Thursday, October 01, 2009

Harvard Economist: Keynes? Not So Good.

Not exactly news that Keynes' FDR and Obama-adopted "Spend-Money-Who-Cares-About-Debt-&-Deficits" plot is not effective.

The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates [>12%], and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

We'll modify that a bit: all that Fed and State spending IS effective--to continue and increase Fed and State payrolls.

But that's not what the taxpayers really want, folks.


J. Strupp said...

Let me be brief since Barro's multiplier nonsense has been refuted over and over and over and over again so many times that it's gettting old:

IT WAS WWII. The United States government was suppressing private spending through RATIONING. You cannot make the claim that government spending on defense is the only form of government spending that has a multiplier above 1 if the only evidence you give to defend this premise is measuring private/gov. spending during a time of intense rationing in all other areas of the economy.

Spending is spending is spending. We are in a liquidity trap. Spend money. Tax cuts are less effective because they are mostly SAVED. This isn't that difficult to understand.

Dad29 said...

Actually, the point they make is that Gumming spending NEVER has a multiplier above 1.0.

NEVER, except when unemployment is over 12%.

Nice try, though

J. Strupp said...

The point they make is flawed.

It's called rationing.