Pethokoukis, Economics, U.S. Economy

The 2 austerity-economic growth charts that Paul Krugman and Steven Rattner will never show you

050313krugchart

Alex Tabarrok has put together his own version of an austerity vs. economic growth chart, using Paul Krugman’s preferred austerity measure, total government expenditure divided by potential GDP (see above chart): Krugman sees “very bad policy” from the decline in government spending, while Tabarrok reads the chart this way:

In the 1990s growth was strong even while “austerity” was increasing (falling red line). More recently, we have seen a big increase in austerity according to Krugman and his measure but although there has been no boom, growth has remained modest.

I see it like Tabarrok. I have done a few charts like these and have found the economy holding up pretty well. Here is a twist: I took the Krugman austerity data (red line) and compared it against private-sector GDP (blue line). Even as spending collapses, private-sector GDP bends a bit but does not break.

050313krugchart2

 

One thought on “The 2 austerity-economic growth charts that Paul Krugman and Steven Rattner will never show you

  1. I wonder if you folks read these comments. re: the last chart, I already pointed out that even aside from the last year or so, if you look at the data longer term (and around the world) most of the time the faster government spending grows, the slower the private economy grows, (and vice versa) as this page shows:

    http://www.politicsdebunked.com/article-list/spendingpattern

    The pattern isn’t unique to the US but shows up around the world. Of course establishing cause and effect is a more complicated issue (something which is highly questionable in any claims on the part of some folks to have found some sort of signal in the data supporting Keynesian stimulus spending, they ignore potential alternatives as that page briefly notes in a generic fashion (it doesn’t critique any particular paper of theirs)).

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