Thursday, May 31, 2012

Further Evidence Regarding the Intellectual Bankruptcy of the Austerions

-- Posted by Neil H. Buchanan

One of the unexpected benefits of writing on a blog is that readers -- both in comments and in off-line correspondence -- often ask questions and offer insights that spur further reflection, or spark a healthy digression, or sometimes simply provide further evidence supporting an argument that I have made in a post. No one, after all, can hope to read even a slice of everything that is out there, and any writer should be grateful to those who point to evidence that would otherwise have escaped notice.

In my extended and repeated critiques of government austerity, I have been especially fortunate to have readers who respond to my posts by adding to the pile of evidence that shows just how weak the pro-austerity case is. Last year, for example, when I wrote a Verdict column about the shockingly bad economic studies that claim to make the case for expansionary austerity, much of my work was done for me by a reader who provided not only URL's but direct quotations from some of those utterly weak pieces of pro-austerity scholarship. Referring to the evidence provided by that reader, it was easy to show just how bad is the argument (based, in this instance, on cross-national data) that purports to show that cuts in government spending during a recession will lead to increased incomes and reduced unemployment.

My column last week had a similar history. I had written a Dorf on Law post earlier in the month talking about the disastrous consequences of austerity, and a reader pointed out that there are right-wing advocacy groups who are now claiming that austerity policies have not even been tried. Shocked that this silly argument was extant in the land, but grateful to learn that even such a basic error was now being pushed by right-wing ideologues, I wrote last week's Verdict column, in which I examined the nonexistent case for the idea that the US, UK, and Europe have not truly been practicing fiscal austerity. In some ways, it feels like a waste of time to have to write such things, but one responds to the arguments that are out there. I would not have come across that particularly bad argument, had it not been for the interactions of blogger and helpful reader.

As soon as I wrote that column (and my follow-up post on Dorf on Law), a reader provided yet more evidence that the other side of this debate has no response to arguments such as those that I had made. (This reader apparently removed the comment from the blog after posting it, but I saved the email from Blogger that automatically notified me of the comment.) Although the reader admirably restrained himself by simply posting a quote (one that allowed the pro-austerity argument to indict itself) accompanied only by the words "a different point of view" as introduction, he might as well have said: "Professor Buchanan: As if to prove your points, here is what one of the anti-government 'think' tanks is promulgating these days."

I do not post the URL's for these things, because I see no reason to re-broadcast the distortions of a well-financed propaganda machine. Here, however, is the text to which the reader pointed:
"We can further demonstrate the existence of the fiscal factoid by comparing changes in the output gaps and general government structural balances. In the accompanying table, the first column records the output gap. When the gap is positive (negative), actual output is above (below) the economy's potential. The second column in the table is the general government's structural balance. When it is negative (positive), a fiscal deficit (surplus) exists. The third and fourth columns record the changes in the output gap and general government structural balance, respectively. A positive (negative) change in the output gap implies an economic expansion (contraction), and a negative (positive) change in the general government structural balance implies a fiscal stimulus (consolidation).

"If the fiscalists are correct, we should observe an inverse relationship between changes in the rate of growth in output (the third column of the table) and the budget balance (the fourth column of the table). From 2001 through 2016, as projected by the International Monetary Fund, the U.S. economy does not behave in the way that Prof. Krugman and other Keynesians have asserted and proselytized. Indeed, the number of years in which the economy responds to fiscal policy in an anti-Keynesian fashion is more than double those in which the economy follows the Keynesian dogma."
Ignore the turgid and absurd prose, if you can. The important point is that the Austerions' case against Keynesian policies amounts to nothing more than this: "Keynesians say that fiscal policy is always expansionary, but it's not." This is, in fact, a perfect example of the logical error about which I recently wrote, here on Dorf on Law. Right-wing extremists apparently believe that everyone is as extreme and lacking in nuance as they are, with left-wing thinkers simply being mirror images of right-wingers. The thing is, it just is not true. Again, the opposite of: "Fiscal policy is never expansionary," is not "Fiscal policy is always expansionary."

Keynesians do not believe that the economy will always expand when government spending rises. In fact, Keynesians do not believe that fiscal policy is always the right answer, even in a weak economy. We do, however, believe that it is the right answer now, when the economy remains incredibly weak, and when interest rates have been pushed as low as they can go. (Yes, monetary stimulus -- quantitative easing -- is a good idea right now, too. But it is too weak, alone, to do what is needed.)

Yet the case against Keynesian "dogma," as quoted above, states: "From 2001 through 2016, as projected by the International Monetary Fund, the U.S. economy does not behave in the way that Prof. Krugman and other Keynesians have asserted and proselytized." Krugman et al. have neither asserted nor proselytized that the economy should respond to fiscal changes in 2002 or 2006 or (we hope) 2016 as it would in 2010 or 2012. This is a classic straw man argument.

Consider an analogy. Suppose we were trying to determine whether a new medication will return to normal the red blood cell counts of people suffering from anemia. After studying 16 people (2001 through 2016), we find that most of them do not, in fact, see their red blood cell counts change in response to the therapy. Do we conclude that the medication is useless? Of course not, because we have indiscriminately used it on people without anemia, whose bodies were already regulating their red blood cell counts in the way that healthy bodies do.

If the medication's backers had claimed that everyone who takes the drug will see her red blood cell count rise, then they would be wrong. If, on the other hand, they had said that people who take appropriate doses of the drug will end up with healthy red blood cell counts, then the evidence from the study is simply irrelevant to evaluating the truth of that claim. If the medication's backers were as responsible as Keynesians are, moreover, they would say that it is a bad idea even to try to stimulate red counts in non-anemic subjects.

Tomorrow, I will return to some other anti-Keynesian arguments to which readers have pointed, all of which are equally specious. For now, I will simply thank all of our readers here at Dorf on Law for their responses, especially those that fortify the arguments that we have offered here. We are always open to contrary evidence, of course, but when the evidence cuts so clearly in our favor -- such as in the Keynesians versus Austerions debate -- further evidence of the other side's bankruptcy is always welcome.

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