Today, the BEA released the initial estimate of 4Q GDP. Above is a chart of the percentage change in 4Q11 GDP and the elements that contributed or subtracted from GDP growth. Guess what? Austerity subtracted from growth. This occurred because of contractions at the federal (which subtracted .62 from the calculation) and state level (which subtracted .32 from the calculation).
I would be remiss if I didn't add that this is not what Socialism looks like, either.
5 comments:
hale, i completely and utterly agree with you. but folks like you and i are talking past the austerians.
when we say, "this is not what socialism looks like," that is true. but this is not what an austerian would take as refutation.
so we see government spending taking away from growth. a convinced austerian would suggest that the private sector contributions are not independent variables, and we would agree.
then the austerian would try to suggest that private sector contributions to growth are larger than they would otherwise be because the government's contribution is smaller -- ie, they are not "crowding out" the private sector. this is foolish, in my considered view, and i'm sure you agree -- subtracting from government macro cash flows reduces private sector cash flows, particularly in a deleveraging scenario, as richard koo has gone over again and again.
but *that* is where the argument is, in my opinion, and if one wishes to win the argument one must meet it head on.
cheers,
Gaius
Good points all. My primary rebuttal would be the following:
As with most things austerian (or should I say "Chicago"), your argument that government spending crowded out investment is based on a theoretical which you cannot quantitatively prove. As such, I could just as easily say, "if the government had been investing more, private investment would have been that much higher to take advantage of the government spending increase." That assumption is just as logical -- and just as unprovable -- as theirs.
Your headline should read "Austerity is a Really Stupid Idea" not Austerity it a Really..."
Oh yes, as every economics expert knows, nominal GDP is the sine qua non! But how do we get it? My friends, history will back me up on this: there is no aggregate demand problem that can't be fixed by building McMansions in the desert outside Las Vegas. Now I know what Richard Koo would say: when the private sector ceases to build useless crap in the desert, the public sector must needs step in! But I say why not let history be our guide? Let's simply restore the policies of 2003-2006. Voila, instant GDP! Yay, our crops are saved!
Less government spending is a great idea if taxes are lowered hand-in-hand. That money will find its way back into the economic picture.
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