Monday, September 12, 2011

Robert Barro does not believe in evolution

Okay, in all fairness he does not believe in expansionary fiscal expansions. But it is the same. All the evidence supports the functioning of the simple Keynesian multiplier. One might disagree about its size, but not its existence. Barro says that we are in:
"the third year of a grand experiment by the Obama administration to revive the economy through enormous borrowing and spending by the government."
You would expect that at least when referring to the data he would be accurate, but evidence has nothing to do with how he understands the economy (remember this is the guy of Ricardian Equivalence, i.e. if the government increases spending, people raise their savings proportionally to pay the future anticipated taxes with no effect on output).

The graph below shows percent changes in total government spending and revenues since 2006.
As it can be seen, spending (in red) increased in 2008, as a result of the recession, but has been falling ever since. The deficits are caused, not by an experiment in Big Government as he suggests, but because revenues fell.  And yes the recovery, even a mild one, led to a significant increase in revenue last year. In 2010 revenues increased by 7% from previous year, while spending did it by only 0.7%. That's why in the first year of Obama's own budget, in 2010 (2009 he inherited from Bush), the size of the deficit actually fell (a bad thing, by the way, in the middle of a recession). So to avoid a double dip recession we need to do the opposite of what Barro says.

PS: Krugman also criticizes Barro here.

1 comment:

  1. Uma pena que só os brasileiros podem se divertir com a relação entre a natureza da obra desse senhor e o pun (ou double entendre.. ou trocadilho...) com seu sobrenome. Citando o mala do Caetano Veloso: seu nome é a sua mais completa tradução.

    ReplyDelete