Dear Keynesians: Please Explain How We Get a >1 Multiplier from This

Via Valley Fever:

Republican senators submitted a report to Congress yesterday outlining billions of dollars of useless or stupid spending in the Obama stimulus plan.

What do we mean by useless or stupid? How about $100,000 for a puppet show in Minnesota or a $2 million replica railroad in Nevada....

The wasteful spending isn't isolated to Minnesota and Nevada, some of it is right here in Arizona.

According to the report, Arizona State University and the University of Arizona were given nearly a million dollars to study the work habits of ants.

"I had no idea that so much expertise concerning ants resided in the major universities of my state," McCain says. "I say that with an element of pride, but I'm not sure its deserving of these taxpayers' dollars."

Here are some I wish I had won grants for, at least in my youth:

Some of the other gems outlined in McCain's catalog of stupid spending are a $400,000 grant awarded to the University of Buffalo for a study on kids who smoke weed and drink malt liquor, a dinner cruise boat in Chicago that got $1 million to fight terrorism, and a $219,000 grant to the National Institute of Health to determine whether college chicks are more likely to "hook up" after drinking.

In other words, the federal government spent $219,000 to study beer goggles.

  • The puppet show and beer goggles are funny, but what about the building being renovated for $130 million? Couldn't they just build a new one for that price? That's about 50 cents from every taxpayer for the mere renovation of one single building. That kind of thing adds up.

  • Stan

    According to Krugman, bad spending is better than no spending, so long as money is spent and fast. Of course, good spending is better than bad spending, but why quibble when you're having such a good time handing out 'free money' all for the sake of saving the economy?

    /sarc I just read his latest book, a revision of the one on the Asian crisis... and he pretty much thinks every last recession everywhere since the late 80s has primarily needed demand-side attention. And then he asks, "why isn't Keynesianism working? Because investors are idiots."

  • me

    Love the US habit of earmarks. I mean, typically politicians try to hide their moral depravity and tendency to accept bribes. Only here do they boast with it (scored $xxx for my state. Congrats on wasting my money.). And while each year the opposition fires a few potshots at "outrageous spending" in next years budget, they happily contribute around 40% in the name of a "balanced" budget.

    Meanwhile the small-scale outrageous items conveniently detract attention from the large unwarranted spending (like $1,000,000 per soldier per year in wars that contribute absolutely nothing to our safety, a healthcare reform that is going in absolutely the wrong direction and trillion dollar bailouts to save the bonuses of the bankers who caused this crisis in the first place).

  • Anon

    I think Stan's right -- the stimulus effect doesn't rely on where the money is spent. The multiplier happens because you get the money into the economy. You could sprinkle it from a helicopter...but it would be hard to collect the rents from the rent-seekers.

    What does matter is whether the stimulus is in the form of gov't spending vs. a tax break.

  • bobby b

    1. The MN puppetshow was hardly a waste or a boondoggle or a payoff. Those three or four puppeteers spent days and days ferrying around mystery votes for Franken until our S of S was "ready" for them to appear. That was a profitable $100k.

    2. Imagine the orgasmic trembling in our nation's and states' capitals when someone with actual ecomomist-type credentials came forth with "it doesn't matter how you spend it, the important thing is to SPEND IT!" It was like their existence and their philosophies were affirmed right there.

    3. $219,000 to study beer goggles? Neh. I passed that figure myself during my fifth year of college. But I've sworn I won't quit until I've learned the secret . . .

  • Ian Random

    Check out Moody's Dismal.com for a whole chart on economic multipliers. The best way to spend money on the chart is a temporary increase in food stamps at 1.73.

    https://www.dismal.com/dismal/article_free.asp?cid=115864&src=economy-hp-dismal-article

  • stan

    I'd be willing to do that study about hooking up and drinking for half that much money.

    [different stan]

  • O Bloody Hell

    "Transit Authority"

    Doesn't have quite the correct "cache", seems to me.

    "Transit Overlords"

    Much, much accurate.

  • O Bloody Hell

    The puppet show and beer goggles are funny, but what about the building being renovated for $130 million? Couldn’t they just build a new one for that price? That’s about 50 cents from every taxpayer for the mere renovation of one single building. That kind of thing adds up.

    "A billion here, a billion there. Sooner or later, it adds up to real money"
    - Everett Dirksen -

    They pulled similar crap here in my home town -- bought and "chased off" all the tenants in a two-block area right at one of the busiest intersections in town.

    Tore everything down.

    THEN -- then had the unmitigated gall to come to the local authorities saying that the planned building development required the authorities to grant them 80 million in tax concessions over the next 20 years, in order to justify the expense of building it.

    The local people gave them 20 million over 20 years. Yeesh.

    I had a better solution -- apply Kelo and appropriate the land, then sell it to whomever wanted to bid for the opportunity to build anything on it that they wanted, with no tax concessions at all.

    I'm no fan of Kelo but I would say that never before has a private organization deserved their property stolen from them by the State more than these thieving #$^$%^%$$*&$&^#$^#%^ SOBs did.

    Meanwhile, the real estate downturn hit, and now, four years and more later, the land still lies a barren and undeveloped semi-eyesore. I hope the SOBs lost their shirts AND their underwear.

  • anon

    Ian,

    Just because they show multipliers out to two decimal places doesn't mean they are accurate.

    My own opinion is that no one knows what the multipliers are because they change depending on 1,000 things.

  • Me,

    I know earmarks must look hilarious, but there's a great reason for politicians to seek them. If the residents of your state are paying federal taxes and the federal government is handing out money to the states, then it's your job as a politician to grab as much of it as you can for the residents of your state. The screeching about earmarks is just political theater (a Yes, Minister moment, eh?).

    The real problem is that the federal government is handing out money like Stalin handed out medals. And if we get to the root of the problem we'll find that government taxes to much and is simply too big. Earmarks are a symptom, not the problem.

  • Max

    Well, as I see it, the Keynesians want money in the market pretty fast, so that it can be better spent in the 2nd or 3rd round. I mean, the pupeteers won't sit on a hoard of money, they will spent it finally for something useful (at least for them). Of course, since it is excessive money that wouldn't have ended up there in the real market, this spending will give the wrong incentives...

  • Noumenon

    Man, the ants would get an automatic pass from me by virtue of clearly being science. I'm not sure whether that makes me stupid to support even useless science projects, but I always thought people understood science was generally worthwhile.

  • epobirs

    Not only was Keynes wrong about a lot of stuff, the people claiming to follow his advice only have him spinning in his grave:

    http://www.american.com/archive/2009/february-2009/taking-the-name-of-lord-keynes-in-vain/?searchterm=Keynes

    The only reason anyone outside of Econ. courses knows who Keynes was, is because the misinterpretation of his work is so appealing to politicians. It gives the illusion of being able to achieve positive intervention when the thing needed most is for them to get out of the way. Politicians are the #1 cause of the current problems and their attempts to 'do something' are only making it worse.

  • L Nettles

    " Nearly $6 million in stimulus money was paid to two firms run by Mark Penn, Hillary Clinton’s pollster in 2008.

    Federal records show that $5.97 million from the $787 billion stimulus helped preserve three jobs at Burson-Marsteller, the global public-relations and communications firm headed by Penn.

    Burson-Marsteller won the contract to work on a public-relations campaign to advertise the national switch from analog to digital television. Nearly $2.8 million of the contract was issued to Penn’s polling firm, Penn, Schoen & Berland Associates, according to federal records."

  • me

    @Methinks

    Thank you - you had me smiling at "Yes, Minister moment" and laughing out loud with "handing out money like Stalin handed out medals". Priceless 🙂

    Systemically, politicians attempting to "get their (constituents) tax-moneys worth" back out of the budget reminds me of people attempting to make sure they get enough of their car insurance payments "back" by regularly smashing their windshields... the entire theater surrounding earmarks just gets me mad predictibly around this time of the year.

  • The "work habits of ants" stuff does not belong on a boondoggle list. It is solid, in fact excellent, science. Quite influential and well-regarded work. Caused quite a stir in the field. Developed innovative experimental techniques, pioneered a number of new approaches. Etc.

    Putting good science on the same list with silly wastes of money serves to discredit the list and those who made it.

  • Jim Collins

    I was in the navy with a guy who had a degree in Sociology. For something to do while we were on deployment he would write joke grant requests. While we were drunk he actually sent one to the National Science Foundation, requesting $250,000 to study the mating habits of the South Florida Beach Bunny. Three or four months later he gets a reply wanting his bank information so that they could wire transfer the money. He immediately sent a letter cancelling the request because he thought that he would get arrested for fraud. I still say he should have done the research and written the paper. Of course I also wanted to be a research assistant on the project.

  • MJ

    Putting good science on the same list with silly wastes of money serves to discredit the list and those who made it.

    Perhaps, but good research should not require stimulus spending to get funded. It should do so on its own merits. More to the point, university researchers and faculty are not the ones who are suffering the most from unemployment at the moment, that is, there aren't a lot of idled resources. This means the multiplier on this spending is less than one, probably very much so.