Falsely multiplying the effect - Tucson Local Media: Editorials

Falsely multiplying the effect

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Posted: Wednesday, March 4, 2009 12:00 am

Every era promotes some false assumptions. One of the biggest ones for us is belief in the economic “multiplier effect.”

It was born in or at least refined in Keynesian economics, and it’s the driving force behind the Obama administration’s stimulus plan. Both his critics and his friends are in error when they call this and other neo-New Deal programs “socialism.” Real socialists know that. While it contains some of the same elements as Marxist and Fabian socialism, it is a separate pathology.

Keynesians believe government spending is good regardless of what the money is spent on because it puts more money in circulation and the circulation is really the benefit. It is relatively easy to prove how erroneous the concept is.

Tons of economic treatises and history books falsely inform us that the Great Depression was ended by WWII. No, unemployment was ended by drafting lots of folks into the military and giving others jobs making military supplies. At war’s end the Keynesians went bonkers over drastically reduced spending because tanks and bombers were no longer needed. They predicted a return to the Depression, and were dead wrong. Drastic reductions in government expenditures had the opposite effect, and allowed returning servicemen to find private sector jobs like making cars where they once made fighter planes.

Another example is found in the former Soviet Union. Prosperity should have rained upon them had they simply kept workers making armor plate for all those now-unneeded tanks. Even the socialists figured that one out.

The multiplier theory should be as defunct as the 19th century positivist notion of labor theory of value, totally destroyed by the great Frederick Bastiat. The 21st Century could use his reincarnation. The economic framework the Obama folks are basing their hoped-for recovery upon is fallacious. Hopefully the underpinnings of this nation are strong enough to survive the equivalent of bleeding an anemic patient with leeches.

The multiplier effect has infected more than just center-left economics. There’s a version of this virus rampant in most chambers of commerce. Best local example is the claim that the recent golf tournament put $100,000,000 into the local community. Do the math. Was that 100 people at a million each? How about 1,000 people at a hundred grand? Ten thousand folks at 10 G’s a piece?

To discover how much it really generated, simply add all the sales tax revenue collected by each jurisdiction for the month the event occurred, do the same for the months on either side of it (allowing for similar events), and you should get a reasonable approximation.

There’s a recent study made by an economist who’s theory was discussed on NPR. I was driving and didn’t catch his name, but he maintains that those Super Bowl figures about multipliers are equally false. He used monthly sales tax reports to conclude there is little or no real gain to communities hosting them, as they simply move things around and chase off or delay other visitors. While beneficial to some businesses, they are detrimental to others. I don’t know if he’s correct, but I think we should at least validate his theory instead of chanting the multiplier mantra.

Those currently pushing the legislature for a sales tax election to build a spring training stadium should quit using phony multipliers. A legislature that won’t allow a sales tax election for items like education as part of its anti-tax position probably won’t make an exception for baseball stadiums. And as a political consultant I would strongly urge they hire a decent pollster to tell them if the item has any hope of passage by the voters.

Listen to Emil Franzi and Tom Danehy Saturdays 1-4 p.m. on KVOI 690AM.

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