” That’s why I think the best way to judge the stimulus as a whole is to say that we don’t really know how well it worked—but that it didn’t live up to some of the promises that were made when it was passed.
In theory, fiscal stimulus juices the economy through a multiplier effect, in which one dollar of borrowed government spending produces more than a dollar of overall economic gain. With a multiplier of 1.5, a stimulus of $100 million would produce $150 million in economic activity. A multiplier of 2.0 would result in double the economic jolt of the initial cash infusion. The higher the multiplier, the bigger the boost.
The problem, as I noted in my April 2013 story on the stimulus, is that no one really knows what multiplier effect of fiscal stimulus is. Reputable economists don’t even really agree about the possible range for the multiplier. Some economists think it could be in the range of 3.0 or even higher, given the right circumstances. The Congressional Budget Office puts the estimated multiplier for government purchases at somewhere between 0.5 and 2.5. A broad survey of estimates by University of California San Diego economist Valerie Ramey found that the range was usually between 0.8 and 1.5, although the data could support anywhere from 0.5 to 2.0.”
The whole issue is quite confusing , even to trained economists , but one thing seems like a no-brainer to me . While the egg-heads debate the effective rate of the government “multiplier” and give it a possible effectiveness rating of up to 2.5 … meaning that every dollar the government spends produces as much as 2.5 dollars in economic activity , a simpleton like myself asks how can that possibly be ?
For every dollar the State spends is taken out of the economy by way of taxes , greases a few federal palms by way of wages and overhead and then is redistributed into the economy . By the time that original dollar is sent on it’s way to “stimulate” economic growth it’s value is not a dollar but probably less than fifty cents ( we could not locate accurate administrative costs , quickly enough for this post ) .
If it costs the tax payer 50 cents on the dollar for the Feds to be the middleman in a redistribution scheme of epic proportions how could said stimulus , which was nothing but redistribution , achieve ANY positive economic effects AT ALL other than securing the jobs of the bureaucrats and administrators themselves ?
I am not an economist but have been a businessman for thirty years and if I “stimulate” my vendors by paying more so they can keep their employees living in the comfort to which they’ve grown accustomed that lowers my profit margin and takes food off of my table . Who benefits ? Not the consumer/taxpayer that’s for sure .
The idea that the State can “stimulate” growth is predicated solely on the notion that the government knows better how to spend the individual’s hard earned money and can do so more efficiently than the earner . If anyone believes that mail a letter , take a ride on Amtrak or visit your local VA hospital for much needed healthcare . Let us know how you make out .