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April 26, 2010

Comments

Luis Enrique

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

Giles

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

Giles,

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.

Econoclast

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.

vimothy

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!

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