Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday, 19 June 2015

Telling lies

What do you do when a well known macroeconomics blogger says you have made a claim which you have never made? You have in fact clearly said the opposite, and the claim you are supposed to have made is obviously silly. Ignore it maybe? But then you get comments on your own blog expressing surprise at how you can make such a silly claim. There is only one thing you can do really - write a post about it.

Some background which is important because it makes it clear why this is no simple misunderstanding or mistake. I had been reading stuff about how US growth in 2013 refuted the Keynesian position on austerity. 2013 was the year of the sequester, when many economists had voiced concerns about how a sharp fiscal contraction could derail US growth. Growth in 2013 turned out to be modest, and this led some to argue that this modest growth had refuted Keynesian economics.

So I thought I’d do a simple calculation, discussed here. I took the data series for government consumption and investment (call it G), and computed what growth would have been if we assumed an instantaneous multiplier of 2 and no austerity. If the 2013 experience really did refute the Keynesian position, then my counterfactual calculation of growth without austerity would have given some implausibly large number. I choose a multiplier of 2, because that rather large number would give the Keynesian analysis a real test. I did the same for earlier years. The counterfactual number I got for 2013 growth was 3.7%, rather than actual growth of 2.2%, with similar growth rates for earlier years. Hardly an implausible number for a recovery from a deep recession with interest rates still at zero, so no obvious refutation.

Scott Sumner then wrote a post where he said three things in particular.

1)    “Simon Wren-Lewis also gets the GDP growth data wrong”
2)    “He claims that RGDP growth was 2.3% in 2012 and 2.2% in 2013”
3)    “austerity began on January 1st 2013”

(1) and (2) were a rather strange way of saying that I should have used Q4/Q4 growth rather than annual growth. On (3), I wrote a new post simply plotting the data series I had used, which shows a pretty steady fiscal contraction starting in 2011 and continuing in 2013. [1]

Which brings us to his latest post. He writes, about those two original posts:

“He [sic] second claim is to deny that austerity occurred in 2013.”

He goes on to say that this claim is absurd, which of course it is. The only problem is that I never made it, or anything like it. In fact I obviously thought the opposite.

Could this be a simple misunderstanding? There are two reasons why not. The first was that my counterfactual with no fiscal contraction had raised growth from 2.2% to 3.7% in 2013. That would not happen if there had been no austerity in 2013. The second was that I had reproduced the data which clearly shows continuing austerity in 2013! So this was no misunderstanding, or even exaggeration. It is difficult to know what else to call it other than a straightforward lie.

[1] Sumner also says in this latest post that I’m using the wrong variable: rather than G I should use a more comprehensive measure including taxes and transfers, because G is not the variable used to measure austerity in the Keynesian model. But he must know that macroeconomists use both G and some measure of the deficit to look at short term fiscal impacts, for a simple reason. Consumers can smooth the impact of tax and transfer changes, while the impact of G is direct. So equating a $ worth of cuts in G with a $ tax increase, as a deficit measure would do, is wrong: particularly if timing is important, which in this case it is.

So using G is a pretty standard thing to do. In this case, however, it does not seem to make much difference. Here is the IMF WEO series for the US structural deficit. It shows a very similar pattern to G. Austerity starts in 2011, and continues thereafter. 


  1. It's what some people do when they can't find any counter-argument. I expect he'll be calling you names next :-)

    1. Good thing the world doesn't work on what you expect then.

    2. This reply doesn't make sense. Krugman isn't the one he's replying too you know?

  2. Yes, I certainly wouldn’t accuse Scott Sumner of being able to think clearly. His big idea is what he calls “monetary offset”. That’s the idea that the central bank is likely to negate or counter any stimulus implemented by the fiscal authorities, ergo fiscal stimulus is no use. See this article of his.

    You don’t even need to be up to GCSE standard in economics to see the flaw in that argument: rather you need a grasp of logic, as follows. The fact that X can, or is likely to mess up Y does not prove that Y is no use. E.g. opening every window in a house in the middle of Winter messes up attempts by the central heating system to keep the house warm. That does not prove that central heating is no use.

    A more logical conclusion to draw from the fact that central banks sometimes negate fiscal stimulus (a conclusion that I personally draw) is that it’s daft having two separate bodies doing the same job: implementing stimulus. That’s a bit like a car with two steering wheels each controlled by different individuals.

    1. "Yes, I certainly wouldn’t accuse Scott Sumner of being able to think clearly. His big idea is what he calls “monetary offset”. That’s the idea that the central bank is likely to negate or counter any stimulus implemented by the fiscal authorities, ergo fiscal stimulus is no use. See this article of his. "
      Total nonsense.
      But I disagree that banks can negate stimulus because the treasury has reserve powers over the Bank of England.

    2. Random,

      If you want to claim I’m talking “total nonsense”, any chance of your producing some actual reasons? I.e. I assume you’ve actually read the article of Sumner I referred to and have a different interpretation of it to mine. In which case can we have your interpretation including relevant quotes from his article?

      I set out my reasons for my interpretation, including relevant quotes here:

    3. I'm claiming Summers is talking total nonsense not you Ralph.

  3. Ralph Musgrave, your metaphor isn't very useful because the monetary offset hypothesis also applies when fiscal policy adds downward pressure to NGDP. Using your metaphor, it would be like saying that closing every window produces the same warming effects as using the heating system, which begs the question of why you are using the heating system over the windows. It would be more useful to just directly refute monetary offset, as the housing metaphor is more confusing than illuminating.

    1. I think most people realise that most analogies are far from perfect. But they do bring ideas to light and I’m not going to stop using analogies.

      Re your point that my analogy does not cater for where “fiscal policy adds downward pressure to NGDP”, budget surpluses are a rarity and will continue to be whatever George Osborne’s “budget surplus” ambitions may be. And for that reason or perhaps other reasons, Sumner concentrated on fiscal STIMULUS, rather than the opposite in his article. So I’m not making a big apology for omitting your “downward pressure” point.

      However to be strictly accurate I should of course have catered for that point.. And that’s easily done by rephrasing my X/Y point. I should have said something like “The fact that X can negate or amplify the effect that Y has on Z, whether the effect that Y has on Z is positive or negative, does not prove that Y is of no use.”

  4. Professor Lewis, one confusion might be rooted the fact that Paul Krugman and Mike Konczal cited 2013 as a "test" of fiscal vs. monetary policy. At the time, I read those articles and came away with the impression that they viewed 2013 as an especially austere period, but rereading, there are no clear metrics to explain the choice of time frame. These are the articles in the particular:

    Krugman -

    Konczal -

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  6. I think you may have misinterpreted Sumner. When he says you were claiming there was no austerity in 2013 he was, on my reading, referring to the following line:

    "According to Sumner “austerity began on January 1st 2013”. Now look at the graph."

    I don't think he was stating that you did not believe austerity had been in place since 2008/9 and was still ongoing during 2013. Of course this is a belief you clearly hold both from the graph you mentioned in "Sachs and the age of..." and nearly everything else that you have written.

    Sumner believes you are saying that there was not a particularly sharp increase in fiscal contraction beginning January 1st. On this, I believe more sensible reading, he was not lying but was possible misinterpreting what you meant by the above quote.

    Are you suggesting that there was not a sharp increase in fiscal contraction in January 2013 as a result of the sequester? That is what Sumner seems to believe you are claiming.

    1. I have read this comment a few times and still it makes no sense to me. The line you quote from me has an obvious meaning: the statement that austerity began in 2013 is wrong. If in his latest post he had wanted to talk about rates of change he could have, but he didn't. Indeed, after saying the first time that I claimed there was no austerity in 2013, he says that the claim boggles the mind, and to show why he says the deficit fell between 2012 and 2013. Nothing about rates of change there!

    2. This comment has been removed by the author.

    3. In that case let me have one more try.

      When Sumner is talking about austerity occurring in 2013 he is talking about the sequester. So when he says “austerity in 2013” I read him as saying “the increase in fiscal tightening caused be the sequester in January 2013”. I am pretty sure this reading is the intended reading. I would be shocked if Sumner was claiming that there had not been an ongoing fiscal contraction since 2010.

      Given this interpretaion, when someone says “the statement that austerity began in 2013 is wrong” in response to his claims about the sequester and its effects he reads this as saying either a) the sequester was not a significant fiscal contraction; or b) the effects of the sequester kicked in before 2013. He certainly does not read this as “there was also fiscal tightening before 2013.”

      Why not?

      Because he doesn’t think it contradicts his point that the sequester was an increase in fiscal tightening followed by higher growth rates.

      Sumner imputed to your statement the only meaning he believed would be a contradiction to his point about the sequester. So when he says you do not think austerity occurred in 2013 what he really means is "Wren-Lewis thinks the sequester in 2013 was not a significant increase in fiscal contraction".

      It would be good to hear a good faith discussion of the sequester, its size, its effects and, relatedly, the role of predictions/warnings in public economic discourse and policy.

    4. By "good faith discussion" I actually meant to say a discussion in which both parties treat the other party as arguing in good faith. I am not saying that I believe either you or Sumner are arguing in bad faith.

    5. Even if Sumner was using austerity to mean sequester (and why should he do that), there is nothing to justify saying that I claimed austerity=sequester didn't happen. As he said, its an absurd claim.

      You seem to have a lot of faith in Sumner's veracity. All I have to go on are his interactions with me. They start some time back when he claimed I had made a mistake in one of my posts because if savings increased, investment would rise by the same amount with no change in GDP. It was a stupid error, but he never acknowledged it. Then there was the paragraph that I quoted, where he said I got the GDP data wrong, when what he meant was that I was using the wrong data point. Now this. Its consistent with someone whose main aim is to appear to win debates.

      You say it would be good to hear a good faith discussion of the sequester. Can I suggest what such a discussion would look like. After my original post, Sumner or someone else should have attempted to show that if you do the kind of calculation I did, but in a different way (using Q4/Q4, or including taxes and transfers), you do indeed get stupid results, and that therefore the claim that 2013 was inconsistent with Keynesian economics is still valid. Sumner has asserted it will, but neither he (nor anyone else to my knowledge) has bothered to do the calculation. There is an obvious conclusion to draw from that.

    6. Simon, Mark Sadowsi mentions you and Scott and 2013 in this new post.

    7. I think there was something to justify claiming that you said austerity="sequester not important" or "effects started before 2013". Its exactly what I said previously, you said "austerity started before 2013" as a critique of his point that the sequester had been followed by high growth in late 2013 and his discussion of using Q4/Q4 data to analyse the sequester. The only way he could interpret that as a criticism was if he took you as meaning either the sequester was not large or that it had somehow happened earlier. This would be a crazy belief for you to have. Sumner may well be guilty of leaping too quickly to an interpretation of your statement that would require you to be crazy or ideologically driven. But we can all be guilty of such behaviour, can't we?

  7. it's a known fact that sumner is hopeless. annoyance pulls you in, but then you're swimming in gelatin. better direct your energies elsewhere.

  8. Simon, what is your view on the MMTers Job Guarantee?
    It uses a fixed wage buffer stock of employed instead of unemployed. So you can have full employment and price stability.
    I know mainstream economics disagree with other MMT proposals but this seems extremely sensible and it seems incredibly unfair for the government to use unemployment to control inflation.

  9. Sumner is an economics Professor is he not? Not just any old blogger. He should apologise unless he can defend his claims.

  10. weareastrangemonkey some relevant facts.
    1)sequestration occurred March 1 2013 not January 1 2013.

    2) It was a reduction of discretionary budgetary authority, that is reduced G without changes in taxes or transfers.
    3) Click the link in "new post simply plotting the data series I had used" to see the graph -- --
    no dramatic shift in US G occured at the time of sequestration

    This is accounting. It isn't all that amazing really. Sequestration was threatened a year and a half in advance. It was a reduction in spending allowed in Fiscal 2013 (ending September 30 2013) so did not imply immediate cuts within say a month. Finally a much of US G is expenditures by state and local governments -- they had sharply cut back spending during the years before sequestration so US G stayed pretty much on a decreasing trend.

    On January 1 2013 there was the legally distinct fiscal cliff. This encluded expiration of the Obama enacted tax cut (the partial payroll tax holiday) and of Bush tax cuts on income over $400,000 per year. It doesn't show up in the graph of G, because it was an increase in taxes.

    See the post's footnote 1 for the justification for using G not the deficit. It is conventional to look at both separately based on Ricardian ambivalence.

    1. I agree with all 3 points - I don't think they bear on the overriding issue. Perhaps I was sloppy enough in my writing that you think I was saying something that I was not.

      There was a large fiscal contraction (including sequestration, tax increases and changes to transfers) in 2013 relative to previous years. I believe that Simon agrees with this claim - certainly many other fiscally focused Keynesians did. Fiscally focused Keynesians predicted dire consequences.

      Those dire consequences do not appear to have materialised.

      Sumner wants to discuss the fact that these predictions did not come to pass. When he says "austerity in 2013" he means the higher rate of fiscal consolidation that occurred in 2013. The same contraction that Krugman and hundreds of other economists predicted would have a huge negative impact. I think it patently obvious that this is what he is trying to discuss and what he means by austerity in 2013.

      I have not seen a good response from fiscal Keynesians along the lines of

      "Yes, we predicted low growth would be the result of the sequestration and tax raises. Yes, that low growth did not occur. Yes, we said this was a test of market monetarism and if it were then this test was passed. Yes, we get angry with other people for not changing their opinions when their predictions don't come to pass. But ....."

      I am not sure what should follow the "but", I have some ideas, but this needs to be answered head on in an honest, open and humble fashion. I am not a macro guy but I follow it fairly closely none the less. The failure of Krugman and others to hold their hands up over this and deal with it properly has really annoyed me because, quite frankly, I expected better from people I broadly consider to be on "my side".

    2. weareastrangemonkey: It is not clear to me that there was a higher rate of fiscal consolidation in 2013 than in previous years. This is not the case if you just look at G, but it is also not the case if you look at the IMF's measure of the structural budget deficit as I noted in the post.

      It is pretty clear that this was not what Sumner had in mind, for the reason I gave in my first reply to you. Why argue I was wrong about rates of change, and then just give figures for the change?

      Other people can try and justify what they wrote or forecast, but as an academic that is not my primary interest. My primary interest is whether the events of 2013 clearly showed that monetary offset was operating, and that the fiscal multiplier was near zero. They do not. We do not need to look at forecasts or what people said - we have the data!

    3. Points well taken. I hold to the miscommunication hypothesis as I don't have to impute crazy beliefs or outright dishonest behaviour to Sumner. We clearly have different priors on Sumner. We will hopefully see what Sumner actually meant when he replies.

      On your point of just looking at the data, the whole reason that Sumner (and others) were raising this issue is because your political and academic allies (in the sense that they have similar political goals and beliefs about macro) made bold assertions which did not come to pass. Combined with this, these same people were criticising their/your opponents, quite harshly, for not changing their beliefs about the economy in the face of failed predictions.

      It may have been a mistake for people to assume that you were defending those people's statements, forecasts or previous practices. However, you did write these posts in reply to Sumner's post criticising these very statements, forecasts and practices. So it does not seem entirely unreasonable that this is how your statements were interpreted.

      That said, I agree 2013 didn't show much. The range of fiscal multipliers compatible with such a small data set is going to be very large. It shows neither that the fiscal multiplier was high nor that monetary offset worked. Of course, it was very unlikely it ever could - if it was a test, it was massively underpowered.

      But, in some sense, I think that this may be the point. Sumner's argument, I sincerely hope, is not that the four quarters of growth and spending in 2013 should be our method for deciding on the power of monetary offset - this would be ridiculous. His argument is really that certain fiscally focused Keynesians claimed it was a test; it has not come out the way they predicted; they are trying to ignore this or claim it wasn’t really a test; they have strongly criticised others for engaging in the same behaviour; they should be acknowledging these facts and give some discussion of what that actually means with respect to their previous conduct.

      I believe this is really less a debate about Macro and more an argument over the terms of the public debate about Macro.

    4. I'm glad we agree on what the data shows, even if we do not agree on what this debate is about, or how much 'interpretation' others are allowed in what they write.

    5. Just to be clear, I don't know if the data shows an increase in the rate of fiscal tightening or not, when we account for everything properly. All I do know is that the 2013 experience does not have much power to reject a fiscalist or a market monetarist hypothesis. The data does reject the forecasts and predictions that were getting put forward by fiscalists for that year - which as far as I can see is what Sumners and co. want to be acknowledged and dealt with.

  11. I do want to praise your effort at diplomacy weareastrangemonkey. I have a strong guess that you have expended some time and effort trying to promote a more pleasant and discussion (the hint of more than usual care for a commenter are the two comments "removed by the author".

    I can't read your mind and don't want to be smarmy but I do have a favorable impression.

    1. You are a saint in resisting reacting to the provocative titles of these blogs. The careful crafting of most of the content is Krugman-like in its ability to have escape routes.

  12. Sorry for the boring question, but how does one go about calculating this counterfactual GDP?

  13. Seems to me that Sumner's insight about monetary offset, even at the zero bound, is tremendously important.

    But then he goes and overstates it while arguing mendaciously. It's a real shame ...

  14. The so-called Keynesian multiplier during recessions is negative. Of course no model takes that into consideration, so the debate about austerity can go on until the end of time with no progress on either side.

  15. Some non US folks may not know, this, but is illegal for state governments to run deficits. States run the schools and other services. States like Florida had huge housing bubbles and enacted austerity right afer the 2008 crash. So the 2009 stimulus was to small, but it did save jobs acccording to CBO.

    Sumner sounds trollish.

  16. Bravo! Calling lies for what they are should be done carefully and only after full consideration. As in this case. There should be more damaging consequences than there are in economics for those telling lies professionally. Maybe you will start a trend that begins to introduce them. I wish you luck.

    1. bravo!
      Except, not

  17. Why should anyone bother with anonymous postings? If you don't have the backbone to stand behind your comment personally we can safely ignore it unread.

    Puzzle solved. Growth in 2013 was driven by oil capex. Growth was reduced to about half of potential due to austerity.
    Now oil price has fell, no more oil cap ex :o

  19. Concerning the 2013 US austerity:

    Primary Balance as a % of GDP (IMF):
    Year Value (%) || Difference_with_prev_year
    2009 -11.6 || -6.6
    2010 -9.2 || 2.4
    2011 -7.6 || 1.6
    2012 -6.3 || 1.3
    2013 -3.6 || 2.7
    2014 -3.2 || 0.4

    Cyclically adjusted Primary Balance as a % of potential GDP (IMF):
    Year Value (%) || Difference_with_prev_year
    2009 -8.3 || -3.4
    2010 -8.0 || 0.3
    2011 -6.2 || 1.8
    2012 -4.6 || 1.6
    2013 -3.2 || 1.4
    2014 -2.4 || 0.8

    Looking at the "raw" data, 2013 was a very, very, austere year. The cyclical adjustment "filters" it out.

    Why were the cyclical adjustments so large in 2013?


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