Arnold asks the right question.
If the multiplier is really 1.57, why are we settling for a only a trillion dollar increase in government spending?
Is it possible that the relationship between government spending and prosperity is not linear?
I like it that they carry it out to two decimal places.
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What's the old saying? Something like – "Measure with a micrometer, mark with chalk, and cut with a meat axe."
Mace,
Never heard that one before. Beautiful.
1.57?
Why not 1.578? Or 1.5783?
We're talking "science" here, right?
The government doesn't have to fund a stimulus. The billionaires can do it, if they were so inclined, and if they got off their collective duffs. But instead, Bill Gates goes off to bridge tournaments and meets with the caddies and kiddies to deface the currency by signing one dollar bills as souvenirs for the brats to frame and put on their wall to forever be in awe of monopolist Gates. Assuming the teenagers don't spend the dollar, about $50 was taken out of circulation by Mr. Gates' pompous generosity. This is no way to conquer an economic collapse, only to boost an already overblown ego.
What was the multiplier for all the government spending last year?
Then there's the old saw that economic forecasters use decimal places to show they have a sense of humor.
I would just love to know the fiscal stimulus multiple on Boston's "Big Dig" project. A colleague of mine reminded me that it was a large multiple over budget with wonderful doses of corruption mixed in with the death of a commuter due to shoddy construction.
Is this the way you practice economics? Skip the argument, look at the conclusion, pronounce?
Is the 1.57 multiplier supported by the evidence and argument, or is it not? Does the authors' reasoning contain a flaw, or is it airtight?
Is it too much trouble to read the paper?
Trumpit:
What on earth are you talking about? Signed dollar bills? Really? Is that all you can muster for an economic argument? Are you really suggesting that the billionaires of the world should unite to "fund a stimulus?" How, by going on one giant shopping spree I take it, by suddenly liquidating their billions of worth into cash? Super idea. Bravo.
T L,
The idea that you can measure the multiplier to two decimal places and that it's a constant, is a joke, and an embarrassment to my profession.
I've read recently that estimates of the multiplier range from 1.0 to 1.5. I will try to find some references.
But you don't have to read the paper to know that the multiplier isn't 1.57. It might be higher or lower. Logic suggests to me that it's smaller.
And even if it were measured precisely, the implication that it would apply at all times to all situations, is again, a joke. You don't have to read the paper to know that it's not possible.
I think instead of ridiculing Trumpit we should explain to him why billionaires are not investing in the world economy right now.
You are either new to this blog or an infrequent visitor.
T.L.: Imagine that the multiplier was said to be only 1.1. Even then, the fact that it's over 1 suggests that we should spend as much as possible, for the positive return. Heck, why not spend $100 trillion, and see the economy grow by $10 trillion? THAT's the problem with even calculating a multiplier, and that's why Russ, and anybody else here, would be wasting their time to read the argument in the paper. But you go knock yourself out!
Oil Shock – I am not new to this blog. I am a lurker. BTW, there is no such thing as investors not investing. They simply choose somewhere on the risk spectrum. Right now many are choosing to park their capital in low risk bonds, CDs, savings accounts rather then stocks, hedge funds, IPOs…
The real question to ask is investing in new business a high risk strategy?
Here is Bush's military stimulus results that added to GDP.
http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=10&year=2008&base_name=did_bush_goose_defense_spendin
Mcwop – military spending by definition can't stimulate the economy because it's just the people's money recirculated.
Military spending is a burden on the economy. Capital assets are used to create weapons and equipment of war. The cost to society as a whole is everything that could have been done with those assets instead. Up to some point, military expedniture is an investment, but the U.S. Government is far beyond that point.
The same problem holds for any government program finaced with debt. Genuine investments are rare since their is no profit feedback, and meanwhile valuable resources are being directed away from provate investors. The overall effect is to waste capital resources and reduce future prosperity.
People invest in government bonds, but for society as a whole there is no investment.
An investment foregoes consumption today for consumption in the future. If overall investments are greater than depreciation and malinvestments, then more goods and services will be available for future consumption.
The government sells bonds and repays debts (though slower than it accrues them), but does not usually increase future output (and in many cases reduces it). For the economy as a whole government bonds are like malinvestments, and must be overcome by genuine investments to maintain or increase future productivity.
The real cost of government "investments" is all the goods and services could have been produced by the private sctor instead (genuine investments).
We should do investment for the sake of investment. We should never consume anything, just marvel over all the brand new infrastructure while sipping air.
Eating is an investment in yourself.
I'll try.
The billionaires can do it, if they were so inclined, and if they got off their collective duffs.
What "the billionaires" possess mostly are account credits and entitlement to direct resources. If you take it all away and distribute it to everybody else, everybody will become poorer in fairly short order.
Why?
At any given point in time, there is a certain amount of values (goods & services) available for consumption. The redistribution of entitlements does not change what is available for consumption, so if political force is used to rearrange entitlements, there will soon be a reduction in values available for consumption.
How so?
Because some portion of those receiving redistributed entitlements will cease their own productive efforts while most of them will increase their consumption.
The result is greater demand for a shrinking pie.
BTW, why all the talk about growing GDP only? What about people investing in better health, knowledge and morals? Not everything is about money!
"If the multiplier is really 1.57, why are we settling for a only a trillion dollar increase in government spending?"
Because Keyenianism isn't communism. The Keyesian explanation is akin to the kick-starter on the motorcycle engine. No need to keep kick-starting a motor once it's running. But without the kick start you're going no where.
The government doesn't have to fund a stimulus. The billionaires can do it, if they were so inclined, and if they got off their collective duffs.
Posted by: TrUmPiT
Well no they couldn't do it and that's a key point. The current economic situation contrast supply and demand side theories. You are right the wealthy could supply all kinds of things but no one has the money to buy them. There is no demand and that's why the economy is frozen. As soon as wages increase demand will follow and investors will have reason to invest.
Nope this is a concentration of wealth at the top supply side frozen up failed economy. Had the productivity gains of the past 25 years been more equitably shared demand might still be humming along. But greed knows no bounds for some and tax cuts for billionaires ultimately leads to no demand.
muirgeo – nobody told the poorer people that they had to leverage themselves with credit cards and HELOCs out of their ass. Rich people having lots of money does not absolve the middle class of personal responsibility.
Doug,
I think you might be uninformed on what just happened in our country. The poor and middle class indeed were guilty of over leveraging themselves especially considering their stagnant wages over the last 8 years. They leveraged as much as a trillion dollars most of which they couldn't hope to repay. The rich…. they leveraged that 1 trillion dollars over 50 times more then they should have. 1 trillion dollars of middle class mistakes did not break our economy. $50 trillion of over-leveraged pieces of paper entrusted to those wealthy people who should have allocated and protected these resources but chose selfishness, greed and short-sighted are what broke our economy.
"As soon as wages increase demand will follow and investors will have reason to invest."
Pure foolishness. Wages are one of the costs of running business. Paying more money for labor, even if they spend every last cent on your products and yours alone, does not help the bottom line to make investing more profitable.
Real wages were high during the Great Depression. There's a few reasons why the labor market wasn't clearing, and that's a big one.
muirgeo – I am not disagreeing that the entire country engaged in the leveraging madness. However that is not a reason have government compound the mess by printing money.
Government spending is one side – but what is the income side that we don't see? All you ever see is the "budget" comments and discussion – but the budget is about expenses – what about the income side?
Just as with your home accounts – there are expenses and there is income to cover it; I think we may just assume that the income side is tax revenues, but I don't think that is true or the entirety. So, where is the income that won't be sufficient to cover the proposed expenditures, please? Don't we deserve to see what income streams the government has before we agree to financing a huge debt?
Dr. Duncan Druhl – the real fun begins in CA when the state runs out of cash Feb. 1st! Then they'll be forced to either jack up income taxes or seriously cut the budget. Either way there is reckoning coming in the 7th largest economy.
"I think we may just assume that the income side is tax revenues, but I don't think that is true or the entirety. So, where is the income that won't be sufficient to cover the proposed expenditures, please?
Posted by: Dr Duncan Druhl | Jan 15, 2009 8:35:46 AM"
Surely you jest good Dr.?
What manufacturing plants does the U.S. government own, paper mills, auto assembly plants, travel agencies, drugstores, food sstores, any business at all, good Dr., any business at all?
The fact is that the government doesn't own a damn thing in the way of income producing, wealth creating, business. Governments only source of revenue is indeed taxes, mostly excise taxes, and as the income tax that is left over after paying off the IRS goes to service the debt to the FED and the IMF, that leaves only excise taxes as providing anyting you know of as government services.
Now, if I am wrong, and it happened once back about 1492 when I said, "If man was meant to live in other continents, God would have put us there." But that damn Columbus…..just goes to show you, anyway if you can find one instance of the U.S. Government owning and operating a profitable business that serves actual voluntary customers…..please sir, enlighten us.
vidyohs – that's why Maxine Waters wants to nationalize the oil industry. I mean think of EU nations with all their national industries and they're doing just fine…
Oh indeed, Mezzanine! The socialists actually believe that one can create wealth via nationalized industry and markets by serving captive customers instead of the quaint failed method of free markets serving voluntary customers
Seeing a farmer stick a pig at butchering time and hearing him claim the pig committed suicide is like hearing a socialist say "free markets failed us."
Only in that analogy you'd know the farmer was satirizing the action and the socialist was just plain stupid.
If the multiplier is really 1.57, why are we settling for a only a trillion dollar increase in government spending?
Lord Keynes was a statistician by trade. Idiots like muirgeo, who have never studied Keynes, fail to comprehend incentives. Like Keynes.
Plus, Keynes was a paedophile. Not that there’s anything wrong with that….
PS This Jared Bernstein fool is truly an economic ignoramus maximus. Russ & Don, fyi, he’s one of the clueless Center for American Progressiveness Prosperity Pomposity pissants on CNBC touting tax increases ad nauseum.
A neuveu Bob Reich, slightly taller.
Keynesianism is like kick starting the motor cycle with a sledge hammer.
Vidyohs, surely you jest….
just because you haven't seen the asset holding side of the comprehensive federal government books, don't assume that it isn't there. There is evidence floating around (CAFR reports) which indicates that the US's holdings in the world are sufficiently extensive to influence foreign markets, to say nothing about those in the US. The investment power of the Congressional Retirement Fund alone may own – God only knows what it owns – and then there are so many named corporations. Wake up and look for what should be right in front of your eyes IF you had any training and familiarity with accounting.
The rumour is that the asset side is in the multi-trillions and just because you are blind to this… well, when was the last time you looked at a bacterium? Can you see them without special equipment? Just because your eyes are closed doesn't mean that the world isn't in front of you.