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If we can find evidence for the differential impact on state economic activity of various expenditures at the federal level it provides another basis on which to decide on what the money should be spent. At a minimum the multiplier should be one, as someone who is unemployed is highly likely to spend all they earn, and, taken together, that spending should support one other person at the same income level.

It has long been known that government, construction and manufacturing jobs, which typically pay significantly more than the minimum, can provide the additional local spending to support retail, transport and service jobs. Construction jobs are typically paid from loan proceeds. State and local government are paid from state and local taxes. But, from a state and local perspective, manufacturing jobs are more like jobs producing for export. They bring money to the local economy from the larger world.

But government spending to create manufacturing jobs is the more problematic than for service and infrastructure. It is one thing to rescue the automobile industry, which had a long history of profitabile operation and a known market, but there would be fierce opposition to the government choosing a particular kind of manufacturing in which to invest, and Solyndra is a case in point. It looked like a winner in 2009 but is now bankrupt after having received >$500 billion in government loan guarantees. The market changed. So that leaves infrastructure.

Well, of course there is military spending, always popular with RW types. But, as the purpose of manufacturing for military purposes is to blow things up and as that product is 'consumed' by hapless Pakistani and Afghani villiagers, it doesn't produce much knock-on employment, especially as we ignore the need for prosthetics, etc for foreign nationals who were the recipients of that 'spending'. So military Keynesianism has a low multiplier, probably less than 1.5 - roughly one additional person for every two military people employed.

The condition of infrastructure in the USA is abysmal. We don't know which bridge will collapse next but, at currently budgeted replacement rates, more collapses are likely. Here in Arkansas a 20 mile section of Interstate 40, a major trucking route, floods in wet years and needs to be rebuilt. asdf posted a link about the need for improvements to electrical distribution, highlighted by the problems left in the wake of Superstorm Sandy.

So it is a good thing if you know that you will get the equivalent of over two people employed by spending on highway infrastructure, even if that turns out to be one person with a higher wage. Those are the kinds of jobs that support local economies, including dentists. It would be even better if we knew that, by building renewable based power generation and distribution and upgraded, electrified rail infrastructure we would be creating the equivalent of two additional jobs for every direct job created.

And, if/when that created inflation, raise taxes on the wealthy and impose luxury taxes. We would be putting the country on a path to economic and environmental sustainability while creating prosperity and greater equality. But we could also slow down that process and spend more on other areas of need with lower multipliers. It would be nice to have that choice.

The losers would be the rent extractors in the fossil fuel industry, but even that would not really be a hardship, as their reserves will only be increasing in value with time. They are more valuable as feed stocks for the petrochemical industry, etc. than as fuel for vehicles.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 29th, 2012 at 11:36:56 AM EST
[ Parent ]
"If we can find evidence..."

I wonder if economics is on the cusp now of being able to do a complete analysis of national economic activity. A few tens of millions of person records is not that big of a database in modern computing terms. Companies like Acxiom have records of a pretty large fraction of financial transactions. Social media tracks and records what people are thinking.

You could do experiments pretty easily: Put up an ad on Facebook, see how many people view it, see how many people talk about it, see if they act on it by buying something, observe the incremental result in the overall economy. Repeat for a few billion transactions...

by asdf on Thu Nov 29th, 2012 at 11:49:38 AM EST
[ Parent ]
Steve Keen is starting to do just that! See
Energy, Production and Entropy.

He is working on:

  • a double entry bookkeeping model of economic flows

  • integrated with a physical 'single sector' model of the economy.

This is to show the possibilities. Steve's undergraduate work was in electrical engineering and, in other modeling work, he has created multi-sectoral models of the economy with a private sector, a manufacturing sector and a banking sector, all using differential equations and explicitly including time and money. The results of computer runs of some of those still crude models gave outputs remarkably like real world performance. Exciting stuff.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 29th, 2012 at 12:14:32 PM EST
[ Parent ]
Keen seems to frequently over-reach himself. It's nice that he rates his own ability so highly, and all that blog-adulation must be terribly unhealthly.

He's just not a particularly good analyst.

by LondonAnalytics (Andrew Smith) on Sat Dec 1st, 2012 at 06:59:25 AM EST
[ Parent ]
Yes, he has the self confidence to strike out in new directions and he sometimes makes missteps. His first efforts in multi-sectoral modeling did not fully conform to double entry bookkeeping standards, this was noted and he has since responded. But 'mainstream economics' is not nearly so renowned for the quality of its analysis as it is for the ferocity of its imposition of discipline on any who stray from orthodoxy, especially if they question or challenge fundamental concepts, as Keen has done.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Dec 1st, 2012 at 12:12:01 PM EST
[ Parent ]

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