Arnold Kling asks the obvious question: by what definition is what we’re doing austerity? Accompanied by a handy table that should at least make you wonder a little bit.
Arnold Kling asks the obvious question: by what definition is what we’re doing austerity? Accompanied by a handy table that should at least make you wonder a little bit.
A provocative short article, complete with a chart of numbers comparing 2012 with the last 40 years. I guess what is austerity to some is the “same old, same old’ to others. Basically, not a whole lot has changed. What surprised me, though, is that defense has actually gone down.
CATEGORY, 40-YEAR AVERAGE, 2012
ALL OTHER SPENDING, 7.9, 9.1
If the GDP plunges, then everything will tend to increase as a percentage of GDP, so it’s not a particularly useful measure of austerity.
? Real GDP was higher in 2012 than it was in 2007.
The question remains what is the non-circular definition of austerity?
I dont think many people actually argue that we are in austerity mode, but rather are arguing against its implementation in the US. Actual austerity is happening in Europe, in some countries. I kind of doubt you can achieve an agreed upon definition. Some people think it can only include spending cuts. Some people think it must mean a cut in nominal spending and others in real spending. Some think a combination of cuts and increased taxes. It will just remain one of those slippery words used to prove a particular point.
Steve
steve, I think that most people, at least in this country, are “begging the question”. Their definition of austerity is “any level of spending too low to increase employment”.
Other thank Kling’s binary thinking and deliberate sleight-of-hand, what is there to gather from his post?
Dave Schuler: Real GDP was higher in 2012 than it was in 2007.
Real GDP per capita
http://research.stlouisfed.org/fred2/series/USARGDPC
Growth in government spending per capita
http://economistsview.typepad.com/.a/6a00d83451b33869e2017ee86db24e970d-800wi
Dave Schuler: Their definition of austerity is “any level of spending too low to increase employmentâ€.
If you consider austerity as a continuum, then the U.S. economic policy is less austere than Europe, and has weathered the recession better.
How is that a relevant measure? I note that when economists illustrate the shortfall in aggregate demand they do so in terms of potential GDP, estimated by extrapolating a straight line from peak total GDP to present, not in terms of per capita GDP or per capita spending.
I note, too, that if you consider austerity as a continuum then spending 200% of GDP is “austerity” as well. It might be thought of as low austerity and meets just about no one’s definition. Either there’s some reasonably rigorous definition or there isn’t.
Dave Schuler: How is that a relevant measure?
Because more people need more food, more food inspectors, more schools, more teachers, more fuel, more plastic, more Social Security, more everything.
Dave Schuler: I note, too, that if you consider austerity as a continuum then spending 200% of GDP is “austerity†as well.
If you treat happiness as a continuum, then severe depression is on the happiness continuum. This seems to be your actual concern:
Dave Schuler: Their definition of austerity is “any level of spending too low to increase employmentâ€.
Sure. That’s one place to draw the line. If there is widespread unemployment, then it means the engine of the economy is not hitting on all cylinders. The definition then refers to lack of demand sufficient demand to jump-start the economic engine.
“The definition then refers to lack of demand sufficient demand to jump-start the economic engine.”
Or perhaps, and you are talking to a serial busines owner and employer……..government intervention has made employing a really, really dificult thing.
Disagree with me if you like, but at your own, and a lot of folks out there, peril.
You’re changing the subject. I might add that not everybody needs “more everything”. Mitt Romney, for example, has more than $200 million in his retirement account. According to present rules, increasing Social Security benefits would increase his Social Security benefits, too.
In addition you’re combining areas of federal control (food inspectors) with areas of state and local control (teachers). Here in Chicago raising teacher pay has the perverse consequence of reducing the number of teachers.
On reflection, I’m skeptical that we need more of any of the things you’ve listed. I think we need better nutrition, better food inspection, better education, better transportation, and a better system for supporting ourselves in our old age. More spending won’t necessarily accomplish any of those things. We need structural changes, not just more federal spending.
Red Barchetta: Or perhaps, and you are talking to a serial busines owner and employer……..government intervention has made employing a really, really dificult thing.
Perhaps, however, we’re discussing the original question, “What is Austerity?”
Dave Schuler: I might add that not everybody needs “more everythingâ€.
If you have twice as many people, you need twice the food to maintain the same a amount of food per capita.
Dave Schuler: In addition you’re combining areas of federal control (food inspectors) with areas of state and local control (teachers).
You asked “What is Austerity”. We provided a measure based on government spending per capita. You then asked how that is a relevant measure. We answered that more people means you need more food, more food inspectors, more everything, to maintain the same level of resources per capita.
Dave Schuler: I think we need better nutrition, better food inspection, better education, better transportation, and a better system for supporting ourselves in our old age.
Sure. That’s only tangential to the question, though.
You presented no measure. You just asserted that federal spending must always rise as population increases. Then you changed the subject to state and local governments.
Dave Schuler: You presented no measure.
Sure we did, government spending per capita.
Dave Schuler: You just asserted that federal spending must always rise as population increases.
We did?
Rather, to maintain the same level of services, government spending will generally need to increase with population (albeit with some savings for scale, or the introduction of new technologies).
Ok, here you go.
So, what is your definition of austerity specifically, and then please use that definition to explain austerity in the US using your measure of government spending per capita. Thanks.
Andy: So, what is your definition of austerity specifically, and then please use that definition to explain austerity in the US using your measure of government spending per capita.
In the context of the market cycle, it means cutting real government per capita spending during a recession, more particularly, efforts to move towards a balanced budget, procyclical policy, during an economic downturn.
http://www.usgovernmentspending.com/spending_chart_1960_2013USd_14s1li011mcn_G0t
Andy: … please use that definition to explain austerity in the US using your measure of government spending per capita.
The U.S. has some automatic stabilizers, such as unemployment insurance. They also implemented a moderate stimulus, a small payroll tax cut, and maintained lower tax rates. Though insufficient (small compared to the drop in aggregate demand) to really spark the economy, it managed to bring the U.S. out of recession. Compare to U.K., which has struggled with much more austere policies.
The U.S. probably should have introduced some additional stimulus, then had a plan to reduce the deficit in the out-years. Rather, they have decided to muddle along without a clear plan.
May as well add, the reason the term “austerity” is used is because the policy often inordinately affects people on the lower end of the economic scale.
So the Great Recession was from Dec. 2007 to June 2009. Government spending went way up during that time, so the US did not practice austerity, is that correct in your view?
Andy: So the Great Recession was from Dec. 2007 to June 2009. Government spending went way up during that time, so the US did not practice austerity, is that correct in your view?
Moderately stimulative at first, which helped end the recession; then moderately restrictive too soon, leaving the U.S. with tepid growth and high unemployment. Not as austere as, for instance, the U.K., which has struggled to return to growth.
Spending per capita has yet to drop to 2007 levels and likely won’t anytime soon. Again, where is the austerity? I could understand the austerity argument if spending dropped below 2007 levels, but it hasn’t.
Furthermore, what does “moderately restrictive” mean? I would question the implication that a reduction from the 2009 peak was the cause of tepid growth and high unemployement, especially considering the bulk of that reduction was from defense and the end of the ARRA.
Zachriel
I’m blasting Led Zeppelin right now. We can talk later.
Do you know what happens when the levee breaks?
Andy: Spending per capita has yet to drop to 2007 levels and likely won’t anytime soon.
Austerity is a continuum. Aggregate demand dropped substantially due to the financial meltdown. Government policy was stimulative, but insufficient to make up the difference, largely due to the contraction of state and local governments.
Andy: Furthermore, what does “moderately restrictive†mean?
It means trying to rein in deficits while the economy is still weak. Eventually, the economy will right itself, but the longer it takes, the more damage is done.
What contraction, Zachriel? Here in Illinois, for example, state and local spending has increased far in advance of population, of production, or of population and production in combination. It has expanded both in recession and expansion for decades.
Real state and local spending per capita
http://www.usgovernmentspending.com/spending_chart_1992_2013USd_14s1li011mcn_F0s
Real Illinois state and local spending per capita
http://www.usgovernmentspending.com/spending_chart_1960_2013ILd_14s1li011mcn_F0t