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Keynesian Moving Target on What Constitutes Austerity

January 13, 2015, 1:05 pm

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.

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Category: Economics

9 Comments

  1. Onlooker from Troy:

    I think the "ex post" bit is all the explanation you need. Just a hunch. (be it Keynesian econ, CAGW nonsense, statism, what have you)

    January 13, 2015, 1:17 pm

  2. J Calvert:

    Keynesian stimulus: Paying men to randomly dig holes, and fill them back in.

    January 13, 2015, 4:28 pm

  3. Richard Harrington:

    Bummer, it looks like the famous quote, “When my information changes, I alter my conclusions. What do you do, sir?”, isn't provably Keynesian. However, I'll use it in this situation anyways and ask if the Keynesian Stimulus fan(atic)s are going to alter their conclusions...

    January 13, 2015, 6:18 pm

  5. mlhouse:

    WHich is hilarious when you consider that one of the liberals attack on the Keystone Pipeline is that it does not create real jobs.

    January 14, 2015, 10:14 am

  6. mlhouse:

    One aspect that most of these people are missing is that Keynsian expansion can only happen if there is a deficit funded by new money. If not, then the stimulus impact of the government spending is essentially zero. That is, it takes the dollar from one hand and puts in in the other. Then, the only way there can be stimulus is if you believe that changes the "velocity" of money in a significant way. While the liberals believe that putting the dollar in the hands of a "poor" person does this because "they spend it", this is most obviously innacurate unless you truly believe that rich people literally put cash under the mattress.

    Real investment created by real savings is much better for the economy than "poor people spending." The reason for this is that one person's investment is another person's income. When a compnay "invests" in a factory that money does not disappear from the economy. Instead it is spend on cement, construction labor, and new equipment, probably faster and in ways that stimulate economic activity more than poor people spending their increased welfare checks.

    January 14, 2015, 10:19 am

  7. J Calvert:

    The Keystone Pipeline is already creating jobs. Environmental activist, fundraisers, and lawyers are making a ton of money opposing the construction at every step possible.

    January 14, 2015, 10:35 am

  9. joe:

    Keystone construction jobs are only temporary which is bad
    Stimulus construction jobs are only temporary which is good.

    January 15, 2015, 12:23 pm