Recent Fiscal Policy: Its Impact on the Economy and the People in It

November 11th, 2013 at 2:16 pm

I gave this presentation the other day and figured folks in these parts might “enjoy” the slides.  Pretty self-contained, but here’s a slight bit of annotation:

Slide 3: I wrote about this here as well.

Slide 4: references the CDSH position, introduced here.

Slide 6: An awfully compelling picture, IMHO, of the speed of recent deficit reduction.  I know some look at this slide and are aghast by “deficit mountain” as it were, but I boldly assert that the question is not whether the deficit was too high; it is “did it go up enough—temporarily—to adequately offset the demand contraction?

Interestingly, in many talks in recent years, people totally get that point.  And yes, there’s a selection bias—they’re coming to hear me talk.  But I’m quite certain that’s not the whole story.  It’s also the case that the average person doesn’t assume that public borrowing in the interest of offsetting the economic pain of recession is a bad thing.

BTW, of the six percentage points in deficit reduction from 2009 to 2013 (the def/GDP ratio fell from 10% to 4%) 63% came from lower spending; the rest from higher revenues.  Note that not all of that is policy driven—spending falls and revenues rise even with no policy changes as the economy recovers.

Slide 7: From GS researchers, who tell us that fiscal drag has been relatively large in 2013, mostly from the premature expiration of the payroll tax break.  Anyway, diminished fiscal drag is one reason most forecasters expect the economy to grow faster next year.

Slide 9: I tried to get a little creative here, just grabbing a bunch of headlines from the buzzfeed link.

Slide 10: The safety net was a lot more effective than people realize.  My CBPP colleagues have been blogging on this.

Slide 11: Self-explanatory, but note the first bullet: Separate fact from ideology: fiscal policy works, dysfunction doesn’t.

During Q&A, someone asked me how we can do that—re-direct the debate back on the road to factville.  Other than “that’s what I and many others spend most of our waking hours doing,” I didn’t have much of a response.

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3 comments in reply to "Recent Fiscal Policy: Its Impact on the Economy and the People in It"

  1. Bill from NC says:

    “Separate fact from ideology” — Perhaps this is the biggest challenge. When so much ideology has replaced fact, there’s no real chance for debate.

  2. Dave says:

    I have the solution to the problem. No nonsense. The problem is getting the vision across to people that want to hear it.

    Imagine we could tear the debate away from the people that control it at the current time? Wouldn’t that be the obvious way to fix this?

    Jared, you and others on your side are not part of the debate. Obama has made that happen. The only debate we should be having is in how, exactly, to fix the problem through good government policy.

    This isn’t a debate that will happen within existing media, not ever. And these blogs are seen as too partisan or ideological to be capable of pulling at the critical mass of the general public.

    The debate has to be torn away from the powers that be and put into the hands of the people. It will be a hard task requiring the efforts of a lot of people. Word of mouth, etc…

    But there has to be a sense of having a 100% fair place to have the debate. That is what I’ve created at

    Thank you for your support.

  3. Dave says:

    I just read Krugman’s summary of Summers’ talk.

    It is precisely what I said, and yes, I was the first to say it, anywhere, that the economy needs bubbles to maintain full employment since the 80s. Actually, I attribute some of my willingness to finally say this as I did recently to Dean Baker, and his willingness to persecute Clinton’s economic policies. I was always a bit hesitant to do that because Krugman has defended him and because Delong and Reich were part of the administration.

    Anyway, all I ask is that you help me get some people interested in my web site. It is important for the future. I have my economic insights freely because I was working on this. All I ask is that people give it a chance.

    I plan to stay out of the discussions on my own site for a long, long time. That is, if I can get some people willing to participate freely.

    If I can’t get them to participate freely, and I can find no other way to effectively market this web site, I will become a journalist and tear this field into shreds for the people on my own web site. It won’t be ignored.