JONATHAN CHAIT AUGUST 27, 2010
David Brooks today says there has been a "natural experiment" of the propostion that a bigger stimulus promotes economic growth. America had a big stimulus, Germany didn't, and now germany is growing faster:
This divergence created a natural experiment. Who was right?
The early returns suggest the Germans were. The American stimulus package was supposed to create a “summer of recovery,” according to Obama administration officials. Job growth was supposed to be surging at up to 500,000 a month. Instead, the U.S. economy is scuffling along.
The German economy, on the other hand, is growing at a sizzling (and obviously unsustainable) 9 percent annual rate. Unemployment in Germany has come down to pre-crisis levels.
Fortunately enough, this argument was already pre-butted by Paul Krugman on his blog a couple days ago:
[I]t’s also worth having some perspective on actual German performance to date. Here’s a chart:
Everything you’ve been hearing is about that uptick at the end. But I’m not willing to declare an economy that has yet to recover to the pre-crisis level of GDP an economic miracle.
Basically, here’s the German story: it’s an economy that didn’t have a housing bubble, so it wasn’t caught up directly in the bust. But it’s very export-oriented, with a focus on durable manufactured goods. Demand for these goods plunged in the early stages of the crisis — so that Germany, remarkably, had a bigger GDP decline than the bubble economies — but has bounced back since summer 2009. This has pulled Germany back up; exports to China have done especially well.
The giveaway line in Brooks' column is "natural experiment." There's no such thing as a natural experiment in macroeconomics. You can have a natural experiment in micro-economics -- treat one group of workers one way, and treat a control group a different way. But whole economies are too large to run experiments with -- there are always innumerable other factors at play.