Daniel Drezner Invents the Most Bogus Austerity “Fact” in American History
Paul Krugman approvingly quotes from Daniel Drezner, who writes:
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.
Your point here doesn’t take away from his main point, though (not that his point is necessarily a +1 for stimulus, either). But, yes, that was a “fact” he should have actually corroborated.
Right Jonathan, I was getting ready to talk about how the *reason* budget deficits improved so much, was precisely because of the austerians who ignored the recommendations of people like Krugman. But then I got distracted by the invention of a ridiculous “fact.”
Drezner appears to be some kind of monetarist. He is described as a “conservative libertarian University of Chicago political science professor” by Foreign Policy Magazine, for which he writes. He has praised worldwide central banker actions during the Great Recession. He is actually a pretty competent foreign policy writer.
He would have been right had he said “the inflation-adjusted budget deficit was shrinking at the fastest rate in American history”
http://research.stlouisfed.org/fred2/graph/?g=svY
Well, “right” only if he had measured from the very deepest depths of the deficit period- the 1946 deficit reduction was a tiny bit more extreme than the 2013 deficit reduction (in inflation-adjusted dollars).
http://research.stlouisfed.org/fred2/graph/?g=sw0
If you asked FRED to redraw the graph as “Change from a Year Ago % GDP” and start in 1950, it is perfectly clear that the 2010 uptick is unremarkable.
http://research.stlouisfed.org/fred2/graph/?id=FYFSDFYGDP#
Nice. Maybe he thinks American history began with the election of Bill Clinton?
True, he did say “as a percentage of output”, and, therefore, was very, very wrong.
It’s a good thing he didn’t say “unparalleled,” Bob, or else Daniel Kuehn would have written this blog post!
http://camarilla.owbn.net/images/1/11/Foghorn_leghorn_by_thenameisian-d3hpqri.jpg
Bob, if you plot the logarithm does it become true?
I only use natural products.
You’re getting to be like Roddis, Ryan, but without the entertaining flair that comes naturally with an old coot that’s lost some of his marbles.
Haha! RPLong, that response from DK means you nailed him.
It seems common among Progressives for recorded history to only begin when Ronald Reagan was president.
Based on:
http://www.usfederalbudget.us/spending_chart_1890_2013USp_15s2li011mcn_F1t
and
http://www.usgovernmentrevenue.com/revenue_chart_1890_2013USp_15s1li011mcn_F0t
Years in which the deficit of the entire government, since 1890, as a percentage of GDP decreased fastest (top ten) relative to the previous year:
1920 17.48
1946 14.57
1947 9.96
2010 7.86
1944 5.94
2013 3.85
1951 3.19
1969 3
1960 2.85
1948 2.65
Most of these are during years of draw down from wars. But then, that includes the recent years, too!
But the fastest increases in deficits as a percentage of GDP, again concerning the entire government, is interesting, too:
1943 -15.85
2009 -11.69
1918 -9.97
1942 -7.98
2008 -6.43
1919 -4.95
2002 -4.71
1932 -4.23
1975 -3.88
2001 -3.42
2010 saw the fourth largest reduction, but the year prior was the second largest increase.
Additionally, those war draw downs brought surpluses. Recent reductions still leave us with large deficits. Note also that most of the reduction in 2010 relative to 2009 was on the revenue side-that’s not the case in the draw downs from the two world wars, which was actually on the spending side.