The other day I said I was confused by what exactly creates Keynesian stimulus, and in reverse, what constitutes austerity. I had thought that it was deficit spending that creates the stimulus, but then sometimes it seems to just be spending and in the case of the Kevin Drum post I was discussing, he says it is not the level of spending but only the first derivative of per capita real government spending (with no reference to whether it is debt or tax funded) that matters.
I figured that I was just confused because I had not formally studied economics past my undergrad years, but apparently practicing economists are also confused. Here is Scott Sumner:
What is the proper measure of austerity? The textbooks talk about deficits. But most of the Keynesian bloggers focus on government purchases. So which is it? And if it’s purchases, why did these same bloggers claim that austerity would result from big tax increases in the US in 2013, and a big tax increase in Japan in 2014? And why does the measure chosen (ex post) usually seem to be the one that best supports their argument in that particular case?
As a postscript, I will add that every climate skeptic can totally empathize with this Sumner concern:
A number of Keynesian bloggers have recently expressed dismay that the rest of us don’t buy their model. Maybe it would help if they’d stop ignoring our criticisms of their model, and respond to our complaints.