What is Dead can never Die: American Austerity Edition

Yesterday, Sir Mathew Yglesias proclaimed that "2014 is the year American austerity came to an end"

Which kind of cracked me up. I guess the syllogism is (1) we had austerity, (2) austerity hurts growth, (3) growth picked up in 2014. (4) Therefore Austerity is over.


Here's the data series from 2000 through q3 of 2014 (and it's the same data Matt is using):

From this graph I concluded one of two things must be true depending on one's definition of austerity.

Either austerity means nominal cuts and we never had any of it, or austerity means cuts relative to trend and we are still savagely in its grasp.

Relative to the 2000-2009 decade trend, total government spending is roughly 35% lower in q3 of 2014 than it should be. Hard to say austerity is over by that metric.

When I tweeted this at Sir Mathew, he responded that it "seemed like semantics". One of us, and it could easily be me, does not know what that word means.

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).