On the one hand, I appreciate the fact that Neil Irwin is at least dealing with the cognitive dissonance that the blogging Keynesians have set up for themselves, with respect to the allegedly slam-dunk empirical evidence against “austerity.” He writes:
This is the U.S. economy in a nutshell, as revealed in Tuesday’s news ticker: Housing prices rose faster over the past year than they have in the past seven. Consumer confidence hit its highest level in five years. The stock market rallied another 0.9 percent to hover near an all-time high, as measured by the Standard & Poor’s 500. And the national retail price of gasoline has fallen for six days straight and is down 16 cents a gallon since late February, providing nice relief to drivers.
Which all raises an obvious question: Whatever happened to the austerity economy?
Later he writes something that you would never read from Krugman:
[T]he direct evidence that tighter fiscal policy is damaging growth is scarce, so far at least; study the internal details of major economic reports, and even if you squint you don’t see a lot of concrete evidence of the squeeze.
But never fear, kids, Irwin does provide an escape hatch:
So was the impact of tighter fiscal policy oversold? Not necessarily; the models used by both private forecasters and independent agencies like the Congressional Budget Office and the Federal Reserve which show a significant economic drag from tighter fiscal policy do not necessarily imply a precise timing or the exact channels through which that drag will take place. It’s an exercise in counterfactuals, and what is happening now is essentially the reverse of what happened in 2009. Then, the economy contracted significantly even amid fiscal stimulus, with models concluding that the contraction would have been worse in its absence. Now, the economy is performing well even with higher taxes and spending cuts, suggesting that growth might be even stronger otherwise.
In case you aren’t seeing how funny the above is, here’s what’s going on:
==> When the passage of the Obama “stimulus” package coincided with the economy falling off a cliff, the Keynesians said, “Oh wow, good thing we passed that! The economy is even worse than we realized!”
==> When the implementation of “austerity” coincided with an economy improving according to the standard metrics, the Keynesians said, “Phew! We got lucky! The economy was doing a lot better than we realized.”
Now there’s nothing wrong with counterfactuals; they are in fact the only way to couch economic principles. It would just be nice if some of the more prominent Keynesian bloggers stopped running victory laps and claiming they have a monopoly on empirical support for their policy recommendations. No, they really don’t.