Negative Multipliers on Government Spending

Let’s examine a few different tiers of government destruction of economic activity.

The first level involves negative marginal multipliers on spending. Government taxation takes money away from private projects that have higher multipliers. Perhaps both of these options have multipliers greater than one, but the private activity is still clearly a better use of funds.

The next level involves government spending on a boondoggle with no physical benefits. People dig holes in the ground and fill them. They get paid for the work and spend their paychecks, but there is no discernible benefit resulting from their efforts. There’s some waste of resources since they drive their cars to work and have to buy new shovels to do the job, but they’re relatively negligible.

The 3rd level involves government destruction of real assets. Imagine the government killing 6 million pigs in order to raise pork prices and thus offset deflation. (See FDR, http://en.wikipedia.org/wiki/New_Deal, under Farm and Rural Programs) The multiplier is negative since there are fundamentally fewer resources for use. The same will be true of federal dollars spent on enforcement of carbon emissions limits, collective bargaining agreements, bank bailouts, and government health care.

Given that climate change is an international leftist pretext for the redistribution of wealth, it should come as no surprise that spending on carbon inspection and other green jobs programs will carry negative economic multipliers. Every dollar that they spend preventing more plant food from entering the atmosphere reduces the availability of electricity and plants! It causes metal to be improperly allocated to the construction of windmills and their necessitated power collection grids, thus taking it away from more productive uses.

Labor is a scarce resource. Collective bargaining causes a reduction in labor output. Restrictive work rules result in pay for idleness. Protection against layoffs make companies disinclined to hire during times of high demand. Consider the rubber rooms run by the automakers. Also, a lack of merit-based raises and terminations puts a damper on personal efforts. Aside from this, union organizers disrupt work sites. Employees are busy contemplating how to get a bigger share of the pie for less effort instead of how to do their jobs better. Spending on federal mediators who will impose outcomes favorable to unions should strikes be protracted will result in longer strikes and reduced production.

Bank bailouts may have been necessary to prevent another Great Depression, but this need was only induced by flaws in our corporate tax policy and our bankruptcy code. Giving fresh money to those investors who have shown historic levels of ineptitude in its deployment is very likely to result in a repetition of historical performance. Let’s also not forget that every dollar spent on enforcement of the Community Reinvestment Act resulted in a negative multiplier since it forced these banks to make bad loans.

The centrally planned reimbursement rates for Medicare and Medicaid already induce physicians to train for certain specialties at different frequencies than they otherwise would. The same is true for malpractice laws that have resulted in a dearth of obstetricians across the country. Just wait for the comparative effectiveness research to be politically gerrymandered. Kids don’t vote now. Dead kids never will. ACORN members vote early and often. We’ll see funding for leukemia cut while abortion funding is increased. That’s how the crooked politicians will shortchange our future, both morally and economically.

So, is this level of economic malaise the new normal? It sure could be if the leftists get their way. Don’t let them get away with their Keynesian hogwash justification for giving themselves unlimited power or the consequences will be most severe.