Needless to say, the Keynesians did not think very much of my discussion of the "Multiplier Effect" fallacy in real world applications. "It's there, you are just incapable of seeing it." Hmmmm..., OK lets make a serious effort to find it in the data.
The Multiplier Effect is simple to understand. It says that for each Job that is created with Stimulus Money, N jobs are created in the private sector because:
1. the Stimulus Workers will use their money to buy "stuff," and the Private Sector will hire people to make the "stuff"
2. The stimulus workers will need supplies, and the private sector will hire people to provide the necessary supplies.
So it's all about decreasing unemployment by creating private sector Jobs. In fact creating so many private sector jobs, that when the stimulus spending ends, unemployment continues to decline.
We'll start our search with the most recent Keynesian experiment, Obamanomics. This is the started with the $800B American Recovery and Reinvestment Act buttressed with a panoply of programs like Cash for Clunkers, Cash for Caukers, Dollars for Dishwashers, etc. The only things missing were Funds for Furnaces and Pennies for Parasols programs. The efficacy of all this Demand Side Stimulus became questionable in January of 2010 when a new employment metric (used to be simply "unemployment" and "New Jobs") was formed to measure the effectiveness - Jobs Saved or Created. Q1 of 2011 saw the stimulus spending winding down. In March of 20ll the Shovel ready funds were exhausted; in April the SBA Funds. So, around the start of Q2, 2011 the Stimulus funds had been pretty much disbursed. Had there been any significant Multiplier Effect the unemployment rate should continue to fall. So, let's look at the numbers, month by month.
Mo.....DATE......Unemployment
0...... 2009-02.... 8.2% .. Stimulus Enacted
1...... 2009-03.... 8.6%
2...... 2009-04.... 8.9%
3...... 2009-05.... 9.4%
4...... 2009-06.... 9.5%
5...... 2009-07.... 9.4%
6...... 2009-08.... 9.7%
7...... 2009-09.... 9.8%
8...... 2009-10.. 10.1%
9...... 2009-11.. 10.0%
10.... 2009-12.. 10.0%
11.... 2010-01.... 9.7%
12.... 2010-02.... 9.7%
13.... 2010-03.... 9.7%
14.... 2010-04.... 9.9%
15.... 2010-05.... 9.7%
16.... 2010-06.... 9.5%
17.... 2010-07.... 9.5%
18.... 2010-08.... 9.6%
19.... 2010-09.... 9.6%
20.... 2010-10.... 9.6%
21.... 2010-11.... 9.8%
22.... 2011-01.... 9.4%
23.... 2011-02.... 9.0%
24.... 2011-03.... 8.9%
25.... 2011-04.... 8.8% .. Stimulus over
26.... 2011-05.... 9.0%
27.... 2011-06.... 9.1%
28.... 2011-07.... 9.2%
29.... 2011-08.... 9.1%
30.... 2011-09.... 9.1%
31.... 2011-10.... 9.0%
32.... 2011-11.... 8.8%
33.... 2011-12.... 8.5%
34.... 2012-01.... 8.3%
35.... 2012-02,,,, 8.3%
36.... 2012-03.... 8.2%
37.... 2012-04.... 8.1%
38.... 2012-05.... 8.2%
39.... 2012-06.... 8.2%
40.... 2012-07.... 8.3%
41.... 2012-08.... 8.1%
42.... 2012-09.... 7.8%
All the programs together total about $1T over two years. On a yearly basis that is around 4% of GDP. The result, at the end of 3 1/2 years, is a 0.4% reduction in unemployment. Paul Krugman has explained that the Stimulus Failed because we did not spend enough money for a long enough time.
OK, Then. Let's look at the the New Deal of the thirties. The spending ran 8% to over 10% of GDP (then called GNP) per year. That's 2 to over 2 1/2 times the Obamanomics Spending.
..........New Deal
year....Spending.....Unemployment
1933..... 8.1%........ 24.9% .. New Deal Begins
1934... 10.8%........ 21.7%
1935..... 9.3%........ 20.1%
1936... 10.6%........ 16.9%
1937..... 8.7%........ 14.3% .. spending Decreased
1938..... 7.8%........ 19.0%
1939... 10.4%........ 17.2% .. Spending increased
http://www.bls.gov/...
Between 1932 and 1936 a defecation load of money spent, and unemployment decreased about 10%. Four years of big time spending resulted in a 40% unemployment decrease. In 1937 and 1938 the spending was reigned in, and unemployment started to rise again returning to 19%. So the Stimulus spending was increased, and unemployment began to drop, again. There does not appear to any multiplier here, either.
I dunno, Paul. If more than twice as much stimulus (as a percent of GNP/GDP), for twice as long as occurred with Obamanomics doesn't do it, what will?
Well, we've looked at the data, as requested, and what was found. Keynesian Stimulus does not create long term jobs. It simply provides short term work.
When the money is gone, the work is gone, and unemployment returns.
(Sotto Voce)
Now, where have I heard that before?