More Data on the Golden Age of Postwar Austerity

Here’s yet another way of representing the fact that to the extent the United States has a “spending problem,” it is a problem of too little spending.  From a speech by Janet Yellen, Vice Chair of the Federal Reserve:

… discretionary fiscal policy hasn’t been much of a tailwind during this recovery. In the year following the end of the recession, discretionary fiscal policy at the federal, state, and local levels boosted growth at roughly the same pace as in past recoveries, as exhibit 3 [below] indicates. But instead of contributing to growth thereafter, discretionary fiscal policy this time has actually acted to restrain the recovery. State and local governments were cutting spending and, in some cases, raising taxes for much of this period to deal with revenue shortfalls. At the federal level, policymakers have reduced purchases of goods and services, allowed stimulus-related spending to decline, and have put in place further policy actions to reduce deficits.

On this issue, the conventional wisdom is so far from the truth that it’s difficult to figure out how one might begin persuading anyone who isn’t acquainted with the data (lest one appear insane).  It would be one thing if current fiscal policy were merely in line with past expansionary practices in the wake of recessions (even arguing that much will get you some raised eyebrows and uncomfortable coughs).  But the dismal truth is that, after 2009—when discretionary fiscal support was a hair above the postwar average but well below the expansionary stimuli under Ronald Reagan and George W. Bush—the combined federal/state/local government fiscal response broke dramatically with the postwar pattern, in a display of record-breaking stinginess.  To borrow loosely from H. L. Mencken: if you want government to rein in its spending, you’re getting it good and hard.