16
Sep
10

Like a Rorschach blot for economists

So the big news on the Big Truck is this graph:

This all comes from a post on the NYT‘s Economix blog by Catherine Rampell:

The survey design is dubious enough, the results are subjective enough (this is a graph of “what surveyed small business owners bitch and moan about”, not “what factors limit small business growth”), and the variables interrelated enough, that only economists are professional enough to tell us what it means.  And, curiously, the conclusions they draw are that the graph proves that they’ve been right all along.

Paul Krugman, for example, tells us that the rise of “poor sales” as a percentage in mid to late 2008 proves that he was right all along and it’s Aggregate Demand, Stupid:

Russ Roberts, on the other hand, wonders what precisely Krugman expected:

Maybe I’m missing something but I don’t exactly see it as a revelation that during a major recession, the worst economic downturn in 70 years, that businesses find their sales to be a major problem, even their biggest problem. But what does that mean?

He finds some numbers to suggest that — what a surprise! — the stimulus isn’t making everything better all at once, and people are worried about taxes and red tape:

Yes, 31% of respondents do say that sales are their “biggest problem.” That number hasn’t budged much over the last year. But two numbers have changed a bit more than that–21% of respondents list taxes as their biggest problem up from 18% a year ago. And 15% list government regulations and red tape as their biggest problem, up from 11%. In fact, if there had been one category called “Taxes and Government Regulations” it might have been seen as the biggest problem, listed by 36% of respondents, up from 29% in the year before and surpassing sales as the biggest problem.

[…]

You’ll notice that in January 2010, 31% of small businesses list poor sales as their biggest problem. The number is up from January 2009. But wait a minute. The stimulus started in 2009. So when the stimulus was put in place, 28% of small businesses cited sales as their biggest problem. A year into the stimulus, somehow, the proportion citing sales had climbed to 31%. And today, 18 months or so into the stimulus, the number is still 31%. So somehow, during the first part of the stimulus, during all that government spending,  a greater proportion of small businesses found sales to be to their biggest problem. But the sum of taxes and government regulations went from 30% to 36%.

(Roberts also notes in exasperation that these data don’t show a heck of a lot.)

Tyler Cowen, by contrast, sees a tough problem and the results of sectoral shift:

He also gets in a few digs at Krugman’s ultra-Keynesian conclusion:

I saw poor sales as a “biggest problem” for fifteen percent (or so) of small businesses in periods of full or near-full employment.  I also see “poor sales” as a “biggest problem” for about thirty percent of small businesses today.  That change — about fifteen percent of the total — struck me as relatively small and indeed puzzlingly small, if indeed we are in a liquidity trap and weak AD is the overwhelmingly dominant problem.  (In fact I might expect an Austrian to cite such a number in support of their story.)  I do think weak AD is an important problem to be addressed, I just don’t think the absolute levels here imply “end of story.”  I look at that graph and think “this is a multi-factor problem.”

Arnold Kling finds compatibility with his “patterns of sustainable specialization and trade” model:

And Megan McArdle discovers that, just like she’s been saying for a while now, the “credit crisis” isn’t much of a liquidity crisis:

There’s good analysis all over the place in those articles (with the possible exception of Krugman’s, which is mostly an off-the-cuff fuck-you to people with whom he disagrees)… but can we quit pretending that this graph is a profound result, please?

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