Tuesday, September 13, 2016

The multiplier just isn’t very large right now

From Tyler Cowen.
"If the multiplier were large, more economic growth would beget yet more growth, but is that what you see for the post-2014 period?

gdpgrowth

You can think of this as another sign that aggregate demand policy has reached its limits.  Advocates of large multipliers write as if government-sponsored economic activity will bring forth more activity yet.  But “economic activity” – whether government-sponsored or not — has not been having a multiplicative effect since 2014 or arguably earlier yet.

I call this “The Multiplier for Me, but Not for Thee.”  Favored policies are supposed to have large multipliers, but as for the growth we actually get, what kind of multiplier is that bringing?  That’s not a question to be asked too many times because the answer will disappoint."

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