T Nation

Federal Spending Cancels Private Spending


Some of You Might Enjoy This:

"Over the past several years, multipliers have been intensively examined by leading economic scholars. Robert Barro of Harvard University calculates in Macroeconomics a Modern Approach (Thomson/Southwestern, 2008, p. 307) that the government expenditure multiplier from 1955 to 2006 was negative .01, not statistically different from 0. The highly respected Italian econometrician Roberto Perotti of Universita' Bocconi and the Centre for Capital Economic Policy Research has also done extensive work on this subject while visiting the fiscal policy division of the ECB.

In October 2004, in his Estimating the Effects of Fiscal Policy in OECD Countries, Perotti calculates that the U.S. expenditure multiplier is also close to 0. Thus Barro and Perotti are saying that each $1 increase in government spending reduces private spending by about $1, with no net benefit to GDP. All that is left is a higher level of government debt creating slower economic growth. There may be intermittent periods when government spending will lift the economy, but offsetting episodes will follow.

The best available empirical research suggests that the current federal policy of expanding spending will retard, not improve, the performance of business conditions. In addition to spending multipliers, however, there are also tax multipliers."


This means that federal spending cancels out private spending. The whole stimulus package is simply a waste, the only outcome being more debt on the economy.

Would love to see Obama's econ team's counter to the above, if anyone knows of such.


Well, duh!

Multipliers are a joke made up by government paid economists (statisticians), anyway. As if any government spending could add value to the private sector. Pure and utter fantasy, at best.


Good article, thanks for the post.

Open up any book on ecomonics and it'll tell you the same.


Obama and his appointed teams will simply ignore this if they haven't already. According to them, we as Americans must have faith in the "experts" aka politicans who are passing all this shit, we must not question or delay what these measures which will "save our economy."

Obama will ignore it as he has ignored the CBO's analysis of Obamacare.


And it is truly amazing to me how Obama wants to increase taxation and regulation in an economy groaning under a bad recession. Every one dollar increase in taxes reduces GDP by $3. Yet he wants to do Cap-in-Trade, Healthcare, and let the Bush tax cuts expire. Does he WANT a Great Depression?

He reminds me of a very active malignant cancerous tumor, that grows and kills the host. With an idiot's crudeness, he pursues policies that 'kill the host'. I thought he was supposed to be our smartest president ever.


More like smoothest-talking with a teleprompter. But that's about it. Oh, wait he's black and young so we got the cool-factor too.