Today, John Lott continued the argument that austerity in Europe is working, and stimulus is not. However, he does so in a rather peculiar manner. First, he writes that:
The last four years have proven that big government and deficit spending are not the answer, as we can see across the globe. Countries with the largest increases in spending or debt have also the fewest jobs created as well as the lowest economic growth.
And to prove this phenomena of the last four years, Lott wants to:
Start with 2007, the last full year before the worldwide recession hit and before governments started their massive government spending programs. And end with 2010, the latest year with enough data available.
Uh, okay. We are going to get a look at the last four years, by looking at 1 (or maybe 2) of those years. Anyways, Lott argues that:
The most frugal countries were: the Czech Republic, Hungary, Israel, Poland, Sweden, and Switzerland. Their per capita government spending actually shrank by anywhere from 0.2 to 6.3 percent. The result? Per capita GDP grew by an average of 7 percent over the three-year period. These countries also saw the share of their working-age populations with jobs grow.
I first want to take issue with the employment claim. Below are the employment numbers for the U.S. and the six countries noted above. The U.S. (in turquoise) is among the highest of the seven.
But, that was largely due to the fact that the U.S. experienced the highest spike in unemployment of the seven countries. Subsequently, and contrary to Lott’s insinuations, the U.S. has not lagged behind these six countries in unemployment rates. According to the data, through 2012 the U.S. had the fastest declining unemployment rate besides Israel.
Next, Lott’s GDP growth claims are also somewhat dubious, with the U.S. outpacing 5 out 6 of the other countries between mid-2011 and mid-2012.
Of course, this does not directly counter Lott’s assertions since he focused on the period between 2007 to 2010. However, in that case, Lott should not make comments about the post-2010 period if he is not going to present the data, which shows a different story than the one he presents.
Further, I was also intrigued by the fact that Lott designated Estoinia as a “stimulus” country, given that many on the right championing the virtues of austerity have used that country as evidence of austerity’s success. For instance, in a piece for the National Review, Matthew Melchiorre writes:
Unsurprisingly, anti-austerity politicians and activists never mention the case of Estonia when they clamor for more Keynesian stimulus spending . . .
After enduring one year of painful but necessary cutbacks by government and business in order to regain competitiveness, Estonia is now outperforming the U.K. on every major economic indicator.
In a blog post from 2012, though I am not entirely clear his stance on the matter, Lott appears to argue that Estonia followed a stimulus policy:
Estonia was getting worse relative to other countries when it followed more of a Keynesian policy and has been growing relative to other countries since then.
I am not sure if the “since then” is supposed to indicate a change in policy, but Lott would not be the first conservative pundit to argue that Estonia is beholden to Keynesian policies. From Time.com last August:
On his blog The Market Monetarist, Danske Bank Chief Analyst and self-described “right-wing economist” Lars Christensen suggests that Laffer has joined a number of other right-wing economists in the U.S. who “seem to have forgotten everything about economics — mostly as a result of an apparent hatred of President Obama.” Laffer, he argues, “is embarrassing himself” with his WSJ op-ed by pretending that Estonia, Ireland, the Slovak Republic, and Finland have been ruined by an excess of Keynesian zeal.
In fact, as Christiansen points out, Estonia, the Slovak Republic, and Finland are among “the most fiscally conservative countries in the EU,” while Ireland’s been spending its money on banking bailouts, not stimulus.
Regardless of where he places Estonia along the Keynesian-Austerity spectrum, Lott’s assertions regarding the virtues of austerity vs. U.S. policy are dubious, largely because he ignores the last two plus years. Oh well, it fits the narrative (did I hear a dogwhistle?).