My son has off from school today and I have agreed to watch old episodes of X-Men with him in 9 minutes… (Hey, I make sacrifices for the next generation.) Therefore I have to be brief, and can’t paint the picture from scratch, but will instead just dive right into the weeds…
In a previous post I linked to Scott Sumner who busted Krugman’s analysis of Sweden. Reading Krugman, you would think that conservatives who were praising Sweden’s handling of budgetary affairs during the crisis were simply insane, and you also would think that Sweden had been spending more profligately than the U.S. (Krugman produced a chart showing government “consumption and investment” spending dropping a lot faster in the US than in Sweden.) Sumner mentioned that Sweden ran a 2% budget surplus in 2011, which shocked me; one wouldn’t have guessed that in a million years from Krugman’s discussion.
Anyway, in the comments here is what “Lord Keynes” had to say:
The fact that Sweden is running a budget surplus now is a demonstration that there stimulus worked: they passed a large stimulus package in 2008, which continued in 2009 and 2010:
Australia is yet another country which went for a moderate stimulus in 2008, 2009 and 2010, never even had a recession because of its quick fiscal expansion, and with some minor cuts now has been able to run a surplus.
Now if you click his links, they don’t show the actual evidence that we’d need, to test just how big the stimulus was. (Click them to see what I mean.) When I read that, I thought to myself, “If I know Lord Keynes–and I think I do–if I bother to go dig up the actual statistics needed to assess his claim, I bet they will be the exact opposite of what he’s saying–that the US under any plausible metric ran a bigger Keynesian stimulus than Sweden.”
So I looked up the stats, and as Phil Hartman might say, “You are correct sir!”
First let’s consider the deficit as a % of GDP, which is how Keynesians typically evaluate stimulus in the 1930s. According to this site, here are the numbers for Sweden, where a + signs means a surplus. Also, I don’t know for sure if this is just central government or all government:
Swedish Gov’t Budget Surplus/Deficit as % of GDP (+ means surplus):
2011: +2.x% [Note this last figure comes not from the site–which had an estimate–but from the news story Sumner linked.]
In contrast, here’s the White House figures for the federal deficit for the U.S.:
US Federal Gov’t Budget Surplus/Deficit as % of GDP:
I am having a hard time from this criterion, seeing how any Keynesian could possibly say Sweden bounced back quickly because of their smart and effective stimulus, as opposed to the inadequate and too-late U.S. response.
But maybe deficit spending isn’t the right criterion. Let’s look at government spending as a share of GDP. Here’s Sweden, and here I’m assuming “SE” in the table corresponds to Sweden:
Swedish Gov’t Spending as % of GDP
And the White House tables again for the US:
US Federal Gov’t Spending as % of GDP
And there you have it, kids. Even if we set aside the deficit (because an inadequate spending surge could lead to a collapsing economy and hence tax revenues), and focus exclusively on government spending, we see that whether in absolute dollars (obviously), whether in the change in percentage points of GDP, or whether in the percentage change in the percentage of GDP, the US government increased its spending more in 2008 and 2009, than the Swedish government did.
Since Sweden handled the crisis much better than the US did, I would say the case of Sweden is prima facie evidence for the Austrian / austerian camp. As always in these matters, these particular data don’t prove anything; maybe there are confounding factors.
But boy, doesn’t it sure seem like there are all these counterexamples piling up, that Krugman and friends have to constantly explain away? And wouldn’t it be nice if they would at least stop citing these counterexamples, as feathers in their cap? (I have a Mises.org coming out this week showing Krugman doing this yet again with his recent analysis of Fed history.)