantic Ocean. Here’s some of what he wrote about fiscal policy in the United Kingdom.

…in 2010 Britain’s newly installed Conservative government declared that a sharp reduction in budget deficits was needed to keep Britain from turning into Greece. Over the next two years growth in the British economy, which had been recovering fairly well from the financial crisis, more or less stalled. In 2013, however, growth picked up again — and the British government claimed vindication for its policies. Was this claim justified? No, not at all.

Krugman then claims that there was better economic performance because U.K. politicians decided against “further cuts.”

What actually happened was that the Tories stopped tightening the screws — they didn’t reverse the austerity that had already occurred, but they effectively put a hold on further cuts. …And sure enough, the nation started feeling better.

So is he right?

Well, the IMF numbers show that overall government spending has been growing, on average, by 2 percent annually since 2009. By today’s standards, that’s a decent record of spending restraint.

But what if we dissect the numbers? Did spending grow very slowly between 2010-2012, followed by a relaxation of restraint beginning in 2013? In other words, is Krugman’s argument legitimate, even if it requires him to implicitly endorse (as in the American example) decent fiscal discipline over the past two years?

Nope. Instead, the numbers show just the opposite. Between 2010-2012, the burden of government spending expanded by an average of 2.3 percent per year.

But over the past two years, the “austerity” has become tighter and the budget has grown by 1.5 percent annually.

In other words, it seems that Krugman is either sloppy or mendacious.

Though I’m going to give him an escape hatch, a way of justifying his assertions. When the Tories took over in the United Kingdom, they quickly imposed a series of tax hikes (in addition to the tax hikes imposed by the outgoing Labor government). But since that time, the government has implemented some tax cuts, most notably reductions in corporate tax rates and lower tax rates on personal income.

So if Krugman wants to argue that tax increases retarded the British economy for a few years and that tax cuts are now helping to boost growth, I’m willing to give him a probationary membership in the supply-side club.

But I don’t expect him at the next meeting.

P.S. This isn’t the first time Krugman has mangled numbers when analyzing U.K. fiscal policy.

P.P.S. He’s also butchered data when writing about fiscal policy in nations such as France, Estonia, and Germany,

Read Full Post »

I don’t know if this is a good personality trait or a character flaw, but it always brings a big smile to my face when a leftist tries to argue for bigger government but inadvertently makes an argument in favor of smaller government. Sort of like scoring a goal against your own team in soccer.

It seems to happens quite a bit at the New York Times.

A New York Times columnist, for instance, pushed for a tax-hiking fiscal agreement back in 2011 based on a chart showing that the only successful budget deal was the one that cut taxes.

The following year, another New York Times columnist accidentally demonstrated that politicians are trying to curtail tax competition because they want to increase overall tax burdens.

In a major story on the pension system in the Netherlands this year, the New York Times inadvertently acknowledged that genuine private savings is the best route to obtain a secure retirement.

But it’s not just people who write for the New York Times.

The International Monetary Fund accidentally confirmed that the value-added tax is a revenue machine to finance bigger government and heavier tax burdens.

A statist in Illinois tried to argue that higher taxes don’t enable higher spending, but his argument was based on the fact that politicians raised taxes so they wouldn’t have to cut spending.

We now have another example of a leftist inadvertently making an argument in favor of limited government (h/t: Coyote Blog via Cafe Hayek).

Kevin Drum of Mother Jones recently published an article that includes a chart showing that private-sector job creation has been much stronger under Obama’s recovery than during Bush’s recovery.

So how do we interpret this data?

I think one interpretation, as I argued both in 2012 and in 2013, is that gridlock is good for the economy. As you can see from Drum’s chart, job creation in the private sector jumped significantly toward the end of 2010, just as the GOP took control of the House of Representatives.

It’s quite reasonable to think, after all, that the private sector greeted the development with a sigh of relief since it meant Obama would be stymied if he tried to impose any major new fiscal or regulatory burdens through the legislative process.

Drum, however, accidentally gives us another reason why private-sector job creation has been at least somewhat impressive. Writing last year, he showed that the overall burden of government spending has been on a downward trajectory.

Here’s a chart from that article. He looks at inflation-adjusted per-capita total government spending, including outlays at the state and local level. If you look at the red line, which measures what’s been happening since the summer of 2009, you can see that we’re actually making some progress in reducing the burden of government spending.

Drum, needless to say, wants people to believe the downward trend in overall spending is somehow bad for the economy.

…as the chart above shows. After every other recent recession, government spending has continued rising steadily throughout the recovery, providing a backstop that prevented the economy from sliding backward. …But this time, even though the 2008 recession was deeper than any of those previous ones, it didn’t. …total government spending peaked in the second quarter of 2010 and then started falling, falling, and falling some more. Today, government spending at all levels—state, local, and federal combined—has declined 7 percent

I haven’t fact-checked Drum’s specific calculations, but I assume his math is correct. After all, I showed earlier this month that federal government spending has been flat for the past five years, and I was looking at nominal data rather than inflation-adjusted or population-adjusted numbers.

Likewise, I shared a chart last month showing that state and local government spending also has been flat since about 2010.

But the quality of the numbers isn’t my main point. Let’s focus instead on the accidental message of Drum’s two charts. If you put them together, as was done by Warren Meyer of Coyote Blog, then you see a clear correlation. Under Bush, government spending increased during the recovery and private-sector job creation was nonexistent. But under Obama, there’s been a decline in government spending and private-sector job creation has been far more impressive.

In other words, the message of Drum’s two charts is precisely the opposite of what he wants us to believe.

Instead of achieving his goal of demonstrating that Keynesian “stimulus” is desirable, Drum instead has demonstrated that spending cuts are associated with better economic performance.

Maybe we need some sort of “Wrong Way Corrigan” Award for people like Drum who inadvertently help the cause of economic liberty.

Though, to be fair, we’re only talking about two data series (private-sector jobs and overall government spending) and we’re only looking at two recoveries (2001 and 2007), so I imagine Drum and others could concoct semi-plausible explanations for why the aforementioned correlation doesn’t imply causation.

After all, crowing roosters don’t cause the sun to rise.

This is why I’m a big believer in looking at overall economic policy over long periods of time. All sorts of quirks may explain why one country grows faster than another country in any given year. But when you look at several decades of data, then certain relationships become clear.

And when you compare long-run economic performance in market-oriented nations and statist countries, there’s only one logical conclusion. If you don’t believe me, just check out these differences:

P.S. By the way, job creation hasn’t been that impressive during the Obama years. Yes, there have been more jobs created (particularly private-sector jobs) during the current recovery compared to the post-2001 recovery, but check out this data from the Minneapolis Fed showing the Obama recovery (red), the Bush recovery (green), and the Reagan recovery (blue).

Obama has done better than Bush, but Reagan is the slam-dunk winner.

But it’s not just that Reagan’s recovery was far better than what we got under Bush and Obama. If you added every single recovery to the chart, the 2001 and 2007 recoveries would be the weakest.

So maybe the lesson is that statist economic policy (of all types, not just fiscal policy) is a bad idea, regardless of whether a politician is Republican or Democrat.

Hmmm….it’s almost enough to make one think that free markets and small government are a recipe for prosperity.

And maybe this is why statists still don’t have an acceptable answer for my two-part challenge.

Read Full Post »

Are there any fact checkers at the New York Times?

Since they’ve allowed some glaring mistakes by Paul Krugman (see here and here), I guess the answer is no.

But some mistakes are worse than others.

Consider a recent column by David Stuckler of Oxford and Sanjay Basu of Stanford. Entitled “How Austerity Kills,” it argues that budget cuts are causing needless deaths.

Here’s an excerpt that caught my eye.

Countries that slashed health and social protection budgets, like Greece, Italy and Spain, have seen starkly worse health outcomes than nations like Germany, Iceland and Sweden, which maintained their social safety nets and opted for stimulus over austerity.

The reason this grabbed my attention is that it was only 10 days ago that I posted some data from Professor Gurdgiev in Ireland showing that Sweden and Germany were among the tiny group of European nations that actually had reduced the burden of government spending.

Greece, Italy, and Spain, by contrast, are among those that increased the size of the public sector. So the argument presented in the New York Times is completely wrong. Indeed, it’s 100 percent wrong because Iceland (which Professor Gurdgiev didn’t measure since it’s not in the European Union) also has smaller government today than it did in the pre-crisis period.

But that’s just part of the problem with the Stuckler-Basu column. They want us to believe that “slashed” budgets and inadequate spending have caused “worse health outcomes” in nations such as Greece, Italy, and Spain, particularly when compared to Germany, Iceland, and Spain.

But if government spending is the key to good health, how do they explain away this OECD data, which shows that government is actually bigger in the three supposed “austerity” nations than it is in the three so-called “stimulus” countries.

NYT Austerity-Stimulus

Once again, Stuckler and Basu got caught with their pants down, making an argument that is contrary to easily retrievable facts.

But I guess this is business-as-usual at the New York Times. After all, this is the newspaper that’s been caught over and over again engaging in sloppy and/or inaccurate journalism.

Oh, and if you want to know why the Stuckler-Basu column is wrong about whether smaller government causes higher death rates, just click here.

Read Full Post »

Older Posts »


Get every new post delivered to your Inbox.

Join 3,126 other followers

%d bloggers like this: