This myth—that you can just give money to the middle class and good things happen—is widely shared and is at the basis of a lot of government policy. And it is why the recovery is stuck between lack and luster. Let's go back. Henry Ford is popularly credited with inventing the middle class by doubling his workers' salaries to $5 per day in 1914. A multiplier for the economy, right? Wrong. The year before, Ford revolutionized manufacturing with the moving assembly line, slashing automobile build times to just 90 minutes from 14 hours. That's productivity. It allowed Ford to reduce the price over time of his Model T to $290 from $950. Demand took off because it was far cheaper than the cars made by his 88 competitors.While I’ll grant that the Model T is not be an example of the Keynesian multiplier that most macroeconomist talk about. As far as explaining to Mr. Kessler how this economy is indeed suffering from a lack of demand - Martin Sullivan does the heavy lifting. So let me present Kessler’s other two examples of the i-Side multiplier:
Investor Peter Thiel put $500,000 into Facebook in August 2004, a company now worth $50 billion based on its prospects for transforming the media industry. What multiplier would you put on his investment? This month, after investing billions over the years on R&D, Apple released the iPhone 5. The company is worth $666 billion based on prospects that hundreds of millions of users will lower their cost of doing business with the latest iPhone and iPad mini and whatever else is coming. What is that multiplier?Kessler is a hedge fund manager. Does he really think every R&D project has incredibly high returns? There are no losers? I would think a hedge fund manager would understate the need to present the expected return to R&D which most research in financial economics shows barely covers the additional systematic risk that investors undertake. If Mr. Kessler does not understand this – I have a suggestion for how you can get rich. Figure out which stocks Kessler is buying and then sell them short.