…(‘R’) that the federal government pays on its debt and the projected growth rate of the economy (‘G’) relate to one another. In a nutshell, policymakers can more easily restore the nation’s fiscal health when the economic growth rate exceeds the average interest rate than vice versa. That’s because, when economic growth rates exceed Treasury interest rates, the burden of existing debt shrinks over time. (Or, putting it technically, policymakers can more easily achieve long-run debt sustainability when R minus G, or R-G, is negative than when it’s positive.) For decades, analysts have made budget projections that extend 25, 50, or even 75 years into the future. Most generally show that debt as a percent of the economy (i.e., the ‘debt ratio’) could eventually rise to economically dangerous levels. That’s in large part because the government is running primary deficits — that is, separate and apart from interest costs, program costs exceed revenues — and these primary deficits are projected to continue at least through 2040…. Another reason why these projections show debt rising to potentially dangerous levels, however, is that they assume interest rates will exceed economic growth rates…. We analyze U.S. data for the 223 years since 1792 and find that, on average, economic growth has exceeded interest rates, helping to shrink the burden of existing debt…. If… economic growth and interest rates behave more as they have throughout U.S. history, with the former exceeding the latter on average, then — all else being equal — the long-term budget outlook may be somewhat less challenging than we, CBO, and others currently project.
Must-Read: John Cassidy: A Fascinating Minimum-Wage Experiment Is About to Unfold
A Fascinating Minimum-Wage Experiment Is About to Unfold: “The increases in the minimum wage that will be introduced over the next few years…
:…are so substantial that some response from employers seems likely…. Southern California will be particularly intriguing. The new law only applies to the city of Los Angeles, which is surrounded by independently run cities and localities. While some of these places may well follow L.A.’s lead, others won’t…. Michael Reich… argues that the fact that the increases in the minimum wage are being phased in over several years will give employers time to adjust to them; he predicts that the ultimate impact on employment will be very minor… that raising the minimum wage to fifteen dollars an hour would cost the city just three thousand four hundred and seventy-two jobs by 2019, which is about 0.2 per cent of over-all employment. And… Reich and his colleagues predicted that Los Angeles County, as a whole, would see a gain in employment of five thousand two hundred and sixty-two jobs by 2019. That’s because all of the low-wage workers who kept their jobs, many of whom live outside the city limits, would get a sizable pay raise. They’d have more money to spend, the over-all level of demand for goods and services would be higher, and so would the level of employment…
Thursday Musings on Macroeconomic Policy and “The Right”
I have two things I want to say this morning.
First, Amtrak wifi really is c—, isn’t it?
Second, I think that Paul Krugman gets one thing wrong here, in his talk of “the right” and macroeconomic policy…
There has not been one single right on macroeconomic policy since the Great Depression. There have been two. The lunatic right has been opposed to every single possible anti-recession policy except for union-busting, on the grounds that the market must be optimal: the market giveth, The market taketh away, blessed be the name of the market, and impious is he who tries to reverse or soften its judgment. The non-lunatic right holds that market economies are indeed macroeconomically unstable but they can be balanced by minimal interventions in aggregate variables: that is, by assigning the central bank the cost of controlling the money supply in order to make Say’s Law true in practice even though it is false in theory.
As the extremely-sharp Paul Romer has been noting recently as he rages around the internet, Chicago’s George Stigler’s reaction in microeconomics to the idea that markets might significantly fail was to rule such thoughts unscientific, heretical, and damnable. Analyses that appeared to find market failure were either failing to take account of the fact that information was a scarce factor of production, or that the government had somehow blocked some Coasian property-rights bargain. Hence there probably wasn’t any significant market failure, or if there was it was due to misdeeds by the government. (We can argue over whether Stigler believed all this, or just thought it was a useful exoteric teaching that it was his role as an apostle of liberty to put forward.)
Chicago in macroeconomics used to be different. Milton Friedman had no tolerance at all for the “business cycles are optimal fluctuations” blessed-be-the-name-of-the market Austrian crowd. It acknowledged that the market could fail massively unless something was done to make Say’s Law hold, but then immediately repressed that acknowledgement, saying that a properly neutral monetary policy would automatically make Say’s Law hold, thus if Say’s Law did not hold that was to a government but a market failure, and a constant nominal money growth rate would be a properly neutral monetary policy.
Now on one level this will simply bonkers. Does anyone think that if the government has a target for freight-car loadings or kilowatt-hours and takes steps to hit that target that it is pursuing a “neutral” and “non-interventionist” policy? No. So why is a government that has a target for the quantity of liquidity services provided pursuing a “neutral” and “non-interventionist” policy? On another level it is very clever indeed, as one should expect because Milton Friedman was very clever. It disarms the lunatic right by saying: “You have your neutral monetary policy, I have mine, mine works, and yours doesn’t.” It disarms the left by saying: “You claim that the Great Depression was due to market failure, and that where there is one significant market failure there are probably others. But the Great Depression was actually due to a government failure! Ha ha!” Thus, Friedman believed, he could preserve the economists’ loathing of the state without committing himself to tolerating big and unnecessary depressions as part of the natural order.
The problem Milton Friedman faced at the end of his life was that the world did not agree with him. Paul Volker actually gave the k%-per-year nominal money growth rule an honest try, and found it completely inadequate. And in spite of ample liquidity Japan fell into its last decades.
In the end, I think, Friedman made the choice for reality over ideology. In the case of Japan’s lost decades, Friedman was very clear that if the k%-per-year money growth rate did not balance aggregate demand to potential supply, it needed to be abandoned. The government should instead printing more money, and print enough money until aggregate demand did balance potential supply. Print money. By short-term bonds. If there aren’t enough short-term bonds, buy long-term bonds. If there aren’t enough long-term bonds, drop the money from helicopters–or buy other things than long-term bonds with the newly-printed money: bridges, biomedical research, human capital for twelve-year olds. And by now we are doing expansionary fiscal policy.
The problem is that Milton Friedman has next to no followers these days–and certainly next to nobody who is listened to by the High Politicians of the right. The fight over whether to have a sensible or insane macroeconomic policy has not always been a left-right matter. But the failure of any sensible macroeconomic right to maintain its theoretical and political influence has made it one. That’s when Tony Yates laments that this shouldn’t be a left-right issue, he really should look at himself in the mirror and ask what it is that he has failed to do.
Paul Krugman:
Conservatives and Keynes: “Tony Yates asks, ‘Why can’t we all get along?’…
:declar[ing] that ‘it’s disappointing that the debate has become a left-right thing. I don’t see why it should.’
But the debate over business-cycle economics has always been a left-right thing. Specifically, the right has always been deeply hostile to the notion that expansionary fiscal policy can ever be helpful or austerity harmful; most of the time it has been hostile to expansionary monetary policy too (in the long view, Friedman-type monetarism was an aberration; Hayek-type liquidationism is much more the norm)…. The politicization of the macro debate… has deep roots. Oh, and some of us have been discussing those roots in articles and blog posts for years now. We’ve noted that after World War II there was a concerted, disgraceful effort by conservatives and business interests to prevent the teaching of Keynesian economics in the universities, an effort that succeeded in killing the first real Keynesian textbook. Samuelson, luckily, managed to get past that barrier–and many were the complaints. William Buckley’s God and Man at Yale was a diatribe against atheism (or the failure to include religious indoctrination, which to him was the same thing) and collectivism–by which he mainly meant teaching Keynesian macroeconomics.
Do note that Buckley was not just opposed to the full toleration rather than stigmatization of atheism and agnosticism, but of Judaism as well. In his eyes, mandatory chapel did not include a synagogue option. And, of course, Islam, Zoroastrianism, Hinduism, Buddhism, and so forth were really beyond the pale. Combine this with Buckley’s belief that a Yale that was mandatorily Protestant would be a bigoted place, and one’s mind whirls…
What’s it all about, then? The best stories seem to involve ulterior political motives. Keynesian economics, if true, would mean that governments don’t have to be deeply concerned about business confidence, and don’t have to respond to recessions by slashing social programs. Therefore it must not be true, and must be opposed…. If you think I’m being too flip, too conspiracy-minded, or both, OK–but what’s your explanation? For conservative hostility to Keynes is not an intellectual fad of the moment. It has absolutely consistent for generations, and is clearly very deep-seated.
There are surely some ulterior political motives–Obama’s policies will lead to a faster recovery and raise the Democrats’ chances so we must block them; fiscal expansion would lead to prosperity and we need a sense of crisis and poverty two alarm people enough to get them to cut back the social insurance state. But more of it is not political in this sort of partisan sense: it is, rather, that the prosperity of fiscal expansion is a false prosperity. It wasn’t a Republican but Obama’s own Secretary of the Treasury Tim Geithner who claimed that the prosperity from fiscal expansion would be a “sugar high”. Now Geithner is not a theorist or an analyst: he is a manager, and a manager who believes that wisdom is inherent in the beliefs of the well-paid members of the Establishment, and the better-paid the more wisdom.
And most of it, I think, is ideological–a belief that the world must make sense, and a kind of sense that we can easily grasp with brains that are just barely evolved enough to remember at what waterhole the lioness lurks and to invent beer. There is a very comforting feeling in believing that one understands the world. That leads to a dogmatic belief in dogma. And that means that there is always resistance to the ideas that the world is a surprising place and one always needs to be ready to mark one’s beliefs to market.
Indeed, with many people since 2005, I have found that the more clever they are, the better they are at thinking up reasons why they should not mark their beliefs to market. But using your cleverness in this way–as Paul Romer says George Stigler did–is, as Richard Thaler might say, not just dumb, but the limit of an infinite sequence of dumb.
What about commuting to new economic opportunities?
The news has been teeming with a new economic buzzword: neighborhoods. Okay, it’s neither new nor unique to economic argot, but a recent study makes the case that good neighborhoods are a critical factor for economic mobility across generations.
In the mid-1990s, the U.S. Department of Housing and Urban Development offered subsidized housing vouchers to a randomly selected group of low-income public housing recipients, giving them an opportunity to move to lower-poverty neighborhoods. This federally sanctioned experiment, appropriately named Moving to Opportunity, provided a venue for economists and other social scientists to test whether poor adults and their children would do better in life if they lived in middle-class neighborhoods.
Early evaluations of the experiment, which ended in the mid-2000s, yielded disappointing results. But economists Raj Chetty, Nathaniel Hendren, and Lawrence Katz of Harvard University have revisited the outcomes of the Moving to Opportunity program ten years later and find that place really does matter.
No, this does not imply that HUD should scale up the Moving to Opportunity program or even distribute more subsidized housing vouchers, especially given that most U.S. cities have endless public housing-voucher waitlists and vouchers only benefit a small proportion of those in need. Moving people away from their neighborhoods can also be disruptive to social ties and kinship networks that have persisted through generations.
So what about commuting to opportunity, instead?
Opportunities for employment do exist for lower-income families across cities, but it’s a challenge to actually reach these neighborhoods—a spatial mismatch of sorts. Over most of the post-War era, suburban sprawl was largely a white, middle-class phenomenon, though in recent decades more and more minorities have moved to the burbs, too. But intriguingly, in the years since 2000, the demographic composition of the suburbs began to change. Many of the jobs that were once in urban cores retreated to suburban neighborhoods. And as jobs suburbanized, so too did a large number of low-income people, especially low-income minority workers, seeking employment.
Unexpectedly, this outward shift of jobs also widened the distance between people and their potential employment opportunities, prolonging their job search and spells of joblessness. According to a new report by the Brookings Metropolitan Policy Program, the number of jobs within typical commuting distance of suburbanites fell by seven percent between 2000 and 2012, while the decline was less than half that for urban workers. These changes disproportionately affected poor and non-white residents. Public transportation in the suburbs is sparse, and low-income workers simply don’t have access to cars like their suburban, middle-class neighbors.
Job proximity is not the only challenge. As metropolitan areas continue to sprawl, sustaining efficient and inexpensive public transportation becomes even more complicated. In 2011, the Brookings Institution estimated that only 30 percent of metropolitan jobs were reachable within 90 minutes via public transit. By the same standards, only one fourth of low- and middle-skill industries are accessible using the existing commuting infrastructure.
Physical access to opportunity (and subsequently economic mobility) is no small problem. But despite these challenges, how can we improve existing infrastructure in communities and neighborhoods? How can we create good neighborhoods? Urban and Regional Planners just may have an answer: transit-oriented development.
Transit-oriented development is an urban planning and land development method that prioritizes creating mixed-use neighborhoods within a ten-minute walking radius of high-quality public transportation. One of the obvious benefits is reduced commuting time and transit costs for neighborhood residents. But an implicit advantage of transit-oriented communities is their mixed-use design.
Mixed-use generally refers to the diversity of amenities a neighborhood provides. Mixed-use communities could feature diverse types of housing, for example, so that low-income families could take advantage of the schools, medical clinics, retail, and recreation and green spaces—all within walking distance of public transportation so breadwinners could get to their jobs and their kids could get to school.
The idea is simple: by placing people closer to almost everything they need, we help reduce the resources they invest in trying to access it and offer new opportunities to move into middle-class neighborhoods.
There’s a valid concern, though, that developments near public transit areas can be a catalyst for gentrification because they may displace low-income families rather than lifting them up. But that’s why, like any good planning initiative, policymakers and urban and regional planners must employ equitable development techniques no matter where the transit-oriented neighborhoods are situated. By pairing transit-oriented development with measures such as inclusionary upzoning or mixed-income housing, access to opportunity and economic mobility can be more equitable.
Things to Read on the Evening of May 20, 2015
Must- and Should-Reads:
- “The Economy Of Los Angeles Will Be Destroyed: FIFTEEN WHOLE DOLLARS AN HOUR how can the jaayuuubb creeaturrzz possibly create jobs in those conditions???…”) :
- “At present, when zero interest rates make capital costs as low as they have ever been but corporate profits are at record levels, there needs to be much less concern with capital costs and more concern with the distributional aspects of capital taxation…” :
- The Importance of Taxing Capital :
- Obamacare: What If the GOP Gets What It Wants? :
Over at Equitable Growth—The Equitablog
- : The Theory of Growth and Inequality: Piketty, Zucman, Krusell, Smith, and “Mathiness”
- Ken Rogoff Fakes Right, Goes Left, and Heads Down the Sideline Toward Global Social Democracy and a Truly Human World…
- New insights into U.S. public perceptions of income inequality :
Might Like to Be Aware of:
- Dimitri Amilakhvari
- Amtrak Capitol Corridor Schedule
- “What the mouse was to the Mac and multi-touch was to the iPhone, Siri is to the Watch…. [But] the success or failure of Siri… depends on the cloud, and… an examination of their core competencies and incentives argues that the company will never be as good as Google. That was acceptable on the phone, but is a much more problematic… [with] the most important means of interacting with the Watch…” :
- In Praise of Nux, Fury Road’s Tortured Soul :
- How Nuth Would Have Practised His Art upon the Gnoles :
- MAD MAX FURY ROAD IS A MOVIE MADE WITH CAPS LOCK ON – SBNation.com :
- Melissa McCarthy Shuts Down Reporter Who Criticized Her Appearance :
- No more dieting, and 7 other things we do differently after reporting on health care :
Ken Rogoff Fakes Right, Goes Left, and Heads Down the Sideline Toward Global Social Democracy and a Truly Human World…
And Kenneth Rogoff fakes right:
Wouldn’t a true progressive support equal opportunity for all people on the planet, rather than just for those of us lucky enough to have been born and raised in rich countries? Many thought leaders in advanced economies advocate an entitlement mentality. But the entitlement stops at the border: though they regard greater redistribution within individual countries as an absolute imperative, people who live in emerging markets or developing countries are left out…. The rhetoric of the inequality debate in rich countries betrays a moral certitude that conveniently ignores the billions of people elsewhere who are far worse off…. The middle class in rich countries remains an upper class from a global perspective…. Yes, higher taxes on the wealthy make sense as a way to alleviate inequality within a country. But that will not solve the problem of deep poverty in the developing world.
So it is clear what Rogoff’s point is: the same politicians who demand redistribution from rich-country rich to rich-country poor resist redistribution from rich-country poor to poor-country poor. Hence their argument isn’t a moral one to which the rich-country rich should accede but rather a simple “we want your stuff” that rich-country rich can deny without a bad conscience. The lesson appears to be that there is no urgent need to make the rich-country tax system more progressive…
But wait. Rather than settling on that conclusion, Rogoff takes the argument in a different direction:
Nor will it do to appeal to moral superiority to justify why someone born in the West enjoys so many advantages…. Europe’s long history of exploitative colonialism makes it hard to guess how Asian and African institutions would have evolved in a parallel universe where Europeans came only to trade, not to conquer…. By many measures, global inequality has been reduced significantly over the past three decades, implying that capitalism has succeeded spectacularly. Capitalism has perhaps eroded rents that workers in advanced countries enjoy by virtue of where they were born. But it has done even more to help the world’s true middle-income workers in Asia and emerging markets…. Workers from poor countries welcome the opportunity to work in advanced countries, even at what seem like rock-bottom wages. Unfortunately, most of the debate in rich countries today, on both the left and the right, centers on how to keep other people out. That may be practical, but it certainly is not morally defensible…
So is he now going left?
And migration pressure will increase markedly if global warming unfolds according to climatologists’ baseline predictions…. Shifting weather patterns could then fuel migration to richer countries at levels that make today’s immigration crisis seem trivial, particularly given that poor countries and emerging markets typically are closer to the equator and in more vulnerable climates…. Resentment against the advanced economies, which account for a vastly disproportionate share of global pollution and commodity consumption, could boil over…. Regrettably, however, the inequality debate has focused so intensely on domestic inequality that the far larger issue of global inequality has been overshadowed. That is a pity, because there are many ways rich countries can make a difference. They can provide free online medical and education support, more development aid, debt write-downs, market access, and greater contributions to global security. The arrival of desperate boat people on Europe’s shores is a symptom of their failure to do so…
Yes! He has gone left! Raise taxes on the rich-country rich via higher and more progressive taxes to fund “free online medical and education support, more development aid, debt write-downs, market access, and greater contributions to global security”!
And may I inquire whether the increased tax revenue should also be spent holding the rich-country middle- and working-classes harmless in the face of increased immigration and increased trade?
As I do not tire of saying, one of the very best investments we could make here in the North Atlantic in the global security and economic prosperity of our great-grandchildren would be for us to take major, concrete steps to demonstrate and to make it so that we seek and succeed not to retard but to accelerate the economic development of emerging markets, and thus the date at which we can say we live in a truly human world.
New insights into U.S. public perceptions of income inequality
The Washington Center for Equitable Growth and the Yale Institute for Social and Policy Studies co-sponsored a closed-door event earlier this month where academics from a variety of disciplines discussed the many and varied ways economic inequality and politics interact. Experts at the conference focused on how economic inequality led to disparities in political power, and how disparities in both economic and political power impact support for candidates and policies. The findings from the conference will be discussed and published later this summer, but a new working paper by Vladimir Gimpelson from the Higher School of Economics and Dainel Treisman from the University of California-Los Angeles adds an important perspective on the role of inequality in politics.
The paper, “Misperceiving Inequality,” finds that on the whole, the citizens of many developed and middle-income countries know very little about the level of income inequality in their own nations, whether inequality is increasing or decreasing, and where they are personally on the income spectrum in their nations. In the United States, 29 percent of American respondents to the International Social Survey Programme were able to correctly choose a picture representing the level of inequality in America. That’s not much better than if they had chosen randomly from the options given in the survey.
U.S. respondents also inaccurately estimated salaries for different occupations. Americans in particular guessed that doctors and the heads of federal government departments earned more than double their actual average pre-tax incomes yet they under-estimated the pre-tax income of the average chairman of a large company by almost 20 percent.
Do these misconceptions about inequality in the United States have an effect on politics? According to this latest research, citizens’ perceptions of inequality may correlate more strongly with their demands for the redistribution of incomes than facts about inequality. The researchers found that in countries where people thought inequality was high, more people supported government redistribution, but this demand had no relation to actual levels of inequality. Surprisingly, higher actual inequality was associated with a lower demand for redistribution.
This is not entirely surprising given a recent report by Ilyana Kuziemko of Princeton University, Michael Norton of Harvard University, Emmanuel Saez of the University of California-Berkeley, and Stefanie Stantcheva of Harvard. They found that U.S. respondents who view accurate information about inequality are more likely to perceive inequality as a serious problem, and are thus more willing to support two broad income redistribution policies in particular—increasing the estate tax and the minimum wage.
The findings in these two reports offer evidence that when perceptions of inequality change, politics are likely to be affected as well. And they highlight an important possibility—recent attention in the U.S. political sphere to economic inequality may be closely tied to the rising popularity of initiatives such as raising the minimum wage or implementing paid family leave policies. And as discussions about economic disparity become more prominent and begin to influence the perceptions of Americans, politicians may have to do more to address rising inequality.
Things to Read on the Afternoon of May 19, 2015
Must- and Should-Reads:
- Must-Read: David Smith’s gotcha quotes :
- John Nash: The Master of Economic Modeling (1995):
- Must-Read: Shifting Implications of the Beveridge Curve :
- Is finance doing what it’s supposed to? :
- What Caused Capitalism?: Reviewing Mokyr, Bickerts, Neal and Williamson :
- Three indicators that point to a sharp slowdown in China’s economy :
- The High Cost of Expensive Townhouses :
- Fighting for History :
- Must-Read: Protecting the Norms of Science in Economics :
- Chicago Fundamentalism: Ideology and Methodology in Economics (2008):
- Must-Read: The 15 Best Behavioural Science Graphs of 2010-13 :
- Must-Read: Mediamacro Myth Makers Fight Back :
Might Like to Be Aware of:
- Duke Professor “Blacks at Duke should look at Mike Krzyzewski. All of his life he had terrible Polish jokes thrown at him, far worse that anything than that could be said about blacks in recent decades. The ‘n’ word is nothing in comparison to those jokes. If any students think that Polish Americans were not heavily discriminated against, they are fools…. [But] he went ahead and did his job. He became the opposite of the Polish stereotype-the brightest of the bright, the most disciplined, the hardest working and the classiest, the most determined to achieve. As a result, even more than Senator Ed Muskie and National Security Adviser Zbigniew Brezinski, he has done more than any other person in American history to bury the decades of stereotypes about Polish Americans…” (2001):
- 500 Miles
- Why I’m Still Wearing My Apple Watch :
Must-Read: Simon Wren-Lewis: David Smith’s Gotcha Quotes
Must-Read: David Smith of the Times and Chris Giles of the Financial Times have annoyed Simon Wren-Lewis.
I must confess I don’t understand the game that they are playing: is gaining a reputation as people who will go the extra mile to whitewash the reputation of the past Conservative-Liberal Democrat government really worth anything to a journalist, or a newspaper?
David Smith’s Gotcha Quotes): “David Smith of the Times tries a bit of gotcha journalism…
:…Chris Giles tweets ‘A justly irritated @dsmitheconomics reminds @sjwrenlewis of some of stuff he has written and forgotten’. Only one problem: it is nonsense… embarrassing nonsense…. The facts are not really in dispute…. The original austerity plan to eliminate the (cyclically adjusted) current deficit by 2015-16 was changed in 2012. David Smith wants to argue, as the government does, that ‘the government has stuck pretty much to its consolidation plan’. Call this claim X. What economists argue from the data could be described as not-X. But how can you make claim X, when the data clearly shows that the pace of deficit reduction between 2012 and 2015 was slower than was originally planned?…
David sets up a third claim, call in claim Z, that austerity was ‘abandoned in 2012’…. David shows claim Z is false, and attempts to suggest (erroneously) that claim X is therefore true. It is crucial that the term ‘abandoned’ here is unqualified. Claim Z could not mean temporarily abandoned just for a year, or put on hold, because the data is quite consistent with that claim….
I argued that claim Z was a straw man…. David… provides two quotes from Paul Krugman and two from myself where we say austerity in 2012 was ‘put on hold’, that the government ‘essentially stopped tightening fiscal policy before the upturn’, or that austerity was ‘temporarily abandoned’. This is quite different from claim Z, involving complete abandonment…. David knows this… writes ‘I am not sure when the suspension or (temporary) abandonment of austerity Simon refers to is supposed to have come to an end.’ That is cover to translate what I wrote into claim Z. But just a few sentences down from the first of his quotes from me I write: ‘followed by a projected return to austerity from 2014 onwards’. Whoops.
Why is David (alongside others) so keen to argue that the government stuck to its consolidation plan, when the data clearly suggest otherwise?… Because the moment you admit that the pace of deficit reduction was slowed (by action or inaction), people will ask why, and the obvious answer was that the original plans were hurting the economy and delaying the recovery. Most economists and the OBR know this, but the government has tried very hard to make sure that knowledge is not disseminated more widely.
And some backup from Paul Krugman:
Stupid Austerity Tricks: “Against willful stupidity, the gods themselves contend in vain…
:…So it’s no surprise that Simon Wren-Lewis is having a hard time of it. Still, it’s amazing just how dependent the pro-austerity camp has become on one dumb trick…. The story Simon has been telling… is that the Cameron government did a lot of fiscal tightening in its first two years, but not much thereafter…. You’d expect… the current level of GDP would still be below what it would have been otherwise, but that the negative impact on the rate of growth of GDP would have occurred only in the first couple of years…. [A] pickup in growth since 2013 isn’t inconsistent with the view that austerity is a drag on the economy….
Yet what we get over and over are pieces that get this simple point wrong…. You said that cutting spending depresses the economy relative to where it would have been otherwise–aha, you’re all wrong, because the economy started growing again in 2013! This is… willfully stupid…. The people writing such stuff have to know better. I’m actually used to such things… pulling phrases… claiming… I was saying something I wasn’t… a pull-quote… out of context…. Anyway, what you really learn from this ‘debate’ is how weak one side really is…
Must-Read: Simon Wren-Lewis: Mediamacro Myth Makers Fight Back
Must-Read: Mediamacro Myth Makers Fight Back: “This may also be the first in a series!… David Smith of the Times…
:….Chris Giles of the FT tweeted: ‘The shocking thing about this excellent post is the misinformation that forced @dsmitheconomics to write it’…. I have never said that austerity was abandoned in 2012. In fact I cannot think of anyone who did, but clearly I’m not reading the right people…. David concludes, of course… that the pace of austerity slowed from 2012 onwards, which is obvious…. So why does he think this is such a problem for critics of austerity? Again we need a straw man: someone who ‘see[s] everything that has happened to the economy through the lens of fiscal policy.’ Now I’m sure I have never met anyone like that…. This is terrible stuff…. A recovery is perfectly compatible with austerity being a drag on growth, particularly if monetary policy is highly expansionary…