Your Lying Eyes

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26 February 2011

The Bogus Recovery

Not to beat a dead horse, but in my last two posts we looked at whether the Keynesian counter-cyclical deficit policies of the current administration are really working. Just to illustrate a little better how ineffectual these policies have been, I have below a comparison of the accumulated federal deficit vs. the accumulated growth in GDP for the first 6 quarters of recovery from the last 4 recessions. In all 4 charts, blue represents GDP growth while red shows the accumulated deficit from the start of the recovery (specifically, from the start of the first full quarter of recovery, to keep it in line with the quarterly GDP numbers). (Click on image for clearer view).

As you can see, this recession's growth is absolutely swamped by our increase in debt - something's that never happened before. We have in effect borrowed our entire recovery - twice over. Could this possibly be sustainable? I don't think so.

Data with sources are shown here.


Blogger Russell said...

This evidence would be easily countered by the economist-turned-far-left-opinion-writer at the NYT simply by asserting that the stimulus was not big enough. And he said it at the outset so that just proves he's been right all along. This explains why the Multiplier didn't work.

Another counter to your logic is that this recession was too deep to judge by conventional methods and that only the stimulus prevented us from sinking into a depression. And how do you counter that - oh no, the stimulus did not prevent a depression? Tough to argue against conjecture. I'm not saying I agree with these theories but that's the way it's spun.

Just read that each job created by the stimulus cost $228,000 each, according to the CBO. The CBO also estimated that between 1.4 and 3.6 million were employed as a result of the stimulus bill during the third quarter of 2010. The 228K is based on the higher jobs figure with the lower figure resulting in a cost of $586,428 per job. Pretty expensive job creation there. I get the feeling that closer examination of the jobs created/retained could turn up some questionable stats.

February 27, 2011 11:40 AM  
Blogger ziel said...

Well here's the problem with that argument - what they'd be trying to argue is that we should be doing something we've never done before.

There's just no precedence for this kind of deficit spending. If they could look at past recoveries and say "Look, we got out of the deep '81/82 recession by building up even more debt" or even "just as much debt" or perhaps even "only a little less debt" then there might be an argument.

But since we successfully* escaped from previous recessions without building up anywhere near as much debt as today, such arguments will ring hollow.

Sure, we can't do anything with blind adherence to ideology - we have plenty of that on our side too. But there's just no way you can look at this data and think even more debt is going to turn the corner.

February 27, 2011 2:21 PM  
Blogger ziel said...

* I meant to point out above that I'm not entirely sure we "successfully" recovered from the 2001 recession - technically we did, but rather than government debt explaining all the recovery, it was private debt that fueled that one - debt which we now know was unpayable.

February 27, 2011 2:23 PM  
Anonymous Anonymous said...

What's the source of the data for the charts? When you put forth data, you must source it.

March 08, 2011 11:39 AM  
Blogger Don said...

Not big enough? Look at the scale for the Y.

The fourth is three times bigger than the first three.

Consumption v investment -- it multiplies only if you spend it on the right stuff.

March 08, 2011 4:31 PM  
Blogger ziel said...

Anonymous: sorry, I put links to the data on the previous post - forgot to put them on here.

I'll update with the data.

March 08, 2011 8:24 PM  
Blogger ziel said...

Don - not sure what you're commenting on exactly, but yes the magnitudes of the latest data dwarfs the previous. That's for two reasons: 1) these deficits are humongous and 2) these are current dollars, so there's no inflation adjustment.

March 08, 2011 8:28 PM  
Anonymous Anonymous said...

The graphs are great. What would take them up a notch would be to make the grid the same for all four graphs. The current recession would dwarf the others.

March 09, 2011 9:08 PM  
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October 02, 2011 11:21 AM  

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