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Politics : View from the Center and Left -- Ignore unavailable to you. Want to Upgrade?

To: neolib who wrote (31330)	11/9/2006 9:38:17 PM
From: Sun Tzu	Read Replies (1) \| Respond to of 541731

Neo, I am on my way out and will not be posting on SI for the next few months. So here is my very short answer. I believe you are mistaking the actual multiplier effect with claims on economic effects associated with it. In effect you may be debating JMK's views rather than the actual multiplier, and that is something that cannot be debated in a short space. There is no question that injecting money at the bottom of economy increases GDP. But you can debate if that increase in GDP is any more "real" than the increase we get if you and I just sold each other the same egg for a million dollars over and over again. Here is a good (and brief) description of the subject en.wikipedia.org The external link on the page is titled "The Myth of the Magical Multiplier". But if you read it, you see that it is really critical of JMK and the claims associated with the multiplier. Sun (now I really have to go) Tzu

To: neolib who wrote (31330)	11/10/2006 1:32:47 PM
From: TimF	Read Replies (1) \| Respond to of 541731

Despite what anyone might claim, a figure of 5x-10x is the economic equivalent of a perpetual motion machine claim in physics The claim that it will always provide a 5X-10X multiplier, not matter how much "pumping" you do, is the equivalent of the perpetual motion machine claims. The claim that you can get that multiplier reliably to a certain point, would be much less extreme but wouldn't be a claim I'd support. You can look at the dollars that your spending in order to multiply, and yes the people who get them after you spend them will put them back in to the economy, and then the next group will put them back in to the economy and so forth. But this happens even if the government doesn't spend the money. Someone else will spend it or invest it, its not like its kept under a mattress. Also to the extent that you really do get an increase in the multiplier effect (and I think borrowing and spending often does give a short term increase) its equivalent to effectively increasing the money supply. It can be a short term stimulus but it can't be continued, you'll just cause inflation. It isn't a way to grow the economy over time, and even as an attempt to give a short term kickstart, it often winds up being mistimed (by the time the stimulus is debated, passed, put in to effect, and then becomes effective, it might not longer be needed, if it ever was). I'm not totally against the idea for all situations, but it isn't reliably a good thing.