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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: Sun Tzu who wrote (215882)	2/1/2007 7:10:15 PM
From: neolib	Read Replies (1) \| Respond to of 281500

You did not address the issue of where the $ came from. Pulling it out of the economy only to put a smaller fraction back in is invalid. I suppose you could argue that the $ pulled out was an underutilized asset (hidden in somebodies mattress?) hence the government is in fact simply redeploying such assets to better purpose, and that some multiplier should apply. I'd agree to that, but only wrt to whatever fraction of assets were thus underutilized. If you want to look at Government spending and it's impact on GDP growth via any multiplier, that can only apply to the fraction of the state budget that is financed by external debt, along with correct accounting (including negative multipliers) for the funds flowing externally for accumulated debt. Not sure what fraction that is, but it is entirely a different calculation from what you are doing. To more clearly understand how nonsensical your claim is consider the following: 1) You admit that any entity will do, it is not just government. 2) You claim this magic works for the entire state spending. 3) Therefor, it will work just as well if my neighbor takes $1 from me and spends it as it would if the government does. So I'll give all my money to my neighbor, and he will give all his to me, and we will both spend it all and get a great multiplier. Indeed, the whole country can do this. Heck, why give it to my neighbor, thats a pain. I'll give my own money to myself by setting up two bank accounts and swap the funds and get a multiplier as well. Heck, why bother with the two bank accounts, why not just keep track of this swapping on a piece of paper myself. Heck, why bother with even that! Just claim the multiplier for my own money. The economy grows no differently if I spend the money, my neighbor does, or the government does. Now, if someone in China says, gee, I will lend you $1, you pay me back later with interest, yes, the economy here and now gets a multiplier, with that I agree. Of course, at some point in the future it pays that $1 back which has a negative multiplier associated with it at that time. Whether the interim economic growth and the time value of money, vs. interest rate makes that a net good or bad deal is not easy to say.