Get your news from a source that’s not owned and controlled by oligarchs. Sign up for the free Mother Jones Daily.


SPENDING DURING A RECESSION….Does government spending during a recession produce more than one dollar of growth for every dollar spent? Conventional Keynesian economics says yes: in a virtuous circle, that dollar will flow through to workers, who will spend it on other things, which will in turn stimulate further growth and further spending. Most of the liberal economists who write about Barack Obama’s stimulus plan think that the spending portion will have a short-term multiplier of about 1.4 or so.

But apparently Robert Barro disagrees:

I have estimated that World War II raised U.S. defense expenditures by $540 billion (1996 dollars) per year at the peak in 1943-44, amounting to 44% of real GDP. I also estimated that the war raised real GDP by $430 billion per year in 1943-44. Thus, the multiplier was 0.8….Wartime production siphoned off resources from other economic uses — there was a dampener, rather than a multiplier.

I’m no economist, but this sounds mighty suspicious. The whole point of stimulus spending is to temporarily raise employment during a recession. But once unemployment has been reduced below 5% or thereabouts — I think it eventually got to around 2% during World War II — then that’s all she wrote. All additional government spending can do is suck resources away from private consumption, which might very well produce a net multiplier less than one. The same is true, though in less extreme form, for other wartime spending that happens when unemployment is already low.

But during a recession, when monetary policy is wrung out and there are millions of workers who aren’t being utilized in the private sector? That’s a different story, no? And it’s pretty fundamental to the whole theory. The fact that Barro doesn’t even mention this, let alone address it, gives me little confidence in the rest of his op-ed.

Via Tyler Cowen.

BEFORE YOU CLICK AWAY!

“Lying.” “Disgusting.” “Scum.” “Slime.” “Corrupt.” “Enemy of the people.” Donald Trump has always made clear what he thinks of journalists. And it’s plain now that his administration intends to do everything it can to stop journalists from reporting things they don’t like—which is most things that are true.

No one gets to tell Mother Jones what to publish or not publish, because no one owns our fiercely independent newsroom. But that also means we need to directly raise the resources it takes to keep our journalism alive. There’s only one way for that to happen, and it’s readers like you stepping up. Please help with a donation today if you can—even a few bucks will make a real difference. A monthly gift would be incredible.

payment methods

BEFORE YOU CLICK AWAY!

“Lying.” “Disgusting.” “Scum.” “Slime.” “Corrupt.” “Enemy of the people.” Donald Trump has always made clear what he thinks of journalists. And it’s plain now that his administration intends to do everything it can to stop journalists from reporting things they don’t like—which is most things that are true.

No one gets to tell Mother Jones what to publish or not publish, because no one owns our fiercely independent newsroom. But that also means we need to directly raise the resources it takes to keep our journalism alive. There’s only one way for that to happen, and it’s readers like you stepping up. Please help with a donation today if you can—even a few bucks will make a real difference. A monthly gift would be incredible.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate