Arnold Kling  


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Cato's Caleb Brown recently recorded me in two podcasts. My thoughts on multipliers and stimulus are here (this link may be more reliable). You will also find a link to my recent podcast on co-ordinated health care (I linked to this one earlier this week). On the multiplier issue, I raise points that I've been raising on this blog--my issues with talking about "the" multiplier as if it were a constant, the difficulty of targeting stimulus at unemployed resources, and so on.

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Lauren Paulson writes:

This is for Arnold Kling. Hello. This has to do with an article your father wrote in the 1960's: "Towards A Theory of Power and Political Instability in Latin America" found in 'Political Change in Underdeveloped Countries' John Wiley & Sons (1962/1966). I only bring it to your attention because it is not listed in his bio at Washington. It was one of my college reads in the '60's. Only recently I have gotten reinterested in Latin America (and in particular our imperialism there) and ran across this book in an old box.
Lauren Paulson

Blackadder writes:

In your discussion, you say that increased government spending makes sense when you are at below full employment, because there are unemployed resources that can be put to productive use. This, it seems to me, only looks at half the equation. In order for the government to put people to work, it has to pay them, and that money has to come from somewhere. To get the money, the government will either have to inflate (which you describe as being a bad option) or it will have to borrow the money or raise it in taxes. In either of the latter new cases it would seem that doing so would displace private spending, since there will be less money to be lent or spent absent the government borrowing or taxes. At the very least, for an increase in government spending to make things better, you need something beyond the fact that there are unemployed people standing around who could be put to work.

Floccina writes:

Jim Powel on the Cato web site says that Warren G. Harding did the reverse of a stimulus cutting Government spending and texes and the country pulled out of the 1920-1921 sharp down turn fast. Is there anything that we can lean from the 1920-1921 down turn?

Pedro writes:

Just to continue Blackadder's point; if the government is spending money that it is taking (or will take) from taxpayers, then that foregone spending would have been 'multiplied' as well - I would have paid someone, who would then give the money to someone else, etc... The only way I can see this 'multiplier' argument making any sense is if the money is coming from the Fed, in which case we're back to arguing about whether monetary policy can stimulate the economy.

On the other hand, if this stimulation is coming from the fact that the government can put the unemployed to work, then that has nothing to do with the multiplier. It has to do with a supposed magical power we are assuming the government has that can coordinate firms and unemployed resources better than the market. This might make sense, but 1) I still haven't heard why this might be true, and 2) I don't think we can even start to understand whether the government can do this better than the market until we have a better understanding of why these unemployed resources are unemployed in the first place.

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