This from JazzBumpa at “Angry Bear”:
This is a companion piece to Steve’s AB post from earlier today, where he points out the specious reasoning of “the likes of Scott Sumner, David Beckworth, Lars Christensen, et al., claiming that fiscal austerity has obviously had no effect on GDP growth.”
I wrote Sumner off a few years ago due to a highly unfavorable chaff/wheat ratio. I’ve tried really hard to like Beckworth, but these guys simply wallow in confirmation bias. I’ve repeatedly criticized Beckworth at his blog for cherry picking short-term time series data to make his points.
Comparing 2013 to ’12 is an example of time series cherry picking used to justify absolutist dogma.
Back on Feb 10, Beckworth said: “despite this austerity happening at a time of high unemployment and a large output gap, a slowdown in aggregate demand growth has failed to materialize.”
My comment, which he also ignored, is as follows. [Graphs added, in place of links.]
Yes, your graphs all show relative austerity. Except for total government expenditure/GDP – yes falling rapidly, but still higher than any pre-2007 number. And relative is relative. I still think you are considering austerity in absolutist terms. [Afterthought – total government expenditure as a direct measure is basically flat, not falling over the past three years. Another example of using a denominator to skew the view.]
The worst recovery in my life time is pretty dismal success. Plus, wealth and income disparity continue to increase. With sequester looming, I think we’re in for a very rough ride.
And concludes:
There are legions of economists who simply refuse to recognize that fiscal policy can make a difference, and are willing to torture data in an attempt to validate this point of view.
If you want to make a point using time series data, you really need to consider what is a valid context. Is it this year vs last year, or vs long range historical trends?
If you need to cherry pick or engage that ol’ devil denominator to make your point, then your point has questionable validity.
Personally I was ‘offended’ by being ‘accused’ of “using short-time series data”, ignoring “what is a valid context” and “cherry picking”.
But nowhere he even tries to show that “fiscal policy can actually make a difference”, simply accusing the ‘other side’ of torturing data!
I strive to make my charts “speak” and many of them cover a long time span. A few examples are in order, all taken either from my blog post and/or my book with Benjamin Cole.
This chart is right on the e-book version cover. It´s the ‘map’ upon which we build our story.
The examples below help illustrate particulars of the MM view of the economy. Hopefully they are understandable, even without the accompanying text.
I link to this recent post which tries to do what JazzBumpa doesn´t, which is show that “monetary policy trumps fiscal policy”. The interesting charts in the post are reproduced below.
PS Maybe JazzBumpa thinks he´s a modern day Robespierre fighting against (in this case imaginary) absolutism!
Historinhas 
JazzBumpa must have had his own “confirmation bias” a long time ago, as he was one of the earliest followers of Karl Smith at the old Modeled Behavior site, and clearly Karl was not able to convince him of the advantages of monetary policy!
I always find it odd that no one criticized your charts (or some other market monetarist’s charts) on basis of using NGDP as a indicator of monetary policy stance. Its alway some other thing, but basically if they accept that NGDP is indicator of the stance of monetary policy, they already accepted 90% of market monetarist argument, in my view. There haven’t even been a lot of attacks on equation of exchange being a tautology and all that… I must say I find it puzzling.
btw a very nice “recollection” of charts
Petar, interesting point about “accepting 90% of MM argument”.
Marcus –
Well, I’m certainly sorry you were offended, but I’m also puzzled by your decision to be offended – most particularly “personally offended” – when my post did not mention you, nor, indeed, have anything at all to do with market monetary policy.
My critique is of the abject rejection of fiscal policy as being effective ever, anywhere, which I saw as being based on a faulty premise, and invalidly “supported” with manipulated evidence.
There are two aspects of absolutism that I find troubling. One, as I indicated in my post, is the idea that both austerity and growth are on-off functions, with no middle ground, and no possibility for either a so-so result, nor a nuanced interpretation. Unless I have seriously misread Beckworth, that was what he was attempting to demonstrate.
The other is the notion that some [indeed, any] economic policy is the right prescription, and can provide the proper policy recommendations irrespective of economic conditions. The real world simply is not that tidy. But, still, you have the rejection by some of fiscal policy at the ZRB.
I didn’t attempt to show that either fiscal or monetary policy trumps the other, and really have no interest in doing so, because that would be falling into the absolutist trap. Different problems call for different solutions. You don’t climb mountains in scuba diving gear.
Indeed, the whole point of my post was to show that intermediate austerity has led to an anemic recovery, contra the idea of Beckworth, et. al. that ANY austerity coupled with ANY GDP growth effectively refutes fiscal policy. This type of reasoning strikes me as being not only specious, but fatuous. That is why I said the data was tortured, and biases were confirmed.
And, as for showing that fiscal policy makes a difference – well, there are lots of places you can go for that, starting with reading Keynes or Krugman with an open mind. But my purpose was not to prove anything in particular, but rather to undress economic pronouncements based on bad reasoning.
This remains the worst recovery in the history of sound economic data. Your chart 0.1, above, makes this point quite dramatically. I blame austerity. YMMV.
Becky –
I’m flattered that you remember me.
Cheers!
JzB
JzB. The “personally offended” was between ‘ ‘. I may be many things, but not uptight and would never decide to be offended!
My chart clearly shows this remains the worst recovery in the Post War era. Our main argument is that both the worst Post War recession and worst post war recovery are the ‘child’ of very inept monetary policy.
Marcus –
This is confusing.
1) I simply cannot reconcile “I may be many things, but not uptight and would never decide to be offended!” with what I see in the post above.
2) Your post, though it quotes mine at considerable length, deals with a totally different selection of subject matter. My content irrelevant to yours. I’m baffled that you reacted to my post at all, and even more so that your content and mine are essentially orthogonal.
3) In a situation when you have both inept monetary policy and inappropriate fiscal policy, allocation of blame might be a bit arbitrary. But at the ZRB, which is the most difficult circumstance for monetary policy to have any traction, one should at least consider the contribution made by fiscal policy, rather than construct weak arguments in an attempt to ignore it.
As an after-thought, an absolutist could turn Beckworth’s argument, and yours, I believe, on its head and say: “despite this monetary error happening at a time of high unemployment and a large output gap, a slowdown in aggregate demand growth has failed to materialize.” And then add: “we should at least see aggregate demand faltering over the past few years while this unfolded. But in fact, we see relatively stable aggregate demand growth, as measured by NGDP” And then conclude: “This remarkably stable NGDP growth path since 2009 has occurred despite the monetary snafu (and a host of other negative economic shocks like the Eurozone crisis, China slowing, debt ceiling talks, and fiscal cliff) and only makes sense if the half-hearted fiscal policy has been just stimulating enough to off-set the monetary drag.”
This, of course, is profoundly unconvincing. And remains so when restored to its original form.
Cheers!
JzB
“But at the ZRB, which is the most difficult circumstance for monetary policy to have any traction”
does it really?
Marcus, Or perhaps the worst post war recovery is a result of “poor family planning” by people that don’t like “birth control.”
Jazzbumpa:
“Yes, your graphs all show relative austerity. Except for total government expenditure/GDP – yes falling rapidly, but still higher than any pre-2007 number. And relative is relative. I still think you are considering austerity in absolutist terms. [Afterthought – total government expenditure as a direct measure is basically flat, not falling over the past three years. Another example of using a denominator to skew the view.]”
Actually David is looking at fiscal austerity in rather conventional terms. It’s not the level of spending that matters but the change in the level of spending relative to trend.
The only problem with what David did is he understated it by only looking at Federal spending, and by not considering the fact that GDP is itself below trend.
Here’s Krugman on how he thinks it should be measured:
“…To see what’s going on, you need to do two things. First, you should include state and local; second, you shouldn’t divide by GDP, because a depressed GDP can cause the spending/GDP ratio to rise even if spending falls. So it’s useful to look at the ratio of overall government expenditure to potential GDP — what the economy would be producing if it were at full employment; CBO provides standard estimates of this number. And here’s what we see:
[Graph]
Spending is down to what it was before the recession, and also significantly lower than it was under Reagan. Bear in mind that in the years since the recession began we’ve seen a significant number of boomers reach retirement age, which would ordinarily have led to rising spending, not to mention the effects of rising health care costs…”
http://krugman.blogs.nytimes.com/2013/04/27/american-austerity-an-update/
I can only conclude that by Jazzbumpa’s standards Krugman thinks about fiscal austerity in even more absolutist terms than David.