How Big Is the Multiplier?

Related Post Roulette

No Responses

  1. Avatar Patrick Cahalan
    Ignored
    says:

    Doesn’t it suck when the true answer to the question is, “We don’t really know”?Report

  2. Avatar Dan Miller
    Ignored
    says:

    How do you square this with other findings suggesting greater consensus that the stimulus lowered unemployment rates relative to where they would be otherwise? The same survey does suggest a bit more uncertainty about whether the long-term benefits outweigh the costs, but a) almost nobody in that cross-ideological panel was willing to say that the costs definitely outweighed the benefits and b) the question of whether to trade short-term benefits for longer-term costs isn’t necessarily an economic question, but one of trading off different values, which economists are no more (or less) qualified to make than anyone else.Report

    • Avatar James Hanley in reply to Dan Miller
      Ignored
      says:

      I was focusing mostly on the size of the multiplier. Presumably anything above 1.0 would lower unemployment. I think your a) and b) speak for themselves. Lacking clear knowledge about multipliers, it would be very hard to say whether the long-term costs outweigh the short-term benefits or vice-versa. And I agree 100% that the trading off of values is not strictly an economic question. I’m only asking people to be aware that there may actually be such a trade-off, and that the multiplier–whatever it is, but assuming it’s positive–is not necessarily just a straightforward win. (For my part, speaking outside strict economics, I think we’ve been focusing on the short-term for far too long and really need to start thinking about that long term. Reasonable people, as much as I don’t want to admit it, can disagree.)Report

      • Avatar Dan Miller in reply to James Hanley
        Ignored
        says:

        Well, OK. But will you concede that there’s a consensus among economists that in the short run, the stimulus lowered unemployment from where it would have been otherwise?Report

        • Avatar James Hanley in reply to Dan Miller
          Ignored
          says:

          I don’t think I can argue against that. The chart in your link was pretty dispositive, yes? (The comments from the panel are interesting, though.)

          But just for funsies I can quote John Cochrane explaining it (or explaining it away, as you might prefer): “I will admit to a bit of disappointment that so many economists revert to archaic Keynesian fallacies when under pressure.”

          I’ll admit to having had a sense that a lot of economists backed off their previously held theories when faced with the size of the Great Contraction. Whether that’s out of a pusillanimous failure of nerve or a recognition that this case really is special, who really knows?Report

          • Avatar DensityDuck in reply to James Hanley
            Ignored
            says:

            The issue is that while “just let the market sort things out because that will be best in the long term”, that has a whiff of “kill them all, the Lord will know his own” about it. It’s very painful right now to people you know, as opposed to deficit spending (which is painful to people you don’t know at some indiscriminate future point) or raising taxes (which spreads the pain over 350 million people).Report

        • Avatar MFarmer in reply to Dan Miller
          Ignored
          says:

          “Well, OK. But will you concede that there’s a consensus among economists that in the short run, the stimulus lowered unemployment from where it would have been otherwise?”

          There’s no doubt that government can create full employment if the stimulus is big enough, but that isn’t the point. The point is what kind of damage is done with economic intervention that makes it worse off for workers after an initial drug rush.Report

  3. Avatar Uncular 1
    Ignored
    says:

    But, honestly, all economic policy preferences require faith. I’m sorry, but the social sciences are just not x + y = z type things. All policy wonks make their recommendations with the faith that their view of society is the correct one and that people will act as they predict. Seriously, predicting people’s behavior? That is nothing but blind faith.Report

  4. Avatar clawback
    Ignored
    says:

    Estimates for the multiplier vary for two main reasons. First, they are affected by the political views of those making the estimates. If there’s any thing one can predict with confidence it’s that the multiplier declines as the estimator moves to the right. Second, and more important, it really shouldn’t be a surprise that the multiplier varies according to the economic conditions present, and so cannot be seen as a single constant. The oft-cited WWII example shows just how silly this can become. Look, there were two entirely distinct economic phases to be considered. Leading into the war we had the most severe depression ever seen; a clear case calling for demand management. And sure enough, as we geared up for war people got jobs and the unemployment rate declined. Up to that point government spending on weapons had a large multiplier because it only put to work resources that were idle. But once all the slack was removed; i.e., when the economy was operating at capacity, no further demand management was possible. If all the factories are busy and the workers are employed, additional government spending, seeking to produce all the tanks, planes, and warships that the economy can produce, can only crowd out other uses for the resources. In that case, then, the multiplier would decline toward, and probably past, one.

    This all seems rather obvious to the point of being banal. Cowen’s “AHA! I caught you using WWII to show contradictory things! GOTCHA!” is either in bad faith or just stupid.Report

    • Avatar James Hanley in reply to clawback
      Ignored
      says:

      Well, I’m particularly sorry that you have chosen to stick to a simplistic it’s-all-political approach. I wrote the post for you, and I wish you could have moved past that position.Report

      • Avatar clawback in reply to James Hanley
        Ignored
        says:

        I think if you read my comment carefully you’ll find an actual argument. But suit yourself.Report

        • Avatar James Hanley in reply to clawback
          Ignored
          says:

          I already agreed with you about WWII, in my OP.

          But if you want to insist that the estimates are primarily political, you haven’t really given yourself any ground for defending a particular estimate, except your own political preferences. If you want to stick to “the multiplier declines as the estimator moves to the right,” then you’ve also said “the multiplier increases as the estimator moves to the left,” which gives us just as solid a reason to ignore a Krugman as we have for ignoring a Barro–but we don’t have any economically-based reason for favoring either over the other.

          I guess what really bothers me is I studiously avoided making a political argument and relied solely on the writings of professional economists, and you ignored all that to stick to “it’s just political.”Report

          • Avatar clawback in reply to James Hanley
            Ignored
            says:

            Well, I’m afraid the observation that multiplier estimates appear to be correlated with one’s political leaning is one I cannot escape whether or not you think that makes me cynical. But that observation does not allow me to throw up my hands and exclaim “Opinions differ! Teach the controversy!” any more than it does when discussing evolution or the Holocaust. It’s entirely possible some economists are attempting real science while others are partisan hacks. But you’re right — none of this tells us which economists are which. So all one can do is examine the respective work and make a judgment. For my money, analyses like those by Krugman, DeLong, and others, that start with “the government’s money is as good as anyone else’s” and go on to explore the nuances of where that money comes from and how it is spent, have far more validity than simple-minded Say’s Law-based proclamations of 100% crowding out by Fama and Cochrane. In my view such proclamations don’t examine all the implications (such as the role of liquidity preference), and they strike me as poorly thought out.

            So my grounds for defending a particular estimate of the multiplier is not politics but judgment regarding the quality of the work done.Report

            • Avatar Stillwater in reply to clawback
              Ignored
              says:

              I don’t exactly know how the argument goes … but I concur! It’s all too easy for theoretical economists to bury their preferences behind a “neutral” presentation of the data. I’ve previously criticized Hayekians for doing exactly that.Report

              • Avatar James Hanley in reply to Stillwater
                Ignored
                says:

                Fortunately, only Austrians and right-leaning economists do that, while we can rely on left-leaning economists to be truly scientifically objective.Report

              • Avatar Stillwater in reply to James Hanley
                Ignored
                says:

                Ahhh, you missed the point.Report

              • Avatar James Hanley in reply to Stillwater
                Ignored
                says:

                Apparently so, and still am. I almost feel like I get it, and then it kind of slips away from me.

                But don’t explain, it’s never worth while. And no doubt others will get it just fine. Just call me slow.Report

              • Avatar Stillwater in reply to James Hanley
                Ignored
                says:

                Hayekians interpret economic data from an – what should I call it? – an “extra-economic” calculus. So the complain isn’t that everyone with an opinion interprets that data thru a filter. It’s that Austrian’s have multiple filters which economic data has to pass thru before it’s established its bonafides. I’m just not convinced any raw data could ever meet those bonafides. Unfiltered, of course.Report

            • Avatar James Hanley in reply to clawback
              Ignored
              says:

              clawback,

              I’m skeptical that the assumption of equality is really the most defensible assumption. Since different types of spending have different multipliers, it will hold true only if governments spend in pretty much the way private spenders will. If government spends differently, in aggregate, then the multiplier will diverge from private spending, necessarily being either higher or lower. For example, some studies of spending to build public sports stadiums has shown a negative multiplier.

              It also assumes zero crowding out. Barro’s beginning assumption of total crowding out does indeed seem to be a bit much, but so does the assumption of zero crowding out.

              If your argument is that the assumption of no difference in multiplier between government and private sector is the most parsimonious, I think you’re missing the assumptions built into the assumption.Report

              • Avatar clawback in reply to James Hanley
                Ignored
                says:

                But there is no one, literally no one, who thinks the composition of the spending doesn’t matter, nor is there anyone who thinks zero crowding out occurs.

                If, to cite a slightly silly hypothetical, a stimulus takes the form of a tax cut targeted to prosperous people near retirement, that stimulus will have little effect because that demographic can be expected to save a large portion of the tax cut. On the other hand, unemployment insurance tends to be very effective stimulus because newly unemployed people will spend all of it, and will spend it on the things they purchased when they were employed.

                So stimulus that is spent rather than saved, and is spent on things that had been purchased before the recession began, is likely to be most effective.

                And yes, of course crowding out occurs as it did during WWII, and in general it certainly will occur, but the degree of crowding out will be minimal during a period of high unemployment and near zero interest rates.

                Now, the effectiveness of one type of spending versus another can legitimately be debated, as can the degree of crowding out under one set of economic circumstances versus another. Sadly, that’s not where the current debate occurs. Instead, we get this:

                Every dollar of increased government spending must correspond to one less dollar of private spending.

                That’s Cochrane, and it’s pure sloppy hackish bullshit. So sadly no, this is not a high-minded debate among people of good will, but rather a battle between science and hackery.Report

              • Avatar James Hanley in reply to clawback
                Ignored
                says:

                Every dollar of increased government spending must correspond to one less dollar of private spending.

                It seems sloppy because you’re coming from a Keynesian perspective, whereas Cochrane is coming from a new classical perspective. Keynesians think that lack of demand occurs, so that the spending simply isn’t happening, and so government can use that unspent money without crowding any private spending out. If they’re right about the lack of private spending, then that makes sense.

                But from the classical and new classical perspective, Keynesians are wrong about the lack of private spending. When an individual doesn’t spend, the money doesn’t go under his/her mattress, but into a bank, where it gets loaned out. If spending and investment do decline, then too much money builds up in banks, and they reduce interest rates to the point where people are willing to borrow–whether to start/expand businesses, buy new homes, fix up old ones, whatever it might be. So if government steps in and takes that money , they are just substituting government spending for private spending that would have happened.

                Now it’s fair to disagree with that new classical model. Lots of good economists do. But lots of good economists agree with it, too, so to call it “sloppy hackish bullshit” is not actually a defensible position.

                nor is there anyone who thinks zero crowding out occurs.
                May I introduce you to Paul Krugman?Report

              • Avatar clawback in reply to James Hanley
                Ignored
                says:

                James, did you even read the Krugman piece you linked to? He’s arguing for no crowding out under the very specific condition of the zero lower bound, not generally. Furthermore, he develops the model using strictly new classical assumptions and techniques; which is what he has always done in his academic work, although to lay audiences he tends to use old Keynesian terminology. So I’m afraid this isn’t quite the gotcha you were hoping for.

                And no, Cochrane’s statement wasn’t in some similarly nuanced context; it was a blanket assertion of 100% crowding out.Report

              • Avatar James Hanley in reply to clawback
                Ignored
                says:

                Clawback,

                Yes, I did. In fact I’ve read that specific article probably 8 times since it was published. And my point is that some other economists think Krugman is wrong. You’re basing your argument on Krugman saying he is right, but of course no man gets to be the judge of his own cause, nor should any of us accept a person as the judge of his own cause.

                Look, agree with Krugman if you want. Just stop blowing smoke up my ass about how he’s the only one being academically objective while all the others are a bunch of politically-driven hacks, and how you have very solid intellectual reasons for favoring Krugman’s view, and your position isn’t based on politics at all.

                You’re not actually interested in listening to and thinking about the diverse voices of the professionals. Your choice, but I’m not interested in playing that game.Report

              • Avatar clawback in reply to clawback
                Ignored
                says:

                Do you have an argument? I don’t find one here.Report

              • Avatar Kim in reply to James Hanley
                Ignored
                says:

                ” where it gets loaned out. If spending and investment do decline, then too much money builds up in banks, and they reduce interest rates to the point where people are willing to borrow–whether to start/expand businesses, buy new homes, fix up old ones, whatever it might be. So if government steps in and takes that money , they are just substituting government spending for private spending that would have happened.”

                I’m pretty sure I can pull some charts from calculated risk showing that the banks have been tightening lending a LOT. Sadly, I can’t get the M3 anymore (at least not from governmental resources).

                That is to say: this may very well be a special case, due to the nature of this recession/depression.

                It’s also fair to say that America’s recovery is probably also going to be a special case (see our consumers digging themselves out of debt on the backs of Europe).Report

              • Avatar BlaiseP in reply to James Hanley
                Ignored
                says:

                You’re conflating many separate problems, James. Private dollars do not always find their way into economically productive venues.

                At some point, dollars aren’t spent anymore. They’ve floated to the top, into someone’s pile of investment capital or debt structure. Unless that capital re-enters the spending cycle, it’s frozen. Keynes understood this. He wanted nations to pay for their wars and not put them on the tab. He understood what you clearly are avoiding: money doesn’t always go to banks where it can be loaned out. That’s why the nation once set up a wall between retail and investment banking.

                While you ignore the difference, continuing to believe in the zero sum game of private and public dollars, the rest of your argument is moot. Governments can create demand where no other sector can.Report

              • Avatar DensityDuck in reply to BlaiseP
                Ignored
                says:

                “Governments can create demand where no other sector can.”

                Indeed, just look at the smartphone business, which was entirely created by…um…hey, how about those hybrid cars, which demand was completely the result of…well, um…maybe the 787? Nope, still private industry…stem cells?

                I guess you could say the government created demand for traumatic brain injury treatments and high-functioning limb replacements. The jury’s still out on whether that’s a demand we wanted to have.Report

              • Avatar BlaiseP in reply to BlaiseP
                Ignored
                says:

                I don’t guess about what I’m going to say, Duck. When I have something to say, I do. The smartphone business emerged first from military technology. Same with most of the hydrogen powered tech, dumbass, all Space Shuttle / Lawrence Livermore. Boeing began with Navy trained engineers.

                But it’s at stem cells where you’re absolutely showing us your flaming baboon’s ass. Human stem cell tech emerged from UW Madison researchers and NIH.

                In short, you’re completely wrong. Beyond a certain threshold, government support for large-scale research becomes essential, especially getting these things through to the market. Do us all a favour, eh? Just shut up about what you clearly know nothing about.Report

              • Avatar DensityDuck in reply to BlaiseP
                Ignored
                says:

                Yes, I’m aware of the origins of microprocessors. That doesn’t mean that the Blackberry was the result of a government contract. Neither was the 787.

                I’ve brought up the fact that government (defense, actually) spending into research created technologies that were useful to private concerns. That does not mean that the government “created demand where no other sector could”. I’m pretty sure that the people who put together ARPAnet weren’t thinking about how they were going to destroy the newpaper industry.Report

              • Avatar Troublesome Frog in reply to James Hanley
                Ignored
                says:

                It seems sloppy because you’re coming from a Keynesian perspective, whereas Cochrane is coming from a new classical perspective.

                Not at all. Based on the models you described above, what’s the difference between these statements?

                1) Government can’t grow the economy by borrowing because every dollar borrowed is a dollar a private company can’t borrow, so it nets to zero.
                2) Google can’t grow the economy by borrowing because every dollar borrowed is a dollar a different company can’t borrow, so it nets to zero.

                You will not find the difference in the model you described above. If Cochrane’s statement (absent the obvious additional assumptions) is true, it proves far too much.

                Empirically, what would the crowding out look like? It should take the form of increasing interest rates. By what other mechanism would crowding out occur?

                As clawback pointed out, I don’t think you’re reading Krugman very carefully here.Report

              • Avatar DBrown in reply to Troublesome Frog
                Ignored
                says:

                This statement:
                “1) Government can’t grow the economy by borrowing because every dollar borrowed is a dollar a private company can’t borrow, so it nets to zero.”
                is an attempt at a joke? If not your are overlooking the most critical thing any government can do that no other person/company can do – print money.

                So, statement 10 is utter BS to support all your points, a joke or ignorance to write home about – I assume a bad jokeReport

              • Avatar Troublesome Frog in reply to Troublesome Frog
                Ignored
                says:

                DBrown:

                A couple things.

                1) Calm down. We’re over here and you’re way over there. Read up the thread. This is a thought experiment. We all agree that statement 2 is nonsense, so the question is, how can it be nonsense without statement 1 also being nonsense? The point is that the answer to that question is not in Professor Hanley’s explanation of where savings go. The answer lies in somebody’s backdoor assumptions, not in something special about Cochrane’s beliefs about the disposition of savings.

                2) In this model, monetary policy really isn’t part of the question.Report

              • Avatar James Hanley in reply to Troublesome Frog
                Ignored
                says:

                DBrown–In this model the assumption is that government isn’t printing money, just borrowing it.

                T-Frog–Well, that’s why I’m not really on board with Barro’s hypothetical starting point. Note that I’m not arguing for it–I’m just arguing that there was a simplistic rejection of it. And I’m not sure it really matters in his actual analysis–in the end he doesn’t conclude that there’s a multiplier of 0; he concludes there’s a multiplier of .8.

                But another way of looking at your two statements is, “government can’t grow the economy beyond what the private sector can.” That obviously doesn’t bring us back to a multiplier of 0, but it does emphasize that there’s no magic in government spending. All it can do is make up for diminished private spending.

                Which brings us back around to the fundamental point of disagreement between Keynesian and Classical models, as I understand it, which is whether Say’s Law ultimately holds or not. And we have Nobel Prize winners telling us it does, and Nobel Prize winners telling us it does not.

                So my ultimate point that I’m trying to make is that any non-economist (and perhaps any economist) who claims absolutely certainty on the question is operating on faith, not on a basis of sufficient knowledge.Report

              • Avatar Kim in reply to Troublesome Frog
                Ignored
                says:

                James,
                What’s Roth’s take on the matter? I suppose econ isn’t like literature, where the latest means “the greatest.”Report

              • Avatar Troublesome Frog in reply to Troublesome Frog
                Ignored
                says:

                But another way of looking at your two statements is, “government can’t grow the economy beyond what the private sector can.”

                But these are two very different statements, right? One of them is silly and the other is reasonable, even if I’d argue that it’s ultimately incorrect. I’m just intervening here on two issues:

                1) The notion that “Every dollar of increased government spending must correspond to one less dollar of private spending,” is not defensible as written. In fact, after the initial blogospheric dust-up over it, I don’t think anybody is still willing to stand behind it.

                2) Krugman’s post saying that even the assumption of 100% perfect Ricardian equivalence doesn’t result in crowding out is not Krugman saying that he believes in 0 crowding out. That’s simply an incorrect “gotcha” reading of a perfectly reasonable argument.Report

  5. Avatar BlaiseP
    Ignored
    says:

    Different stimuli produce different multipliers. The general rule of thumb is: the deeper into the economy the dollar goes, the higher the multiplier effect will be. In other words, the more times that dollar is spent before it ends up in someone’s long-term investment, the better.

    Case in point: the bank bailouts. Had all those dollars entered the market at once, we would have entered into an inflationary cycle. They didn’t, because the banks needed cash on their balance sheets. The banks went back to making money and paid back the government as quickly as they could manage. The government stands to make some money from the bailouts, but nowhere near the multiplier of, say, an infrastructure project.Report

    • Avatar Michael Cain in reply to BlaiseP
      Ignored
      says:

      If even a reasonable share of those dollars had entered the domestic real economy, the effects might have been more effective than they were. The world has changed dramatically over the last 30 years, and many of those changes have broken the Fed’s primary tool. 30 years ago, commercial banks had to make loans rather than investing in financial instruments; no longer true. 30 years ago, it was hard for US commercial banks to provide capital for investment in foreign countries; no long true. 30 years ago, commercial banks pretty much had to have reasonable standards for mortgages, either residential or commercial; prior to the crisis, that had become generally untrue. 30 years ago, commercial banks who took cheap Fed money had to route it into domestic business loans that drove hiring; today, not nearly so much.

      Time for Bernanke to admit to Congress that there’s nothing he can do to drive domestic employment. Actually, he’s come pretty close to that — Congress either isn’t listening or doesn’t care.Report

  6. Avatar Plinko
    Ignored
    says:

    Good post James!

    I read a paper somewhere else a few years ago that also put the WWII multiplier below 1, I can’t remember whose it was but it wasn’t Barro – it was someone more leftish IIRC.

    That said, I think Yglesias’ points are quite valid – it seems to me a “multiplier” isn’t any kind of constant in the first place, as much as it’s the result of the interplay of a multitude of other variables – what the spending is buying being maybe the biggest one but even that one not controlling. Good investments obviously would make more sense than paying people to break things.
    I remember positing at the time I read the paper that it seemed to me perfectly logical that war spending would appear to have low multiplier effects because a significant amount of the spending is used on taking resources out of the economy and literally destroying them.

    Coming up with a number to claim as a multiplier ex ante seems to be assuming so much more knowledge than we’re anywhere near having.Report

    • Avatar Kim in reply to Plinko
      Ignored
      says:

      yeah, I kinda hate the idea of -a- multiplier.
      Obviously there’s different ones depending on who’s investing, how it’s being invested, what the competitors are.

      “Shovel ready” projects made a HELL of a lot of sense when your “demand destruction” happened in Construction! [again, specific case!]Report

  7. Avatar James Hanley
    Ignored
    says:

    Hey, I just noticed Erik spelled my last name wrong. I guess he’s getting even with me for spelling his name with a “c” once.Report

  8. Avatar zic
    Ignored
    says:

    I’m no economist. That said, I think not all $ and their potential multipliers are created equal. Some are bound to be losers, costing more then the benefits gained from them.

    Despite the massive infrastructure problems around the country, there were not enough projects ready to build. This is a political problem, but one of a lack of political will to plan, particularly at the local and state government level. Planning smacks of ‘big government’ yet it’s actually the hallmark of competent government. It costs money. It’s a long drawn out public process, almost always contentious, it’s burdensome to administrators managing city halls and state bureaus already understaffed. Planning irritates the natives.

    The difficulty of injecting big-multiplier stimulus into the economy during the recession reveals the lack of planning that goes on, because there was a lack of shovel-ready projects. This resulted in a lot of other spending that simply propped state governments faced with a revenue cliff, without much multiplier effect because there were no new jobs created, no growth created. Much of the tax cuts for middle and upper income families (meaning those who maintained their jobs and were able to keep up with mortgage payments) went into paying down debt and were not circulated back into the economy; remember, it became trendy to not buy stuff.

    I’m no economists, but it’s pretty obvious that not every dollar spent by government should be expected to have a positive multiplier. And the dollars that might have a big multiplier are dollars local governments are often reluctant to spend.Report

    • Avatar James Hanley in reply to zic
      Ignored
      says:

      there was a lack of shovel-ready projects.

      And given the worrying number of failing or ready-to-fail bridges in the U.S., along with failing water and sewer systems, that’s a damn shame.Report

      • Avatar Troublesome Frog in reply to James Hanley
        Ignored
        says:

        One thing we seem to do very badly here is keep a lid on the cost of new public construction. I’ve lost the link, but there was an interesting study indicating that we do a much worse job than most of Europe in that area.Report

        • Avatar Jesse Ewiak in reply to Troublesome Frog
          Ignored
          says:

          I hate to say it, but I think local/state governments having more power has a lot to do with this. It’s unlikely a construction company is going to have the pull to get a random legislator in a national election to do favors for them when handing out contracts (you need to be a national presence like a defense contractor or major bank to do that :)), but on the other hand, if you’re a state legislator or county council member, a $5,000 or $10,000 donation can go a long way to getting that contract for the road building or bridge construction in an area.Report

          • Avatar James K in reply to Jesse Ewiak
            Ignored
            says:

            Ideally of course procurement should be entirely isolated from political control. That would be extremely difficult given the nature of the US government though.Report

          • Avatar James Hanley in reply to Jesse Ewiak
            Ignored
            says:

            Jesse,

            I can’t dismiss that out of hand, but take note of zic’s response just below. There’s a tension between your claim that political favors are more likely to lead to costly projects at the local level and his claim that the pressures to keep costs down lead to corner-cutting.

            That’s an issue worth exploring, but off the top of my head I’m not sure just how to get real purchase on it.Report

          • Avatar Kim in reply to Jesse Ewiak
            Ignored
            says:

            $1000 is about the cost of entry, for a favor from a national politician. [note: favor, steering, doing something that he’ll get patted on the back for. NOT going against constituents interests]Report

        • Avatar zic in reply to Troublesome Frog
          Ignored
          says:

          At least for small rural projects, sometimes I think it’s urge to keep cost down that causes (or continues) problems; it feeds the corner-cutting urge. Sometimes, the folk with the right connections, not the right skill set, get the job. As in purchasing a used car, cheaper is not always the best solution.Report

        • Avatar Kim in reply to Troublesome Frog
          Ignored
          says:

          not “new construction”. what we worry about is repairing old construction, which is far more expensive.Report

      • Avatar Matty in reply to James Hanley
        Ignored
        says:

        have I ever mentioned I hate the phrase shovel-ready, there is a lot of work involved in designing and planning new infrastructure before a single shovel hits the ground. It’s a pedantic point of course because money is being spent at the pre-construction stages as well but if people are expecting projects where the bulldozers are sitting ready to roll as soon as someone offers to pay they are going to be disappointed.Report

        • Avatar James Hanley in reply to Matty
          Ignored
          says:

          When I first heard the phrase shovel ready I thought we were going to be digging a lot of graves fir the victims of Obama’s death squads.Report

        • Avatar BlaiseP in reply to Matty
          Ignored
          says:

          I don’t mind the phrase “shovel-ready” but I do agree with your points. They aren’t pedantic. I’d like to add a few more.

          Any project of this sort is an ongoing proposition. Any large bridge or roadway is under near-constant maintenance. It’s pointless to build such structures without planning and budgeting for upkeep.

          This goes to James Hanley’s point about the way we’ve systematically underfunded maintenance, which I would amplify by noting the longer needed maintenance is deferred, the more-costly the necessary repairs become, inevitably leading to some not-shovel-ready project: the replacement of what could have been merely repaired.Report

          • Avatar Matty in reply to BlaiseP
            Ignored
            says:

            In calling my point pedantic I was thinking that it doesn’t matter for the purpose of getting money out there if it is spent on bricklayers or architects. However thinking a bit more there is a problem with having shovel ready projects there when the stimulus arrives. It implies local governments should have paid for all the stages that come before construction and then left those projects hanging there indefinitely in the hope that the final stage would be funded by someone else.

            This would seem to be high risk and take money from other things, like maintenance. Not to mention they couldn’t do the job just once because in a few years things will have changed and the best route for the new road or material for the bridge may be different.Report

          • Avatar Kim in reply to BlaiseP
            Ignored
            says:

            Why do we build things that will be so costly to maintain?
            I’m sorry, but america “makes do” with 1960’s infrastructure.Report

      • Avatar Kim in reply to James Hanley
        Ignored
        says:

        and electrical systems! and our piss-poor high speed internet system (which, I’ll grant, isn’t falling apart, but could really stand some improvement)Report

    • Avatar DensityDuck in reply to zic
      Ignored
      says:

      “the dollars that might have a big multiplier are dollars local governments are often reluctant to spend.”

      I’m pretty sure that the local government would be happy to go down the street to Bob’s Paving Service, give him a bunch of money, and have him pave the road. He’d probably do a pretty good job, too.

      Except, y’know, what if he doesn’t do a good job? Then that money would be wasted! We better get Bob to describe his paving plan so we can review it. Actually, let’s go one better and just tell Bob how to pave the road. And, of course, we’ll have to do a lot of training and certification activities to make sure Bob knows how to pave the road just like we want it.

      Although maybe Bob isn’t the cheapest. We wouldn’t want to waste the taxpayers’ money by spending too much of it, right? Better ask for bids from a couple of paving contractors just to make sure.

      And we do want to make sure that underprivileged persons get a fair shot, while also making sure that we aren’t giving taxpayer money to illegal aliens. So we’ll have to review the demographics and Social Security records of all of Bob’s (or whoever’s) workforce.

      Now suddenly it’s a year later and somehow we’ve spent all the money but haven’t actually given any of it to the people who were supposed to get it. But by God we’re sure we didn’t waste any of it. We’ve got the records to prove that every dollar spent was in the name of avoiding waste. Which is just what the people who elected the people who hired the people who hired the people who hired us(*) said they wanted, right?

      (*) the recursion is not an errorReport

  9. Avatar Damon
    Ignored
    says:

    I thought this was a farily reasonable post. Well, except for the quotes from that tool from Slate….

    But something I didn’t see addressed is this: The multiplier: “When you spend a dollar that dollar becomes someone else’s to spend, and when they spend it, it becomes someone else’s to spend. How much increased spending this causes is the multiplier”. So, in terms of fiscal policy, the gov’t obtains money from three sources: taxes, bonds, or printing. Excluding foreign entities in play, all the money, the gov’t has comes from citizens, if it doesn’t come from being printed. So regardless of the equation on the right side, you’re not addressing the left side, i.e. if the gov’t taxes me 100 dollars and then spends it, your calculation of the multiplier lies solely on the impact of gov’t spending the 100 dollars. Since that 100 dollars has been taken from me, where’s that negative? That’s not money I have that I could have spent. I could have saved or spent some or all of that 100 dollars. Sounds to me like the you’re missing that component.Report

    • Avatar DensityDuck in reply to Damon
      Ignored
      says:

      The assumption is that if the multiplier is 1.0, then it doesn’t matter whether you spend 100 dollars or the government takes 100 dollars and spends it. The economy just sees 100 dollars being spent. You personally might see 100 dollars less of benefit, but someone else will see an extra 100 dollars (or, more likely, 100 people will benefit 1 dollar each.)Report

  10. Bit remiss in not mentioning the days-ago IMF paper on the European austerity experience and the fiscal multiplier. The paper is here. From page 41:

    This box sheds light on these issues using international evidence. The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.

    Here’s Yglesias on the report, also making some comments which bear on the military spending examples. Here’s Seeking Alpha, and Eichengreen and O’Rourke on the report.

    Here’s Tyler Cowen saying if you remove some data points you get a different result.Report

  11. Avatar James Hanley
    Ignored
    says:

    “Hear,” that is.Report

Leave a Reply

Your email address will not be published. Required fields are marked *