Sunday, February 17, 2013

Do Facts Speak for Themselves?

Last week Matthew Yglesias posted a graph at Slate without comment.  It was a FRED graph of "Federal government total expenditures" (Graph 1) and it is a graph that almost has a 90 degree angle.  He said that it speaks for itself.  This reminded me of a lesson that my Professor, Dr. Thomas Rustici, was teaching earlier that week: Facts always speak for themselves, but their meaning is always contextual.

Graph 1

I think this is actually a somewhat misleading graph, which would make this a fact that doesn't speak very well for itself because it is measured in nominal dollars.  If you turn Graph 1 into real dollars (using the consumer price index) you get Federal Government Spending in real dollars.

Graph 2

Graph 2 looks similar to Graph 1, but it is not close to a 90 degree angle.  In some ways, it is more frightening because the recent past looks more like an exponentially increasing function.

Graph 3

The spike in Graph 3 is not the stimulus year of 2009, but rather 2008.  2008 featured a robust Federal budget and several emergency stimulus measures designed to stem the recession.  There was a major tax rebate, but also major spending initiatives including ~300 billion to sure-up Fannie Mae and Freddie Mac, ~700 billion to sure-up the U.S. financial system.  The kink in the downward slope after that spike is 2009 which included the Obama Stimulus.

I bring up Presidents because these graphs are inherently political.  Congress appropriates funds for the Federal Government and the President signs or does not sign those appropriations.  All of these expenditures are painstakingly political.  Here is another graph breaking these expenditures down by Presidential term, averaging the year-to-year difference for their number of years in office.

Graph 4

This has now become a different shape than what we started looking at.  It is essentially still the same information (they are all increasing government spending), but organized in a different way and now it shows something different.  I'll let you draw conclusions from these graphs.  Does it mean that Republicans are bigger spenders than Democrats?  Does it mean that a divided Washington spends less?  Does it depend on which party controls which branch?  These graphs certainly invite these sorts of questions.  Facts always speak for themselves, but they don't say more than the fact.  It is our job to use theory, reason, logic, and fact to make arguments.  That is what Mr. Yglesias, and every economist, makes his living doing and what students such as myself practice and aspire to do effectively.

Graph Four

Graph four is another set of facts.  Please feel free to tell me what it means.

1 comment:

  1. Graph 4: a negative correlation (with 1-2 year lag) is evident. It means that for the past 50 years we have been digging ourselves out of recessions with government spending (and not austerity). Seems like it worked.