Bringing Krugman to Europe
Well, not him, actually (I wish I could); I need to content myself with his latest post on austerity. Krugman argues that austerity is happening (it is trivial, but he needs repeating over and over again), showing that in the US expenditure as a share of potential GDP is back to its pre-crisis level (while unemployment remains too high, and growth stagnates).
I replicated his figure including some European countries, and with slightly different data. I took OECD series on cyclically adjusted public expenditure, net of interest payment. This is commonly taken as a rough measure of discretionary government expenditure. I also re-based it to 2008, as most stimulus plans were voted and implemented in 2009. Here is what it gives:
Even if I did not plot exactly the same data, the US series seems in line with Krugman’s post, as in 2013 the OECD forecasts them to be back to 2008 levels.
Also, not surprisingly, the Eurozone peripheral countries have implemented sharp contractions (if I had to extend the range to include Greece’s 2013 level, it would have made all the other series unreadable). The large and relatively healthy EMU countries, notably France and Germany, did not expand expenditure like the others during the peak of the crisis, and are also reverting back to normal. The figure confirms the lack of symmetry of the adjustment that is taking place in the EMU. Countries that could afford to sustain global demand, joined the austerity herd.
This latter point is better made by looking at another of my favourite figures, the fiscal impulse. Cleaning government borrowing from cyclical components, and taking yearly changes, we can obtain a measure of the discretionary stance of fiscal policy. Here is what it looks like, if we cumulate it from 2008 to 2013:
This needs no comment in particular, except maybe remarking that France had a very restrictive cumulated stance, even more than Germany. For the rest, same old, same old. Too much austerity, in the wrong countries.
Krugman certainly has many reasons to complain about fiscal policy in his country. I just wish we had the same down here. I would be even happier if I had the Japanese government (and that’s before Shinzo Abe)