Your Lying Eyes

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23 February 2011

Austerity or Stimulus

David Leonhardt in the Times argues that deficit spending has been successful in the U.S. while austerity has been a failure in Germany. He points out that the U.S. economy has grown past it's low point while Germany hasn't quite made it back yet.

But at what cost have we acquired this "prosperity"? As of 12/31/2010, our GDP is $836 billion higher than it was at it's lowest measured point, June 2009. Since the end of 2008, we have added $679b. Over the last two years, our budget deficits have totaled $2.7 trillion. Now if you lost, say, $50k in income, and made up for it by borrowing $150k, would you say you had a successful recovery from your income hit?

Deficit spending to pull out of a recession makes sense if the resulting boom will pay for itself in increased revenues from the rapidly growing economy - that's the whole idea. In that we have failed miserably. The stimulus program has clearly been an abject failure. If Germany achieved its more modest growth at a much lower cost, then their approach is the more successful, and the one to be emulated.

Sources: and the OMB.

P.S. - Also, from the graphs shown on the sidebar of Leonhardt's column, it looks like Germany has actually grown faster out of its trough, which was deeper to begin with than the U.S. low point, so it's possible Leonhardt's entire premise is faulty from the get-go.


Blogger C. Van Carter said...

People who don't write for the New York Times think Germany's economy slowed late last year because of the worst winter weather decades. See here, and here.

February 23, 2011 7:09 PM  
Blogger ziel said...

Thanks Carter. In addition to the other flaws, Leonhardt also seems a bit premature in his declarations. We'll see what the rest of 2011 brings, and if it's a different story.

February 23, 2011 7:32 PM  
Anonymous Deidra said...

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September 22, 2012 3:02 PM  

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