Multiplier effects happen whenever the government spends money.
That money does not go into a black hole, it goes to someone, and they pay tax on it, and then they spend what’s left over, and the next person who they spend the money with pays tax on it, and then they spend what’s left over, and so on, and on, well, until someone saves, and that stops the process rolling.
But the point is, that one payment by government creates lots of additional tax payments within the economy. And that’s what the multiplier effect is. It is the consequence of government spending generating extra tax income.
Nope:
In economics, the fiscal multiplier (not to be confused with the money multiplier) is the ratio of change in national income arising from a change in government spending. More generally, the exogenous spending multiplier is the ratio of change in national income arising from any autonomous change in spending (including private investment spending, consumer spending, government spending, or spending by foreigners on the country’s exports). When this multiplier exceeds one, the enhanced effect on national income may be called the multiplier effect. The mechanism that can give rise to a multiplier effect is that an initial incremental amount of spending can lead to increased income and hence increased consumption spending, increasing income further and hence further increasing consumption, etc., resulting in an overall increase in national income greater than the initial incremental amount of spending. In other words, an initial change in aggregate demand may cause a change in aggregate output (and hence the aggregate income that it generates) that is a multiple of the initial change.
The existence of a multiplier effect was initially proposed by Keynes’ student Richard Kahn in 1930 and published in 1931.[1] Some other schools of economic thought reject or downplay the importance of multiplier effects, particularly in terms of the long run. The multiplier effect has been used as an argument for the efficacy of government spending or taxation relief to stimulate aggregate demand.
In certain cases multiplier values less than one have been empirically measured (an example is sports stadiums), suggesting that certain types of government spending crowd out private investment or consumer spending that would have otherwise taken place.
It’s got to be spending with a multiplier greater than 1. Which not all government spending is.
Also is this gross or net? There’s a negative multiplier effect on the tax to fund the government spending (whether that’s immediate or delayed through borrowing), and that can be large, particularly when it’s an increase from the already high levels of tax we’ve already got.
“That money does not go into a black hole, it goes to someone, and they pay tax on it, and then they spend what’s left over, and the next person who they spend the money with pays tax on it, and then they spend what’s left over”
Same applies to tax which people have avoided or evaded. It gets spent and someone else eventually pays tax on it. Ergo, there is no tax gap.
Yeah Andrew C. I also am having trouble detecting the difference between money in the private sector & money in the public sector with regard to multiplier effects. Is it because tax money gets liberally dusted with dried powdered unicorn shit in the offices of HMRC?
Here’s what he’s really done.
If government prints money, or borrows to spend (so converting savings into current spending) then there’s more demand. The money then flows through in the way he suggests. If the multiplier is greater than 1 etc. He’s dropped the “increase the deficit” bit and now claims it’s simply true of all govt spending. Which, it ain’t. Or, no more so than any other form of spending, as you say.
So, when the gov’t cuts taxes:
“That money does not go into a black hole, it goes to someone, and they pay tax on it, and then they spend what’s left over, and the next person who they spend the money with pays tax on it, and then they spend what’s left over, and so on, and on, well, until someone saves, and that stops the process rolling.”
Hey, this sounds like a pretty good idea.
When the British government spends the money does not disappear it goes to the people with whom it is spent. Some part of that spending will go to foreigners and benefit the British economy not at all. Of that part spent in Britain some will be spent by the recipients on foreign goods and services, again with no benefit to the British economy. Etc.
But the British economy will bear the entire cost of the spending.
It may or may not be that government spending will help the world economy, but it will be of little use to Britain which will bear all the costs..
I think it was in 1956 that the first container ship was launched.
The shipping container made globalisation a reality and Keynesian economics obsolete overnight.
I’ve a feeling this was covered by our host in an El Reg article back when that site was fun and not the po-faced wakefest it is now, but I digress.
There’s also the current issue of immigrants sending money back home (not to mention foreigners applying for British benefits without even living here).
I am reminded of this recent story:
https://www.dailymail.co.uk/news/article-13470893/Bulgaria-fraud-Britain-benefits-scam-detective-exposed-gang.html
Theoretically this could be what Murphy has in mind for the confiscated ISAs and pensions, as well as the £184 billion per year income he has identified in the ‘Taxing Wealth’ Report – reallocate the money from those hated, racist, Brexit voting Gammons and it will multiply elsewhere in the world. The recipients can then come here and finish the job off by stealing UK citizens houses as well.
From the increasingly unhinged tone of his recent blogs, and the numbers of factual errors and lies in them, Murphy’s detachment from reality is almost complete. The David Icke of our time, without the charm.
I suppose it’s a warning of the effect of not engaging with or allowing opposing views or criticisms and instead only having your opinions agreed and amplified uncritically, and your ego and c0ck stroked, by your sycophant camp followers.
Meet @nhannahjones of the NYT Mag, she wants to outcompete Spud in the economic lunacy stakes:
Its should come as no surprise to learn she’s the creator of the 1619 project.
BraveFart said:
“Murphy’s detachment from reality is almost complete. The David Icke of our time, without the charm”
Probably less good at soccer as well.
David Icke made the totally mad claim that governments are in thrall to supranational interests and don’t care about their people. Doesn’t he look stupid now eh?
These days I never know whether The King of the Potato People is being intellectually dishonest or just doesn’t understand whatever the subject of his rant is. Or both I suppose.
How does hannah think that by storing wealth away it creates more wealth? I stored a ten pound note in my wallet two weeks ago. I checked earlier today and it hadn’t created any more.
“How does Hannah think that by storing wealth away it creates more wealth? ”
Subversive Jewish ways one suspects…….there’s usually a pretty thick seam of anti-Semitism in the sort of people who start spouting off about how ‘the wealthy control everything’.
Ah… the potato and the magic multiplier. how many times has he declared that government spending pays for itself due to the magic multiplier. Couple that with MMT and you’ll find that goverment spending will run at a surplus. Have i got that right?
And in other news about government borrowing, the US government’s interest payments are now $1tn per year, larger than their defence budget. It’s the equivalent to the US’s 5th largest State’s GDP. (Illinois according to Wiki).
Of course Spud’s borrowing is different because reasons.
“And in other news about government borrowing, the US government’s interest payments are now $1tn per year”
The US is on a debt spiral pathway, and unless something changes radically its going to go broke pretty fast. And I can’t see a way it can change the direction of travel – the socialists have gotten hold of it now, and they are going to drive it into oblivion. Trump or anyone like him won’t save them, its well past the point that one man can do anything against the entire massed ranks of the State apparatus, plus the legal system. And there’s no way the US electorate will vote for a party offering to clean out the Augean stables, and even if they did it the attempts to do so would probably trigger a civil war.
“That money does not go into a black hole,”
You know. a lot of it does.
Perpetual motion machines…
@Pat – “Some part of that spending will go to foreigners and benefit the British economy not at all.”
It will benefit the British economy through the goods or services which were obtained in return for the money spent.