One of the Beltway tribe’s greatest strengths is also one of its greatest weaknesses: groupthink. As I noted before, a Beltway consensus actually counts for something in the world of international policymaking. That does not mean that this consensus emerges from any solid analysis, however. For example, a hidden cause of the enthusiasm for austerity in Washington that crested in 2010 was the consensus among foreign policy pundits that U.S. debt was spiraling out of control, rendering Washington vulnerable to foreign holders of U.S. Treasuries. This groupthink formed at the same time that the budget deficit as a percentage of output was shrinking at the fastest rate in American history. By the time the consensus had emerged, however, the change in the facts didn’t matter. Since the principal activity of Beltway folk is to talk to each other, the result is a feedback loop of confirmation bias that eventually leads to epistemic closure. [Bold added.]
OK, that sentence I put in bold? Drezner completely made it up. It’s not even close to being true. It’s so wrong I can’t even imagine what he was thinking, except that he decided to take something that was unusually large and christen it the biggest in American history (hence the tongue-in-cheek title of my blog post). It is particularly ironic that this bogus “fact” is included as part of a condemnation of the austerian groupthink, a condemnation that Krugman pasted into his own post for his readers to see.
Anyway, if you want a picture to see just how wrong it is, we can turn to FRED which has a nice series of the federal budget surplus or deficit as a share of the economy. Now one might quibble about whether Drezner/Krugman has “total government” or “federal government” in mind, but I think you’ll see that it doesn’t really matter:
Drezner/Krugman are claiming that the little uptick around 2010 is the fastest such move in all of U.S. history. Really? More so than after World War II? According to the White House’s historical budget tables, the total (on- and off-budget) federal deficit went from 21.5% of GDP in 1945 to 7.2% in 1946, a move of 14.3 percentage points in a single year. In contrast, from 2009 to 2010, the deficit fell from 10.1% of GDP to 9.0%, a move of 1.1 percentage points. I’m pretty sure 14.3 > 1.1.
Incidentally, you can’t even say, “Oh c’mon Murphy, everybody throws World War II stuff out of these types of discussions.” According to the same White House table, the budget deficit was 5.0% of GDP in 1986, but only 3.2% in 1987, a move of 1.8 percentage points. Thus the drop in the federal deficit from 1986 to 1987 was bigger (as a share of the economy) in both absolute terms and relative to the original deficit, compared to the period that Drezner classifies as the fastest in American history.
Besides the irony of Drezner just making up bogus facts in the midst of wagging his finger at the “austerians” for their groupthink (and Krugman high-fiving him), is the more substantive point that there is nothing “unprecedented” about the recent move away from the deep deficits following the 2008/09 crash. Historically there have been far larger moves. The biggest one, due to the demobilization following World War II, was characterized by a technical (and short) recession as classified by the NBER, but was associated with a massive period of private sector growth. (Here’s David R. Henderson’s discussion of the post-WW2 miracle.) So not only do our Keynesian friends have their statistics wrong, their entire message is unfounded: Cutting government spending yields prosperity, not depression.