Wednesday, February 02, 2011

Evaluating The Results Of An Experiment Before It Takes Place

Dean Baker argues that the "Great British austerity experiment" has failed based on the weak British GDP number published last week.

The problem is that a "experiment" by definition is supposed to be an empirical test, and the results of an empirical tests can't be evaluated until the test has been made and the results are known.

And the British austerity plan (or actually just the first phase of it) wasn't implemented until after the period described by the GDP numbers in question.

It may perhaps be the case that for example the VAT increase will have a contractionary effect on the U.K. economy and it may perhaps be the case that because of this and other factors, there might be negative growth during at least parts of this year. But the GDP number published last week doesn't prove or disprove this because it describes a period before the implementation of the VAT increase.

"Premature" is almost an understatement regarding Baker's analysis.