Here's what the Keynesians want to call the Fiscal multiplier - Wikipedia, the free encyclopedia
The multiplier effect is a tool used by governments to attempt to stimulate aggregate demand. This can be done in a period of recession or economic uncertainty. The money invested by a government creates more jobs, which in turn will mean more spending and so on.
The idea is that the net increase in disposable income by all parties throughout the economy will be greater than the original investment. When that is the case, the government can increase the gross domestic product by an amount that is greater than an increase in the amount it spends relative to the amount it collects in taxes.
We are seeing GDP shrinkage for some reason, even with extended unemployment and stimulus packages and Quantitative Easing (QE3? QE4? -- lost track). The popular notion is to blame cuts in government spending, but what is really happening is unclear, I mean those so-called 'sequestration cuts' haven't really happened yet. Of course one side blames the other, totally ignoring the fact that all of us have tickets for the same ride on the Titanic.
My guess is that in spite of government attempts to stimulate demand, demand is waning. Prices are increasing while the government maintains low inflation figures.
Extended Unemployment Benefits Work Better Than Tax Cuts
Unemployed benefits are more cost effective than other methods of stimulating the economy, such as across-the-board income tax cuts. A study done by U Mass/Amherst found that $1 billion dollars in tax cuts created 10,779 jobs -- less than the 19,000 created if the same funds went to the unemployed. That's because those who have a job will only spend half of their tax cuts. They have the luxury, because they are receiving an income, of using their cuts to pay down debts, save or invest the rest.
That's interesting, ...using their cuts to pay down debts, save or invest the rest... like it's a bad thing. And when did having a job become a luxury? The thing about a tax cut is that it puts the decision making process in your hands instead of in the hands of the government. It's not a loss of revenue any more than unemployment payments stimulate revenue. The example is one of bad economic theory.
Why are government jobs taxed, and why are they included in GDP figures? So the government can play numbers games -- ...the government can increase the gross domestic product...
It looks good for the government, but
It doesn't make sense to:
- tax government employees on 'income' paid through taxes. It's tax money fer cryin' out loud, we're taxing tax. It's like paying someone to do the job, and then taking a kickback. Some folks call this Racketeering:
one who obtains money by an illegal enterprise usually involving intimidation.
...goes hand in hand with luxury of having a job right?
- include government wages in GDP figures, unless of course you call it a drain on GDP, which is the true product of government -- a cost.
It's a numbers game. Government is an expense -- always. All government jobs are a cost to the revenue base, so the only way government jobs can generate revenue is if the employees pay more in taxes than they receive in government wages.
The IRS, for example, generates revenue. Right? Without the IRS, how much tax revenue would the United States collect? On the other hand, if people voluntarily paid taxes, which is true in our system of income tax by the way, it is a voluntary system, think how much more revenue we could generate if we didn't have to pay for the services of the IRS.
Government doesn't create jobs any better than hurricanes or wildfires . The jobs need doing, some of them anyway, but always at an expense. Saying otherwise is just a trick (broken window theory).
It's like opting for treatment over a cure for cancer because so many jobs will be lost. The patient chooses the cure while the government supports treatment.
We're going to have to take a hit on GDP for a period of time if we want to get government debt under control. That's the cure. The treatment is of course to keep borrowing and spending.
Remember, the technical definition for recession is two consecutive periods of GDP shrinkage. It's just a numbers game, bad for politicians, good for you and your children. We have to stop spending the kids' money.