Technical Notes for ‘The Post Crisis Data Is In’

This is an appendix for our earlier post, “The Post Crisis Data Is In, and It’s Not Kind to Keynesian Thinking.”  The two tables below contain country-by-country data that was used in the main article’s scatter plots:

growth and budgets 3

growth and budgets 4

Bookmark and Share
This entry was posted in Uncategorized. Bookmark the permalink.

2 Responses to Technical Notes for ‘The Post Crisis Data Is In’

  1. RWJ says:

    Thanks for this analysis because it is interesting.

    Aren’t the time periods observed are too short to draw any real conclusions? This is a very limited snapshot. It needs to be done over two entire economic cycles to really draw any conclusions.

    Secondly, isn’t mass aggregation of data from economies in very different stages of life misleading? Turkey and India both have horrible finances based on this analysis but do fine on growth.

    Another point is that you cannot ever really compare the southern European ‘sun’ economies with those of northern Europe. Greece, Italy, Spain and Portugal have cultures embedded with long histories (multi-generational) of government inefficiency, tax evasion by elected leaders, kleptocracy by the same leaders and their entire Kafkaesque bureaucracies, deadlocked political processes and dreadful education systems that do not produce needed skills. These countries would still be permanent economic basketcases even if they never borrowed a dime. Their borrowing money and spending it badly just makes it worse. The astonishing thing is that Italy ever managed to grow to be a good-sized economy at all.

    The real problem is that true Keynesian policies are never applied. Keynes said use government spending in bad times to finance things that create lasting value and recoup the money in good times. It never happens. Left-leaning socialist governments spend like drunken sailors in bad times and then continue deficit spending in the good times, which is why the UK Labour party is cooling its jets in opposition when the full extent of its reckless spending became evident.

    • ffwiley says:

      Thanks RWJ,

      I’ll just add that there are many examples of fiscal stimulus at time t becoming restraint in time t+1 or t+2 or later. Look at U.S. public investment after the 2009 stim package and you see a few years of sharp stimulus followed by a few years of sharp restraint as the various programs rolled off. Look at the 2008 tax rebate and you see a jump in disposable income followed by a sharp drop. Cash for clunkers, housing policies that merely brought sales forward, and so on. I think these types of paybacks are a part of what you see in the scatter plots, as are Aslund’s points, notwithstanding the facts that it’s a cross-sectional analysis (single time period) and there are many other factors involved as well, as you point out (and I do think you’ve made good points).

      I agree with you about the political obstacles to applying Keynesian fiscal policies without finding yourself running chronic deficits. There are economic obstacles as well, though, in the form of the paybacks that occur after stimulus rolls off. Keynes never properly considered them, nor are they built into Keynesian models (which don’t have much to do with Keynes). In Keynes’ case, he probably never considered that politicians would completely give up on balanced budgets because the tradition of maintaining responsible (non-war time) finances was still so strong in both the U.S. and U.K. at that time. He probably didn’t care in any case because he expected productivity gains to lead to a utopian world of plenty, where no-one goes wanting and everyone uses their ample free time bettering themselves and solving big problems. Imagine waking him up this morning (Black Friday) and taking him for a trip to the mall. He was naïve and wrong.

Comments are closed.