« "Skill", disposition and circumstance | Main | Defending FPTP »

April 26, 2010


Luis Enrique

if you looked at govt. spending as % of GDP, might things appear a little more Keynesian still?


Yeah, but I would take against Luis' approach there. Have a vanishing divisor and of course spending looks like a huge increase. But why is the baseline "same % of GDP"? Since the object is to add up components of GDP, I think such an approach would be misleading. For a start, it means that if an economy craters - say, half GDP is wasted in some disaster - and government spending falls by only 25%, the '% of GDP' method shows an INCREASE - i.e. a Keynesian splurge.

I think Chris puts it exactly right; our govt kept things from getting worse by not (attempting to) mimic the private sector's manic dissaving - but it did not do a Keynesian boost any greater than normal increases in consumption.

Luis Enrique


gpwm ... I had thought that merely holding govt spending steady whilst the denominator collapses was Keynesian after a fashion, at least compared to letting G shrink in proportion to Y, but on second thought, that's not the right way to look at things, the right way is in absolute levels, not % GDP.


Isn't the point that the government engaged in a Keynesian spending splurge in the shallower recession of 2001-2003? It then - fatally - assumed that tax revenues had risen to a permanently higher level and didn't scale back spending during the boom. The story of the recession is a collapse in tax revenues, not a spending splurge.


There was (effectively) no stimulus, just the automatic stabilisers. Net spending necessarily increased, and this is counter-cyclical. But we gave all the spare cash to the financial sector.

Next stop, some hopefully mild delfation. It's the consequence of living beyond one's means, don't you know!

The comments to this entry are closed.

blogs I like

Blog powered by Typepad