Sunday, January 11, 2009

government spending creates more economic activity than private spending?!

Harvard economist Greg Mankiw reports on the "multiplier" numbers from the Obama economic team's assessment of its own "stimulus" plan (hat tip: Bluegrass Policy Blog).

They estimate 1.57 for government spending and .99 for taxes. In other words, a dollar of tax relief creates $.99 worth of economic activity-- and a dollar of spending creates $1.57. Of course, this is absurd since, taken to an extreme, we'd move to socialism. If government spending is more efficient than private spending, then give it all to the government!

Keynes must be smiling in his grave. But Henry Hazlitt is spinning so quickly in his grave that we may have just discovered a new alternative energy source!


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