Eeek! Austerity! Oh, Never Mind.

Yesterday I challenged a graph by Kevin Drum in Mother Jones as being a disingenuous attempt to paint US government spending as some sort of crazed austerity program which is making the recovery worse.  He uses this graph to "prove" that our fiscal response to this recession is weak vis a vis past recessions.  The graph is a bit counter-intuitive -- note that it begins at the end of each recession.  His point is that Keynesian spending needs to continue long after (five years ?!) after the recession is over to guarantee a good recovery, and that we have not done that.

Click to enlarge

For anyone not steeped in the special reality of the reality-based community, it is a bit counter intuitive for those of us who have actually lived through the last 5 years to call government spending austere.

The key is in the dates he selects.  He leaves out the actual recession years.  So by his chart, responses that are late and occur after the recession look better than responses that are fast and large but happen during the recession.  This seems odd, but it is the conclusion one has to draw.

I took roughly the same data and started each line two years earlier, so that my first year is two years ahead of his graph and the zero year in my graph is the same as the zero point in Drum's chart.  His data is better in the sense that he has quarterly data and I only have annual.  Mine is better in that it looks at changes in spending as a percentage of GDP, which I would guess would be the more relevant Keynesian metric (it also helps us correct for the chicken and egg problem of increased government spending being due to, rather than causing, economic expansion).

Here are the results (I tried to use roughly the same colors for the same data series, but who in the world with the choice of the entire color pallet uses two almost identical blues?)

recession-redux2

You can see that Drum makes spending look lower in the current recession by carefully dating the data series to the peak of the spending, rather than comparing it to pre-recession levels.  The right hand scale is the difference in government spending as a percentage of GDP from the -2 year.  So, for example, in the current recession government spending was 34.2% in 2007 and 41.4% in 2009 for a reading of 7.2% in year 0.

Even with the flat spending over the last three or four years in the current recession (flat nominal spending leads do a declining percent of GDP) the spending increase from pre-recession levels is still about twice as high as in other recent recessions.

Does this look like austerity to anyone?

  • Matthew Slyfield

    Not to me.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    It looks like the inverse of these charts –

    http://www.minneapolisfed.org/publications_papers/studies/recession_perspective/index.cfm?

    This recovery – including the largest postwar stimulus – has been the worst postwar recovery on record, and possibly the worst of all time.

  • marque2

    You are doing pretty well in this recovery? May I send you my resume - maybe you can used some hired help :)

  • Matthew Slyfield

    My reply was to the final question in the OP.

    No, to me that chart shows the opposite of austerity on the part of the government.

  • WOZ

    Thanks for all the hard statistical analysis you take the time to do for us readers.