Good morning, everyone.
Wonderful discussion!
Thanks for all the comments and thoughts on economic multipliers, Arthur, Mike,
Ray, Ed, and Keith.
From your comments, I can see how the thinking on multipliers covers several
bases:
1. The 'number of times' that a chunk of money is passed defines its
multiplier, its circulation.
2. Circulation that leaves one's home economic base (goes 'overseas') after
having been spent 'locally'
3. Circulation that is diminished as people 'save' a fraction of it before
passing on the rest (marginal rate of spending, perhaps varying with economic
demographics)
4. There may be a difference in the multiplier based on whether that 'first
dollar' comes from the government (as to the Arts) or not.
Based on this, I would like to offer several comments about the multiplier
effect. Essentially, the multiplier idea is making less and less sense to me.
A. The best distinction about multipliers seems to me to be the idea that money
at some point may leave the boundaries of one own group, whether it goes
'overseas' or out of ones sector of the economy, such as the Arts. But as
someone who views himself as a member of our species first and as an American
or a management consultant or foreign policy advisor last, this notion of money
'leaving' seems strangely limited to me. The notion of local economies and
differential well-being of communities is of immense interest to me, but I do
not take a 'my-group-first' position. I think that genie is out of the bottle
and it is better for us as individuals and as members of homo sapiens to
embrace the larger identity and definition of self-interest that that implies.
B. Saving a portion of an incoming dollar before passing on the rest: I can
see how 'in the old days' this idea had validity. If one took a fraction of
ones income and stuffed it in the mattress for a rainy day, then in effect that
fraction was now unavailable for participation in the daily economy of a
people. But I don't know if this distinction is a useful one any longer.
Today's equivalent to stuffing money in a mattress is getting a CD (certificate
of deposit) or buying a Treasury bill. More tricky forms involve real estate
purchases, stock purchases, etc. All of these activities are considered
investment because they specifically involve circulating that 'savings'
fraction on into the economy, there to earn a ROI for the investor, and equally
importantly, to provide capital for someone in that economy who can use it. So
there is no mattress stuffing going on, nowadays. Perhaps those who buy gold
now are the remnants of the mattress stuffers? They are gambling on an
increase of gold prices for their profits, while sinking their savings into a
passive accumulation of gold does stop the multiplier effect for the duration
of the holding. But without this kind of exception, my guess is that there is
no savings going on in the sense that I gather Keynes and Kahn might have been
envisaging.
C. It seems to me, therefore, that that any dollar spent in any locale and in
any sector is essentially going to have the same economic effect as any dollar,
and that no dollar ever stops being moved on. In other words the multiplier is
essentially infinite, starting in any industry and any sector.
D. I would like to introduce an idea that may be somewhat akin to what Keynes
and Kahn (as I understand it from the comments posted here): Not all dollar
expenditures have an equal value to society. In the same way that mattress
stuffing had little value to an economy, some expenditures have little or no
social value. I would offer the following activities as candidates for low or
no social value; gambling, commercial sporting events; ego- and status-driven
expenditures (e.g. MacMansions); consumer item fads ('pet rocks' being my
favorite examples); prestige tourism; foods rich in sugars, salt, and fat; etc.
What do you think?
I am still hoping that someone might find a citation to a multiplier case study
so that we can see what definitions, questions, assumptions, and methodology
were used.
Cheers,
Lawry
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