Friday, May 29, 2009

Multiplying by Zero

A recent post of mine over on the Blog at Mises.org:









Multiplying by Zero

Jim Fedako



It appears the consensus is "every $1 spent on the national food-stamp program pumps $1.73 into local economies." It's that resilient Keynesian multiplier again.

In our distant past, the $1 came from taxation. Today, however, the $1 comes from a combination of taxation and thin air.

One thing we know for certain: Every $1 in taxation removes something more than $1 of value from the locally-taxed economy, as desired consumption is replaced by government waste. And, assuming the Keynesian multiplier, that $1 in taxation is subject to a negative multiplier, as it's removal from the economy has a repeated, but necessarily lessening, effect.

Create the $1 through a notation on the books at the Fed, and the effect, though better hidden, is the same.

The tacit claim that the $1 nets $1.73 is pure nonsense -- it applies Keynesian balderdash to one side of the equation. It's a good sound bite, but nonsense all the same.

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