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May 02, 2011

Multiplying Failures: Two Papers Suggest Possibility That Not Only Didn't Stimulus Help Us, It Might Have Hurt Us

The idea of the "fiscal multiplier" is that for every dollar of government stimulus spending you generate some other number of dollars in actual economic impact.

If you spent $1 but got $2 out of new economic activity out of the deal, you'd have a spending multiplier of x2. Which would be "good," in the sense you're getting ban for your buck.

Liberal economists (and then liberals generally) always claim the "commonly-accepted" fiscal multiplier for stimulus is 1.4x. For every $1, we "make" $1.40. This is why Paul Krugman believes, insanely, that there is virtually no limit to how much the government can/should spend -- we're always coming out ahead on the deal!

But in fact, that "1.4x" is not "commonly-accepted," except for die-hard leftists and former Enron shills like Paul Krugman, and it's incredibly unsophisticated to speak of it that way anyway -- there is no common multiplier at all. It depends on what the stimulus is spent on, and the conditions and circumstances of the country in which it is being spent.

Krugman's know-nothing, just-barely-above-the-100-level-in-college-economics "1.4x" multiplier is actually based on the best, most impactful type of stimulus (I think increases in personal spending power -- like tax cuts or other real-income-increasing measures) and only for the economy of the 1930s United States, which isn't much at all like the current economy.

So you need to be more nuanced than the ignorant, redneck tractor-pull-cheering backwater ignoramus Paul Krugman in guessing at a multiplier.

Much of Obama's stimulus was spent on the least stimulative sort of spending at all, subsidies for state and local government, which is just used to jigger around debt, and isn't spent (and hence can't multiply at all).

So, given the type of stimulus Obama -- or I should say Professor Emeritus of Economics Nancy "The Word is The Word" Pelosi -- inflicted on the country, and given the type of economy this country now has (post-industrial), what was the multiplier?

Well, for starters, it was less than 1. So, like, for each dollar we spent, we got, say, 70 cents out of the deal. That's a stone-cold loss.

But it could be worse than that: Because we're exactly the sort of country (not growing quickly, developed, heavily indebted) where each dollar of stimulus actually has a negative multiplier, that is, you're not merely losing the dollar you spent but actually subtracting money from your economy when you spend.

But Obama's a frigging genius. So, there, wingnuts.

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posted by Ace at 07:32 PM

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