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Ok, but then the multiplier is a useful tool not a deciding factor. So there is no reason to go for an activity with higher multiplier (like say wind over gas in France or gas over wind in Britain) on the basis of the multiplier (unless you are negotiating with people who believe the government to be constrained in its use of the printing press).

If the government concludes activity A with multiplier 2 being more worthwhile then activity B with multiplier 3 it just gets another (higher) figure for the helicopter dump operation.

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by A swedish kind of death on Thu Nov 29th, 2012 at 10:21:56 AM EST
[ Parent ]
Yes, but the composition of the demand leakages that cause the multiplier matters. If you get a lower multiplier because more of your added demand leaks to the foreign sector or into useless financial shenanigans, then that is an argument for going with the high-multiplier solution. Whereas if you get a lower multiplier because more demand leaks into paying down mortgage debts, then you may well prefer that solution.

The multiplier is a quick-and-dirty sanity check. Such checks have a good deal of value, but they should not be the deciding factor in determining policy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 29th, 2012 at 10:34:08 AM EST
[ Parent ]
There is also the point that if the multiplier is less than unity, you are either crowding out private expenditure or performing your cash injection in such a manner that most of it ends up offshore or in mattresses (i.e. using tax cuts rather than direct expenditure).

Either way, you're doing something you shouldn't be doing.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 29th, 2012 at 03:17:59 PM EST
[ Parent ]

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