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Robert Samuelson Is In the Dark

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Monday, 17 February 2014 08:17

It must be great to be a columnist for the Washington Post. You get to rewrite the same columns week after week. You never have to pay attention to facts and data or even make sure that you accurately present the arguments you criticize. Hence we have Robert Samuelson telling us this morning that "economists are in the dark."

Of course he is in large part right. Given its colossal failure in recognizing the risks of the housing bubble it would be reasonable for every university to shut down its economics program, recognizing that it has about as much use as a department of astrology. But Samuelson is shooting blanks when he tells us that Keynesian economics has been proven a failure by the downturn.

"This conclusion is surely controversial because many economists attribute the weak recovery to misguided austerity, especially in Europe. Just follow the advice of John Maynard Keynes (1883-1946), they say. When the economy suffers a massive drop in private spending, government should offset the loss by increasing its budget deficits. Europe’s budget cuts were too aggressive, they say, while U.S. 'stimulus' policies were not aggressive enough.

"Perhaps history will vindicate this appeal to Keynesianism. Or perhaps not. The fact is that the United States did respond aggressively under both George W. Bush and Barack Obama. It certainly didn’t embrace austerity. Federal budgets ran massive deficits — $6.2 trillion worth from 2008 to 2013, averaging 6.4 percent of the economy (gross domestic product). Nothing like this had occurred since World War II. Yet, the economy limped along. Why wasn’t this enough?"

Yes, well we have to keep Robert Samuelson away from the really big numbers, he might hurt himself. The reason it wasn't enough is because the shortfall in demand created by the collapse of the housing bubble was even bigger, as some of us yelled at the time. The loss in residential construction was around 4 percentage points of GDP. The loss in consumption due to the loss of housing bubble generated wealth was also around 4 percentage points of GDP. Throw in another 1 percentage point each for the reduction in state and local government spending and non-residential construction and you're up to 10 percentage points of GDP; that comes to almost 1.7 trillion in today's economy.

If we sum that over 6 years we get more than $10 trillion and that's before even factoring in any multiplier effects. So, $6.2 trillion is a really big number, but the actual shortfall in demand created by the collapse of the housing bubble was an even bigger number. And those of us who pay attention to the economy were saying this as loudly and clearly as we could at the time. 

There is no problem with understanding the economy and figuring out how to turn it around. The problem is that the debate is dominated by people like Robert Samuelson who refuse to look seriously at the data and to listen to what the people he criticizes are saying.

Comments (7)Add Comment
a prime example
written by Peter K., February 17, 2014 9:39
This column is a prime example of what's wrong with Samuelson and the Washington Post.
Counterfactual Expert Discovers Fire Departments Cause Fire and Police Departments Cause Crime
written by Last Mover, February 17, 2014 9:49

Robert Samuelson, renowned counterfactual expert, released new findings on the cause of fire, crime and unemployment - big government spending.

When asked why, Samuelson pointed out that despite massive spending on fire and police departments, fire and crime still exist. Therefore eliminating these components of big government waste will result in no more fire and crime than is already there, and reduce them even more.

Specifically, once the moral hazard to be careless with fire and crime by passive encouragement is removed, and replaced with active prevention by rugged free market individualism ... the one trillion dollar output gap in annual GDP will disappear overnight along with unemployment, since they have nothing to do with lost demand from the burst housing bubble or failed monetary policy that can only push on a string at zero interest rates.

That leaves fiscal policy, and as any counterfactualist knows, like fire and police policy, the fiscal policy of Keynesianism smacks of Stalinism, Maoism, Marxism and Hitlerism.

So brace yourself America for the coming 50 years of Stagnationism brought on by the failure of big government Keynesianism, fire departments and police departments.

Arm yourselves to the teeth with guns, fire extinguishers and knee-high Fascism austerity boots ... and goose step your way out of the coming Stagnationism, won't you?

After all, it's better than the counterfactual isn't it, you know, the one posed by Samuelson that the opportunity cost of even more Keynesian spending is the equivalent of pouring even more water on fires and preventing even more crime that just keeps happening doesn't it.
...
written by watermelonpunch, February 17, 2014 10:27
Yes, well we have to keep Robert Samuelson away from the really big numbers, he might hurt himself.

+1

How does he feel okay embarrassing himself this way with simple math?

I'm envisioning him on the phone with his electric company's billing department saying, "But I sent you this huge check for $150! What's the problem?" and some underpaid call center worker calmly informing him that his bill was in fact $300, and waiting for Samuelson to get out a calculator & you know, maybe go to the doctor to have his head examined.
On the Money
written by Barkley Rosser, February 17, 2014 4:02
You are on the money again, Dean. I do not know when we shall tire of beating up on this pathetic excuse for a commentator on economics matters.
...
written by LSTB, February 17, 2014 4:18
It's funny how whenever someone says that stimulus doesn't work and that Keynesians make unfalsifiable claims, they always seem to ignore calculations of lost output.
The US did engage in austerity!
written by JC, February 17, 2014 4:51
It's worth pointing out that, contrary to what Samuelson says, the US did engage in austerity after 2010. Unprecedented austerity, actually.
...
written by watermelonpunch, February 17, 2014 6:00
The US did engage in austerity!
written by JC, February 17, 2014 4:51
It's worth pointing out that, contrary to what Samuelson says, the US did engage in austerity after 2010. Unprecedented austerity, actually.


Exactly. Sometimes I think what they mean is that if it's not complete dismantling it's not austerity. Upkeep doesn't come into it for them I suppose.

Like upkeep on Pennsylvania streets & roads & bridges.
It's not happening... like at all. It's bridges out and potholes upon deep potholes.

I'm sure the taxes they'd need to actually fix it would actually cost me less than my car repairs already.
I had to just spend about $100 to get my wheels aligned - they were all pointed in different directions. The toe & camber numbers were laughable. It got to be like trying to drive an gigantic IV drip stand through a cobblestone street that's just been hit with a Chelyabinsk meteor impact & had a Corvette museum sinkhole open up.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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