Be skeptical, be very skeptical
By Scott Sumner
I just returned from vacation and have some catching up to do. In the meantime let me point to a post over at Coyote Blog that relates to my recent post on the US recovery. The post begins by pointing to a graph in a post from late 2013 by Kevin Drum:
Here’s how Drum interprets the graph:
The result was predictable: spending cuts and more spending cuts. First came budget deals in 2010 and 2011 that reduced the deficit by $760 billion. Then, in August 2011, Obama struck an agreement with Republicans to resolve the debt ceiling crisis, which produced about $1.1 trillion in spending cuts along with the promise of more from a congressional supercommittee. At the end of 2012, the fiscal-cliff showdown resulted in $850 billion in tax increases and spending cuts. Finally, in March, sequestration cuts (cued up when the supercommittee failed to produce a deal) kicked in, to the tune of another $1.2 trillion. Taken as a whole, these measures have cut the deficit by $3.9 trillion over the next 10 years. And that doesn’t even count the expiration of desperately needed stimulus measures like the payroll tax holiday and extended unemployment benefits.
This was unprecedented, as the chart above shows. After every other recent recession, government spending has continued rising steadily throughout the recovery, providing a backstop that prevented the economy from sliding backward. It happened under Ronald Reagan after the recession of 1981, under George H.W. Bush after the recession of 1990, and under George W. Bush after the recession of 2001. But this time, even though the 2008 recession was deeper than any of those previous ones, it didn’t.
. . .
Along the way, there were plenty of Cassandras who warned that austerity was strangling the recovery in its cradle. They pointed to history: When FDR cut spending too soon in 1937, it famously throttled recovery from the Great Depression. They pointed to economic data: By 2010, we knew that the 2008 recession had been far worse than we thought during Obama’s first month in office, when the initial round of stimulus was passed. They pointed to Europe: Austerity there had crippled the recovery and kept unemployment at stratospheric levels in Greece, Portugal, Spain, and other countries. And they pointed to Ben Bernanke, the Republican-appointed Fed chairman (and Great Depression scholar) who all but begged Congress not to sabotage the recovery with foolish spending cuts.
Of course Drum is a Keynesian who doesn’t like austerity, and hence he attributes the slow recovery from the 2008-09 recession to fiscal austerity. One can find dozens of similar posts, written by other Keynesians. But Keynesians also tend to be Democrats, and they usually like Obama much more than Bush. Drum has a more recent post comparing the Obama and Bush recoveries. That post suggests that the recent recovery has actually been far more robust that the recovery from the 2001 recession:
Paul Krugman writes today about the dogged conservative claim that the current recovery has been weak thanks to the job-killing effects of Obamacare and Obama regulation and the generally dire effects of Obama’s hostility to the business sector. But I think Krugman undersells his case. He shows that the current recovery has created more private sector jobs than the 2001-2007 recovery, and that’s true. But in fairness to the Bush years, the labor force was smaller back then and Bush was working from a smaller base. So of course fewer jobs were created. What you really want to look at is jobs as a percent of the total labor force. And here’s what you get:
Of course I’m an opponent of fiscal stimulus, so you might expect me to claim this actually proves that austerity works, as the Obama recovery has less stimulus and more job growth. Or you might expect me to claim that Drum was being deceptive. But I don’t want to take the easy way out. Drum seems like a good guy and I don’t have any reason to believe he was intentionally deceptive. It’s natural for people to gravitate toward data that supports the argument they are trying to make on that particular day. I’m sure I do this as well, at least subconsciously. Nor do I think this proves austerity works. Indeed I have doubts about both graphs, as there are many ways of measuring the stance of fiscal policy, and there are many ways of measuring the strength of a recovery. It would be easy to find metrics (like RGDP growth) that make the Bush recovery look better. And I believe the fiscal policy was less austere than Keynesians claim, although I don’t doubt that in a relative sense 2013 was much less stimulative than 2010-12. (Of course growth sped up in 2013 (using Q4 to Q4 data.)
Instead I’d like to suggest these these two posts are a textbook example of why we all should be very skeptical of the information conveyed in graphs. There are many ways of framing data, and it’s relatively easy to find data points to support almost any particular point of view. There is something seductive about a graph, perhaps for the same reasons that a jury might find a photo more reliable than expert testimony.
You should be most skeptical of graphs provided by bloggers that you like. If you like my point of view, then be especially skeptical about my graphs.
HT: Warren Meyer
PS. It might be useful to think of Keynesianism as being like quantum mechanics. Just as the position of an electron is ambiguous until it is observed, the robustness of the recent recovery cannot be defined until one specifies the issue being examined. If it is GOP fiscal austerity, then the recovery was weak. If the issue is an appraisal of the Obama regulatory policies vs the Bush regulatory policies, then the recovery was robust.