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Politics : American Presidential Politics and foreign affairs
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To: DuckTapeSunroof who wrote (40814)2/2/2010 1:17:49 PM
From: TimF  Read Replies (1) of 71588
 
I have *never* 'heard any talk' that 'government spending had a high multiplier'.

I guess you don't read Krugman, or pay attention to the comments by or reports from Obama's economic team.

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Obama's Multipliers
Team Obama has released its analysis of fiscal stimulus, coauthored by CEA Chair-designate Christina Romer and Vice President-elect adviser Jared Bernstein. If you go to the penultimate page, you can find the fiscal policy mutlipliers they assume. For government purchases, their multiplier is 1.57; for taxes, 0.99.

These are reasonable figures in light of mainstream models. But, as I pointed out in an earlier post, these models might well have things backward. Apparently, Team Obama is not convinced by the recent research of Christina and David Romer, who conclude:

tax changes have very large effects on output. Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent. Our many robustness checks for the most part point to a slightly smaller decline, but one that is still well over two percent.

That is, Team Obama assumes that tax changes are less than half as potent in influencing the economy as the new CEA Chair estimated them to be in her own research.

Of course, it is prudent to take any research, including that of the very careful, very sensible Romers, with a grain or two of salt. The same can be said of the mainstream models on which Team Obama is relying.

gregmankiw.blogspot.com

econlog.econlib.org
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