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Ask the Blip President August 6, 2012 12:01 PM | Tagged as Keynesian, Laffer, macroeconomics, Morgenthau, stimulus
Ref: Wall Street Journal 8/06/12 - Page A13, Arthur Laffer’s Article, “The Real ‘Stimulus’ Record”
 
The Keynesian economists purport that government spending stimulates demand and, hence, the economy. The Keynesians believe there is some magical Keynesian “multiplier” that is somewhere in the range of 1.5 or so. They allege for every dollar of stimulus spending, the economy grows an additional 50%.
 
They forget there is no money tree on the White House lawn to pluck $1billion bills from.

The money is from the private sector. This means the “multiplier” calculation forgets to subtract the money taken from the productive population. The number is really 1.5 minus 1.0 or 50%.

The increased economic gain from demand side government spending is always short lived. It provides a "blip" in the economy and when the blip is over we are left with increased debt.  This blip has been seen many times over decades of demand-side stimulus attempts.  Consider recent attempts of Cash for Clunkers, housing mortgage stimuli, and Obama’s first $860 billion, now stuck on our balance sheet as debt. FDR’s Treasure Secretary, Henry Morgenthau, Jr. said of eight years of government spending to “fix” the 30’s depression,

"We have tried spending money. We are spending more than we have ever spent before and it does not work…We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot."

In the referenced article, Arthur Laffer relates the data from thiry-four countries, recounting the amount of increased government “stimulus” spending and correlating it with the negative results. The more a country spent, the greater the decrease in economic output. Laffer and the Biz Bucks Guy ask the cogent question, “Why are they considering another round of stimulus?”
 
Maybe that’s a good question to ask the “Blip” President.
 

Posted By The Biz Bucks Guy
Posted in MacroEconomics | 1 Reply
Wednesday, September 5, 2012 6:54 PM
Amen to that! But I doubt he would answer the question--it would be someone's fault though, I'm sure.
Posted by: Bonnie

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