Questions for Keynesians (Show me the data)
By Scott Sumner
I’m seeing lots of comments to the effect that the 2013 austerity was not a big deal, and or the dreaded “fiscal cliff” never happened. OK, let’s see some numbers. After all, if my critics just know that I am wrong, they must have the correct numbers. In an earlier post I estimated that the deficit fell by $500 billion in calendar 2013.
(It fell by $400 billion in fiscal 2013, but you want to use calendar 2013 because the serious austerity kicked in on January 1st, 2013. Indeed if that date were not important then the deficit reduction estimates would not vary by $100 billion merely by shifting the date by 3 months.)
1. Is my $500 billion deficit reduction estimate wrong? I used this source. If it’s wrong, what source should I use for monthly deficits? What are the actual numbers for 2012 and 2013?
2. If the dreaded fiscal cliff had happened, what was the estimated deficit reduction that was expected to occur?
3. Is the difference between the answer to #1 and #2 large enough to account for the difference between a predicted recession and a speed up in economic growth (or at worst roughly no change, if you don’t buy my speed up argument)?
My commenter Justin over at MoneyIllusion also has some questions:
Two questions for Keynesians in light of this discussion:
1) If the general consensus of the Keynesian camp is that $500 billion of deficit reduction (much of it exogenous and permanent) shouldn’t be expected to put a noticeable dent in the time path of GDP or the unemployment rate, why credit the $800 billion stimulus (which only lasted for 2 years) with any meaningful effect whatsoever on the economy during 2009-2010?
2) Should we not try to generate a budget surplus for FY2016 if cutting the deficit by $500 billion isn’t really austerity and therefore unlikely to produce obviously negative impacts on GDP and unemployment?