Paul Krugman: Austerity, American Style


Austerity, American Style, by Paul Krugman, in NY Times: Via Mark Thoma, Antonio Fatas has a good piece on the exceptional weakness of government spending in this recovery. I thought I might add to that observation.

Let’s look at real government consumption and investment spending — basically purchases of goods and services — from all levels of government during three recoveries: the current expansion, the Bush Boom (such as it was), and Morning in America. Here’s what you get:

Which one is different?

Now, this doesn’t include safety-net spending, which has indeed soared in this slump. But actual government purchases have been uniquely weak, largely because of budget distress at the state and local level.

And think of the way conservatives love to contrast Obama’s recovery with Reagan’s. It is, of course, a stupid comparison: the Reagan recession was brought on by very high interest rates, and a quick recovery took place when the Fed loosened up, whereas the 2007-2009 slump was a financial crisis that occurred despite low rates, leaving little room for Fed action. But it’s also true that when it came to government spending, Reagan was in effect much more Keynesian than Obama.

I expect to see this chart in the Wall Street Journal soon. Also, Winter Olympics held in Hell.

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