The point I was making about the Murphaloon’s macroeconomics

Richard Murphy writes:

[The government and OBR] believe that austerity generates growth and so cuts the deficit. The trouble for them is that all the evidence shows that the opposite is true: cuts shrink national income and government spending increases it.

This has attracted cheap abuse from some of Tim Worstall’s commenters. Such abuse is wrong, and misses the point.

It’s wrong, because – in the context he is writing about – Richard is right to claim that fiscal multipliers are big.

But that’s not actually his claim. In the comments:

Is Richard right the OBR assumed negative multipliers, G down Y up? I’d be surprised

Posted by: Luis Enrique | April 26, 2016 at 03:35 PM

chris
No, he’s not.

Quite so. The Murph doesn’t realise that a multiplier of less than unity does not mean the economy shrinks. But he claims that that is what a multiplier of less than unity means. Wrote a whole paper making that assumption in fact.

27 thoughts on “The point I was making about the Murphaloon’s macroeconomics”

  1. Richard’s doubly wrong: the abuse he receives isn’t cheap. A lot of thought and craft goes into it. Therefore (because of the value of labour) it’s very expensive, from his economic standpoint.

  2. Tim, your blog performs a valuable public service, in helping to debunk the crap that Murphy publishes and broadcasts and to shine a light in the dark and rotten corners of the Old Orchard.

    There could be a case for this activity to achieve charitable status (education) if based in the UK and if some of the personal comments were toned down, meaning you could become eligible for tax-free grants from aligned organisations and individuals along the lines of say Tax Research UK, to give one random example

  3. BraveFart, I agree that a UK based blog that debunked the plausible (to the layman) B/S that is spouted by Richie, but also Polly, Owen Jones etc should qualify for charitable status under the guise of education. I am sure you could set up such a site in the UK and effectively recycle (with permission of course) and just ignore the posts where he goes a bit Tourette’s. Tim perhaps blog syndication is the way forward??.

  4. Tim is right that Murphy’s implicit claim that the OBR has been using negative multipliers is wrong.

    Chris Dillow (for it is he) is right that Murphy’s main point, that the OBR’s multipliers have been much too low, is correct.

    The OBR gets its multipliers from the IMF, which has been assuming a relationship between government deficits and interest rates which doesn’t hold in the current environment.

  5. yeah I missed that first time round. Did he really write and publish a paper in which he thinks a multiplier less than 1 amounts to assuming austerity is expansionary? I can’t bear to look.

  6. Surely the multiplier for Government spending must vary?
    If for example all the bridges across the Thames were blown up tomorrow and replaced the multiple would be very large.
    The multiple for destroying houses in Liverpool less than 1
    Therefore spending is not equivalent as Richard seems to think.

  7. “The multiple for destroying houses in Liverpool less than 1”

    On this day, you must be Rupert Murdoch or Boris Johnson

  8. Luis

    No, the paper itself doesnt make that claim. But it is co-authored with an IPE guy, who probably can do some econ. (not much, but probably more than Murph.) It’s not a very good paper – it would make an adequate term paper in a mediocre US university, but not much better than that.

  9. “It’s not a very good paper – it would make an adequate term paper in a mediocre US university, but not much better than that.”

    But, but, but, how can this be? Richard Murphy is a Professor of Economics at a London University, a frequent commentator on economics and tax on broadcast and in print media in the UK and – not least – perhaps the world’s leading tax expert? Was Murphy’s contribution ghost written?

  10. BF

    Obviously he didnt contribute much because his blog post doesnt show even the minimal understanding shown in the paper.

  11. Might this be the Andrew Dickie who spends so much time licking Quaker arse makes so many incisive comments on Richie’s blog? A retired amateur Anglican divine?
    https://twitter.com/AndrewAOJN?lang=en-gb
    “I say, prosecute the Board! But then, I would also like to see EVERY member of the Coalition and current Tory Administrations rowed by barge up to Traitors’ Gate at the Tower, where I would have them disembark to be placed in stocks on Tower Green. There we could jeer them, pelt them with rotten fruit etc, and after a whole day (on more?) there, they could be taken to be tried as traitors to the commonality of the realm, and to the principles of common decency and social solidarity for which Britain used to be renowned, before we caught the debilitating disease of neo-liberalism, that robbed the populace of good sense, empathy and judgement.”

  12. Andrew K, Wales
    Delightfully Christian comment by an Andrew Dickie on @RichardJMurphy ‘s parody blog. You @AndrewAOJN? #juanquerista http://www.taxresearch.org.uk/Blog/2016/04/26/the-uks-top-financial-regulator-has-no-idea-how-much-money-laundering-there-is-in-the-uk/

    Andrew Dickie ‏Hellesdon, England
    @kinsman_a @RichardJMurphy Yes. And I don’t retract a word. Current Govt us EASILY most deceitful, dishonest, cruel & corrupt in 200 years.

    Andrew K Wales
    @AndrewAOJN @RichardJMurphy Aren’t you forgetting the Heath Terror? The Thatcher Pogroms?? Your medication???

    Andrew Dickie
    ‏@AndrewAOJN
    @kinsman_a @RichardJMurphy Au contraire,I forget none of horrors of Thatcher/Heath.STILL say- no drugs needed- this Govt worst in 200 yrs.

  13. Anon could conceivably be wrong to assume building Thames bridges where there are none has a +ve multiplier. It depends on the price.
    If each bridge costs one year’s national income in resources and labour, then there will be surely be a -ve multiplier. That’s extreme as bridges never cost that much, but it indicates that spending multipliers are an unhelpful concept.
    Return on investment is a better concept for the financial minded, value for money is the better concept for the lay man.

  14. Henry Marsh

    And at the macroeconomic level where we are discussing the impact of changes in percent of GDP, the multiplier is pretty helpful. Obviously if you assume something is massively overpriced – as in your bridge example, the effect is likely to be negative, although even here hiring people to dig and fill holes might be useful if aggregate demand was weak (although why is it weak is a key question).

  15. There are no circumstances under which hiring people to do a task which is 100% pointless is a good thing to do.
    The hires might learn some digging skills, make friends, and not commit crime but if effects like these are taken out and it genuinely is defined as a completely pointless task then resources and labour have been diverted for no outcome.

  16. @ Henry Marsh
    Completing forms that merely involve ticking boxes is the modern equivalent of the Paris Commune’s digging holes in the road and filling them up again the next day.

  17. Henry Marsh,

    I can see a point to hire a person to do a 100% pointless task. Poor people with too much free time tend to do things we’d rather them didn’t, like sharpen the guillotine.

  18. @Liberty Yank – I think I mentioned not committing crime as a rider.

    A slightly more complex look at net benefit of an investment would be a function something like kx(1-x)-c
    where x is say the amount of road you already have, c is the cost of building/repairing an additional mile, and k can be a constant. At some level, the more road in good repair you already have, the less net benefit from building/repairing more.

    I’d like to see a worked example of how single numeric multipliers are better concepts than things like investment return or cost benefit analysis. To me multipliers lead into Mugabe Monetary Theory which says that all extra government spending on any project delivers a net +ve outcome and your money back. Which is nice.

  19. @Tim (re educational blogsites)

    “Getting someone to cough up cash would be the problem though…..”

    That’s the thing, isn’t it? There’s no shortage of people & organsiations, with oodles of money, would benefit from a bit of societal economic re-education. But they won’t put there hands in their pockets. Whilst fruit loops like Richie get all the funding they need.
    Stupidity squared.

  20. @”Henry Marsh
    April 27, 2016 at 8:37 pm

    Anon could conceivably be wrong to assume building Thames bridges where there are none has a +ve multiplier. It depends on the price.
    If each bridge costs one year’s national income in resources and labour, then there will be surely be a -ve multiplier. That’s extreme as bridges never cost that much, but it indicates that spending multipliers are an unhelpful concept.
    Return on investment is a better concept for the financial minded, value for money is the better concept for the lay man.

    Good point

  21. @”BraveFart
    April 27, 2016 at 12:24 pm

    “The multiple for destroying houses in Liverpool less than 1”

    On this day, you must be Rupert Murdoch or Boris Johnson

    Perhaps I was not clear I think spending money on destroying houses in Liverpool is a bad way of spending it. Sadly John Prescott did not agree

  22. Inevitable, I suppose, from Andrew Dickie
    You are blocked from following @AndrewAOJN and viewing @AndrewAOJN’s Tweets. Learn more

Leave a Reply

Your email address will not be published. Required fields are marked *