WatsOn My Mind: Stimulus Multipliers

The problems of trying to actually identify Keynesian spending multipliers is nothing new, but it was brought home to me this last week. You see, my mother-in-law passed away just after her stimulus check arrived. Her children chose to use it to pay for her headstone. Being more familiar with the discussion than most spending, I break it down this way:

Someone in government, trying to figure out how many jobs were created or saved by the stimulus bill, would ask us what we spent the money on. We would tell them it went for a headstone. They might figure out how much the monument workers are paid, how much of that $1200 went to the carvers and how much to the stone itself and multiply it throughout by marginal propensities to consume and any other leakages in the system to come up with a fancy number. (For those of to whom that is all Greek, see Jacob Clifford’s introduction.)

The usual first response to this is to cite the Broken Window Fallacy (introductory video here). That stimulus money had to have come from somewhere. Someone else will be taxed or have their savings inflated away to pay for it eventually, and the first round calculation does not take into account the jobs lost from this confiscatory taxation/seigniorage. Thank you, Bastiat.

The other problem more visible to me than usual is that we (the assembled kids) were totally going to get her a headstone either way. The stimulus check was entirely fungible and it will actually be spent over time with a little bit here and a little bit there because someone in the family has more in their savings account than they otherwise would have. Trying to follow and account for that spending and its effects borders on the well-nigh impossible. Forget the distinction between approximate right and precisely wrong (a quote misattributed to Keynes), it’s not even possible to know if you’re even in the right ballpark!

And those distinctions are still before factoring in monetary offset. Though with Powell begging the government to spend more, you might think that’s less of an issue also, but Sumner responds to that idea in the comments section at the same link.

PS – What did we do with our family’s stimulus check? Far as I know it’s still sitting in the savings account. Our needs are met, so we try to keep our mpc kind of low.

One thought on “WatsOn My Mind: Stimulus Multipliers

  1. You have stimulated a brilliant idea: Why don’t we ALL stop working and just have the government send us say, 120% of whatever we used to earn? (Eat your heart out, JMK!)

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