Saturday, May 12, 2012

Can data sooth the "savage" meme?

Veronique & Tyler took a beating for displaying a graph of government spending in selected Eurozone countries and questioning the severity of European austerity.

They were criticized for confusing austerity with spending cuts, not adjusting for inflation, not expressing the data as a percentage of GDP.

Despite its flaws, I think the graph has an important message, as just yesterday the AP ran a story that was picked up everywhere which had the following lede:

The European Union estimates that the economy of the 17 countries that use the euro is in recession in the wake of a debt crisis that has prompted savage spending cuts and a jump in unemployment to record highs.

The dreaded MSM is in love with the "savage cuts" meme.  The graph shows that such cuts don't generally exist.  And that is a valuable service (though the message is not yet getting through).

As to whether or not there's "austerity" in Europe, that determination would require a precise, agreed on definition of the term, which we currently lack. Perhaps the NBER could devise a method to identify austerity periods like they currently do for recessions.

As an awkward aside, I'd also like to point out that expressing government spending as a percentage of GDP when the economy is in a recession would tend to hide rather than reveal spending cuts, so I think giving the raw numbers is the right approach (though an inflation adjustment would be helpful).

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