Wither the multiplier?

People are still criticizing the administration’s jobs-created-or-saved numbers, and justly so. But I think criticizing the numbers misses the point a bit. The very idea that we can count the jobs created or saved is nonsense, and undermines the entire theory supporting of the stimulus.

The stimulus is based on the idea of the Keynes multiplier. According to the theory, when workers get paid for their work on stimulus-sponsored projects, they turn around and spend that money on other things, generating more income for other workers, who spend the money on still other things, and so on. Thus, the economy grows by a multiple of the stimulus.

ASIDE: This is all bunk. The story above fails to account for the economic activity that is suppressed when the government taxes or borrows to fund the stimulus. (In fact, Keynes’s theory relies on a more complicated analysis that I won’t get into.) In all but very exceptional circumstances that certainly do not prevail today, the positive and negative effects cancel. All that happens is economic activity shifts from the private sector into the public sector. Robert Barro has estimated the multiplier to be “insignificantly different from zero”.

Anyway, there is obviously no way of tracking what happens to the stimulus money once workers get paid. Consequently there is no way to count any jobs that might be created after the first round. So when the White House claims that it can actually count the jobs created by the stimulus, it is tacitly conceding that there is no multiplier. Without the multiplier, there is no “stimulus”, only a massive spending boondoggle.

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