Dissecting the So-Called Multiplier I: Taking the White House at its Word

The White house has released estimates of the fiscal stimulus’ impact on the economy through June 2009. At best, those estimates show that the fiscal stimulus has been a colossal waste of tax dollars.

The White House claims that growth rates are persistent: the negative real GDP growth prior to 2009 Q2 would have continued indefinitely if it were not for wise fiscal policy. That claim is ridiculous, and inconsistent with the rest of their calculations, but I will put that to the side until later this week. Another future topic is the private consumption impact of all of this, conspicuously absent from the Administration’s analysis.

For now, let’s take the Administration’s estimates literally:

  • More than $100 billion worth of stimulus spent in 2009 Q2 (p. 5)
  • 597,000 jobs would have been lost in Q2 — that’s the purported “momentum” from the last quarter (pp. 8, 11)
  • In fact, 436,000 jobs were lost (p. 9), so we have to thank the White House for the 161,000 that were not lost
  • The same logic for real GDP: it would have fallen at a -3.3 percent annual rate (p. 12), but in fact it fell at a -1 percent (p. 12) annual rate, so we have to thank the WH for the -2.3 percent further negative annualized growth rate that would have occured without them.
  • Recall that a 2.3 percent annual growth rate actually refers to about 0.6% growth rate from one quarter to the next. So what the WH is saying is that we owe 0.6 percent of 2009 Q2 GDP to their policy, which is about 20.3 billion dollars.

So, from the jobs perspective, we just spent $100 billion of taxpayer money (not counting the economic damage done to raise this money) to supposedly create 161,000 jobs: that’s $621,000 per supposed job!! Can we agree that creating a job is wonderful, but not worth $621,000?!

[OK Keynesians, I know that you’re going to claim that those jobs are going to last a lifetime, so actually $621K is cheap … get real! You will also claim that those 161,000 jobs will beget still further jobs, kind of like rabbits mating in the forest. Anyway, my next post will address this head on.]

From the GDP perspective, we just spent $100 billion of taxpayer money (not counting the economic damage done to raise this money) to supposedly raise GDP by $20.3 billion. That’s the kind of public sector productivity we’ve come to expect!

NEXT: let’s look at consumption, and unpack the “supernatural spiral of spending” that stimulus advocates would have us believe.

About Casey B. Mulligan 76 Articles

Affiliation: University of Chicago

Casey B. Mulligan is a Professor in the Department of Economics. Mulligan first joined the University of Chicago in 1991 as a graduate student, and received his Ph.D. in Economics from the University of Chicago in 1993.

He has also served as a Visiting Professor teaching public economics at Harvard University, Clemson University, and Irving B. Harris Graduate School of Public Policy Studies at the University of Chicago.

Mulligan is author of the 1997 book Parental Priorities and Economic Inequality, which studies economic models of, and statistical evidence on, the intergenerational transmission of economic status. His recent research is concerned with capital and labor taxation, with particular emphasis on tax incidence and positive theories of public policy. His recent work includes Market Responses to the Panic of 2008 (a book-in-process with Chicago graduate student Luke Threinen) and published articles such as “Selection, Investment, and Women’s Relative Wages,” “Deadweight Costs and the Size of Government,” “Do Democracies have Different Public Policies than Nondemocracies?,” “The Extent of the Market and the Supply of Regulation,” “What do Aggregate Consumption Euler Equations Say about the Capital Income Tax Burden?,” and “Public Policies as Specification Errors.” Mulligan has reported on some of these results in the Chicago Tribune, the Chicago Sun-Times, the Wall Street Journal, and the New York Times.

He is affiliated with a number of professional organizations, including the National Bureau of Economic Research, the George J. Stigler Center for the Study of the Economy and the State, and the Population Research Center. He is also the recipient of numerous awards and fellowships, including those from the National Science Foundation, the Alfred P. Sloan Foundation, the Smith- Richardson Foundation, and the John M. Olin Foundation.

Visit: Supply and Demand (in that order)

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