Kevin Drum Undermines His Own Cover Story and Refutes His Own Keynesian Assumptions
Update: I have posted an update with a side by side chart comparison here.
Last year, Kevin Drum wrote what I believe was the cover story of the September / October issue of Mother Jones (I read the online edition so exactly how the print version is laid out is opaque to me). That article, entitled "It's the Austerity, Stupid: How We Were Sold an Economy-Killing Lie" features this analysis:
He described the chart as follows:
In the end, for reasons both political and ideological, Obama decided that he needed to demonstrate that he took the deficit seriously, and in his 2010 State of the Union address he did just that. "Families across the country are tightening their belts," he said, and the federal government should do the same. To that end, he announced a three-year spending freeze and the formation of a bipartisan committee to address the long-term deficit.
The Beltway establishment may have applauded Obama's pivot to the deficit, but much of the economic community saw it as nothing short of a debacle. Sure, there were still a few economists who believed that even in a deep recession government spending merely crowded out private spending and thus did no good, but they were a distinct minority. Most economists acknowledged that deficit spending was appropriate at a time like this. Paul Krugman fumed that Obama was cravenly trying to score political points by doing a "deficit peacock-strut" that would be destructive in the wake of the financial crisis. Mark Zandi, a centrist economist who has advised leaders of both parties, used more judicious language, but likewise warned that spending cuts might "cost the economy significantly in the longer run."...
Taken as a whole, these measures have cut the deficit by $3.9 trillion over the next 10 years. And that doesn't even count the expiration of desperately needed stimulus measures like the payroll tax holiday and extended unemployment benefits.
This was unprecedented, as the chart above shows. After every other recent recession, government spending has continued rising steadily throughout the recovery, providing a backstop that prevented the economy from sliding backward. It happened under Ronald Reagan after the recession of 1981, under George H.W. Bush after the recession of 1990, and under George W. Bush after the recession of 2001. But this time, even though the 2008 recession was deeper than any of those previous ones, it didn't.
I thought the choice of baseline dates for his charts was deceptive, but never-the-less for the moment lets accept this at face value. Make sure to take a note of the red line, which is the current recession, and the brown line, which was the recovery from the recession in the late Clinton / early Bush years. By Mr. Drum's earlier analysis, the earlier 1990 recession was better handled than the current one (against his Keynesian assumptions) by the government continuing to increase spending after the recession to keep the recovery going. The point of Drum's earlier article was to say that Republicans in Congress were sinking the current economy by not increasing spending as was done after these earlier recessions.
So this is what Drum published the other day, I think based on a Paul Krugman article.
But I think Krugman undersells his case. He shows that the current recovery has created more private sector jobs than the 2001-2007 recovery, and that's true. But in fairness to the Bush years, the labor force was smaller back then and Bush was working from a smaller base. So of course fewer jobs were created. What you really want to look at is jobs as a percent of the total labor force. And here's what you get:
The Obama recovery isn't just a little bit better than the Bush recovery. It's miles better. But here's the interesting thing. This chart looks only at private sector employment. If you want to make Bush look better, you can look at total employment instead. It's still not a great picture, but it's a little better:
Awesome, Kevin! So I guess that austerity you were complaining about was the right thing to do, yes?
Seriously, in his article a year ago Drum argued that the Republicans in Congress were sinking the economy vis a vis the 1990 recession by not continuing to boost spending in the years after the recession. Now, he admits (though since he does not refer back to the original article I guess it is not an admission per se) that this "austerity" led to a stronger recovery than the spending-fueled 1990 version. All hail smaller government, the solution to growing employment!
PS- I wonder how much of this change in private employment since the last recession came in the oil and gas industry, whose expansion the Left generally opposes? Well, they'll bash on oil tomorrow but today, they will take credit for the jobs added.
Update: Here are the two charts combined, with other recessions removed and the colors on the data series set to match (click to enlarge)
