[Editor's Note: Contrary to myth, Austrians are not opposed to quantitative or empirical assessments of history in light of economic knowledge. The confusion may arise from the fact that Mises regarded this not as economics, strictly speaking, but as economic history, or the work of historians. Nonetheless, discussions of measurements of economic phenomena are often informative. In this article, Julian Adorney examines some Keynesian methods of measuring the economy.]
by Julian Adorney
Keynesian economists claim that fiscal and monetary stimulus help cure recessions, but their evidence is largely correlational. They pump money into a recession, and if the situation improves they claim the credit. If it doesn’t improve, they argue that the picture would look much worse without their intervention.
In their defense, we can’t make a control economy to test the effects of Keynesian policies versus a laissez-faire approach. So Keynesian correlational evidence makes some sense. But what if we examined, not just 1 recession, but a history of 100 years’ worth? When you do that, it turns out, the evidence just doesn’t back up Keynesian claims.
How do we assess this? Christy Romer put out a paper in 1999 in which she created a metric to measure how deep a recession was: percentage-point months of industrial production lost until previous peak is regained (PPM). Using this, she quantified every recession since 1886. The chart she created is reproduced below.