OMG, Austerity!
May 14, 2012, 8:59 am
via here
The UK line is particularly interesting, since that is the country that Krugman has declared is austerity-izing itself into a depression. As I have pointed out before, real government spending in UK has been and is still rising. The percent of GDP of this spending has fallen a bit, but there is nothing about Keynesian stimulus theory that says changes in the percentage of government spending is stimulative, only its absolute value.
Here is one thing I would love to here Krugman et. al. opine on -- at what percentage of government debt to GDP does additional deficit spending become counter-stimulative. I imagine there is an inverse relationship for deficit-funded stimulus, such that it has a larger effect at lower debt levels with a zero to negative effect at higher interest levels.
Update: From another source, here is the UK in real $
coyoteblog.com
Global austerity?
by Tyler Cowen on January 24, 2014
There is a new UBS study which among other things covers the fiscal stance of the world as a whole. Please do not misinterpret me as suggesting this implies anything particular for the policy of any individual nation, still the aggregate numbers are interesting to ponder. Here is part of an FTAlphaville summary: Government consumption’s share of global GDP has risen from 11 per cent to 14 per cent over the past 15 years. In 2013, it hit its highest level since 1980. At the same time, government debt-to-GDP ratios have hit record highs in many countries. Working-age populations are growing more slowly, or in some countries, such as Japan, beginning to decline. Accordingly, the window of opportunity for mature economies to bring government debt levels down to sustainable levels is narrowing, owing to demographic shifts. Given the situation in the government sector, private consumption needs to make a bigger contribution to the next phase of the recovery. Its share of GDP continues to hit multi-decade lows. Fixed investment is also making a smaller contribution to global growth than it did in the pre-crisis years. And this: Since the start of 2008, government consumption at the global level has risen by 20 per cent in real terms, whereas private consumption and fixed investment have risen just 8 per cent and 5 per cent respectively. Despite talk of austerity, government spending continues to run ahead of spending in the private sector.
marginalrevolution.com
The official Keynesian story is that the PIIGS of Europe (Portugal, Italy, Ireland, Greece and Spain) have been devastated by cutbacks in public spending. Austerity has made things worse rather than better – clear proof that Keynesian stimulus is the answer. Keynesians claim the lack of stimulus (of course paid for by someone else) has spawned costly recessions which threaten to spread. In other words, watch out Germany and Scandinavia: If you don’t pony up, you’ll be next.
Erber finds fault with this Keynesian narrative. The official figures show that PIIGS governments embarked on massive spending sprees between 2000 and 2008. During this period, their combined general government expenditures rose from 775 billion Euros to 1.3 trillion – a 75 percent increase. Ireland had the largest percentage increase (130 percent), and Italy the smallest (40 percent). These spending binges gave public sector workers generous salaries and benefits, paid for bridges to nowhere, and financed a gold-plated transfer state. What the state gave has proven hard to take away as the riots in Southern Europe show.
Then in 2008, the financial crisis hit. No one wanted to lend to the insolvent PIIGS, and, according to the Keynesian narrative, the PIIGS were forced into extreme austerity by their miserly neighbors to the north. Instead of the stimulus they desperately needed, the PIIGS economies were wrecked by austerity.
Not so according to the official European statistics. Between the onset of the crisis in 2008 and 2011, PIIGS government spending increased by six percent from an already high plateau. Eurostat’s projections (which make the unlikely assumption that the PIIGS will honor the fiscal discipline promised their creditors) still show the PIIGS spending more in 2014 than at the end of their spending binge in 2008.
As Erber wryly notes: “Austerity is everywhere but in the statistics.”
forbes.com |
