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Government spending multiplier

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Cullen, you have commented on and shared research about the myth of the money multiplier as it pertains to the banking system.

Would you please comment on the notion of a multiplier impact of government spending? Just today I read an opinion stating that “Macroeconomists [sic] conclude that today’s multiplier is 1.7.” I recall reading a couple of years ago in a article supporting the importance of the SNAP (food stamp) program, stating that every dollar the government spent on food stamps ended up providing $1.80 (or something like that) of economic benefit, a notion that is in line with the general government spending multiplier belief.

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Posted by Steve W
Posted on 12/30/2016 2:26 PM
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Honestly, I have no idea how anyone could know that number. I mean, if Elon Musk got on SNAP then the benefit might be huge if he creates a solar cell that can power the whole world. But what if you put the homeless guy on the street on SNAP? Aren’t those multipliers obviously different? And this is how govt works. Govt spending incentivizes and multiplies in very different ways across different sectors across different types of environments. I have no idea how or why anyone would pretend to know what the benefit is.

I mean, generally speaking I think it’s safe to say that a deficit during a time of undercapacity growth is good. And vice versa. But I even hesitate to make that generalization. The economy is just more complex than that….

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Cullen Roche Posted by Cullen Roche
Answered on 12/30/2016 6:20 PM
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    Look at Robert Barro’s work. Federal structural deficits (transfer payments) have a multiplier of less than 1. I also posted awhile back on this here forum about some other work where the multiplier was slightly less than 1 for all types of Federal spending. Obviously, capital investment will hopefully have a multiplier above 1 compared to structural deficits.

    The situation is far, far worse at the local level because non-dense suburbia doesn’t generate enough tax revenues to even fund its basic maintenance. So far we just keep kicking the can down the road by building new sprawl on the outskirts to keep the Ponzi going.

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    Posted by MachineGhost
    Answered on 12/31/2016 7:53 PM
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      It should be clear that the multiplier is very much dependent on the source of the input and where the outputs go. Two extremes with positive (> 1) multipliers are building weapons vs. education and scientific research. An obvious extreme with a negative (< 1) multiplier are tax cuts for the wealthy. Building weapons produces no real capital and consumes a great deal of real capital, but because inputs are required to be domestically sourced the multiplier is high. Education and Scientific research have low short term multipliers but increase over the long run the quantity of intellectual capital that are the only real source of productivity gains.If you write down the coupled differential equations for an economy using only the real parameters it is very clear.

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      Posted by John Daschbach
      Answered on 01/03/2017 8:39 PM
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        Lies, damned lies and statistics!

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          Posted by MachineGhost
          Answered on 01/04/2017 1:59 AM
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            More recent.

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              Posted by MachineGhost
              Answered on 01/04/2017 2:01 AM
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