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Many republicans and other people have criticized
President Obama's recovery act of 2009
as a failure.
They point to the very slow recovery we've have had
since the Great Recession that we had of 2007, 2008.
Now in response, the council of economic advisers
of President Obama has just released a study
of he effects of the Recovery Act. According to this study,
the Recovery Act was actually an amazing success.
It increased jobs by six million,
it raised the level of GDP or total income in the economy
by two to three percent since it was implemented in 2009.
Now what it actually did, I meet you look at the slow recovery
you say, well where are these new jobs? There are some jobs being increased.
Well, the economists who wrote this report
talked about counterfactuals. That is to say
what they're saying is that well, without that Recovery Act
we would have had six million fewer jobs created,
and we would have had two to three percent less
total income in the economy. But how can they prove this?
Well, they use something called a multiplier
this is a bit of keynesian magic in which
one dollar of government spending is supposedly
has the ability
to create more than a dollar of total income in the economy.
That's because if the government spends a dollar,
the people who receive that money are going save some of it, but they'll spend
more of it. So in the next round, there's more of the money spent
and those people who receive the new income will in turn spend some of that
on other goods and services. So
the money goes round and round throughout the economy and raises income.
Now, they've estimated that for every dollar spent during the,
or as a result of the Recovery Act, one dollar and fifty cents of more income-
of additional income was created. So they say, well the multipliers 1.5,
but how can that be
because all Recovery Act did was take money from some people and give it to
others.
So it took money from taxpayers and and it gave it to
construction unions who are involved in government
investment in infrastructure,
or gave it to teachers, or gave to inefficient solar panel companies that
later when our business, but no matter, according to the Keynesians and
according to the
authors of the CEA report, this increased
income. Now what they don't tell you and what's buried in the Appendix,
is that in fact, this affect
of having a greater amount of income
created by each dollar of spending, comes about
as a result of the fact that there's been inflation.
That is to say that in fact this additional government spending was
really financed
by an increase in the money supply and
this has a short run affect of possibly creating more jobs
and and creating new income, but in the long run and many economists have studied this
ultimately what happens is that the government multiplier action
may very well be negative. Which is to say that
for every dollar of government spending, you might actually get
two to three dollars in reduction in income in the economy.
And that's because as a result of the inflation:
you have distortions in the economy and goods and labor and so on are invested in
the wrong lines of production,
and eventually you have another recession. So
what we can say in response to CEA report is that
this idea that the Recovery Act
created income is as substantial as the idea that
simply printing up a dollar will create new wealth.