More Evidence of 0

Posted by Jeff Carter
on October 2nd, 2012

Since the stimulus was passed in March of 2009, there has been a continuing argument about multiplier effects of government spending. I have said it’s zero, and Kevin Murphy has put slides up on his website showing the calculus behind that reasoning.

But this short post shows how the money was spent, and shows it was simply a transfer of wealth from one segment of our population to another. In short, the stimulative effect of the government spending was 0. In simpler terms, “Spreading the wealth around”, which is exactly what Obama told Joe the Plumber.

In short, ARRA was a laboratory experiment in the power of the government spending multiplier to grow the economy by “stimulating demand.” It ended up proving that the multiplier is way less than one. American taxpayers borrowed $840 billion only to learn that the payoff was only a small fraction of the additional debt incurred. We wasted almost a trillion dollars of the economy’s scarce resources, and that’s a big reason why the recovery has been so disappointing.

It’s great analysis and you should read the whole thing.

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