More on the negative multiplier
Thursday, January 14, 2010 at 08:59AM excerpted from Don't Like the Numbers? Change 'em in the WSJ
"The Obama administration claims a dubious "Keynesian" multiplier of 1.5 to feed the Democrats' thirst for big spending. The administration's idea is that virtually all their spending creates jobs for unemployed people and that additional rounds of spending create still more—raising income by $1.50 for each dollar of government spending. Economists differ on such multipliers, with many leading figures pegging them at well under 1.0 as the government spending in part replaces private spending and jobs. But all agree that every dollar of spending requires a present value of a dollar of future taxes, which distorts decisions to work, save, and invest and raises the cost of the dollar of spending to well over a dollar." - Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution.
If you read our earlier posting Views on the economic stimulus package: is it effective? you begin to wonder. It seems the whole premise of Keynesian stimulation is questionable, if not discredited. Negative multipliers bring us to the result contemplated by our posting The car guys weigh in on Cash for Clunkers : take it out back and burn it.
What, then, is the purpose of such magnitude of effort and inefficient dissipation of taxpayer resources by policy makers?
multiplier