Great Minds Think Alike
Serge Coulombe, an economics professor at the University of Ottawa, has a great op-ed in todayâ€™s Financial Post:
The Fraser report looks at the change in the contribution of government expenditures to the GDP growth between the second and the third quarters, and the third and the fourth quarters, of 2009. This approach is problematic since it focuses on the change in the growth rate. . . .
Using the Fraser Instituteâ€™s odd methodology, government expenditures would have contributed to the recovery if and only if they accelerated between the second and the fourth quarters of 2009. A steady increase in government expenditures during the period would have not been enough to contribute to the recovery. . . .
To the contrary, a plain analysis of the same data reveals that the role of government stimulation has been critical and substantial. Without the direct effect of government intervention, the recession would have extended to the third quarter of 2009 and made the recovery in the fourth quarter more modest.
Last week, I chastised the Post for shutting out criticism of the Fraser Instituteâ€™s report. I must now give it credit for printing Dr. Coulombeâ€™s piece.
However, todayâ€™s Financial Post also includes yet another op-ed from the Fraser Institute rebutting Dr. Coulombe. Over the past two weeks, the Post has published just one item critical of the report compared to three op-eds by the reportâ€™s authors, three columns endorsing it and a front-page story promoting it.
The Fraser Institute defends its methodology as follows: â€œBy definition, stimulus spending means speeding up the increases in government spending.â€ Well, by that definition, there was essentially no stimulus spending between the second and fourth quarters of 2009. If so, the conclusion is not that stimulus failed but that it never happened.
To some extent, governments have indeed run deficits simply to continue increasing public spending at the usual pace. But then we are back to a point made by Iglika and Dr. Coulombe: had governments not done so, the recession would have been that much worse.
The thrust of the Fraser Instituteâ€™s last two op-eds has been to cite academic economists whoÂ believe that stimulus does not work. True, the dominant view in neoclassical economics before the financial crisis was that fiscal stimulus cannot work.
However, this point does not prove that stimulus did not work. Instead, it underscores how far off base the conventional wisdom was.