Stimulus good in theory, not practice
The White House is banking on government spending to stimulate economic activity. Commentator David Frum says even if the plan might be good on paper, the execution is the problem.
Commentator David Frum (David Frum)
More on Commentaries, America's Financial Crisis
TEXT OF COMMENTARY
Kai Ryssdal: Treasury Secretary Timothy Geithner's been a busy guy today. As Steve Henn told us up at the top of the program, he released the details of the administration's mortgage-relief plan this morning. And he's been up on Capitol Hill defending the president's budget, too. It is a budget that is heavy on the expense side of the ledger book. The White House is betting government spending will be good for the economy and the country's long-term health. The idea here, something called the "multiplier effect," is another contribution from the theories of John Maynard Keynes. But commentator David Frum says, in this case, theory and practice are pretty far apart.
DAVID FRUM: If you are under 40 and not a professional economist, I wonder whether you had ever even heard the phrase "economic multiplier" before this month.
The concept got its last big airing during the slow-growth 1970s. Since World War II, economists of the Keynesian school had argued that government spending exerted a bigger impact on stimulating economic activity than private spending, a bigger multiplier.
Government could borrow and spend -- and so long as it spent intelligently, the spending would actually go a long way to paying for itself by expanding the overall economy. The "multiplier effect" was the liberal equivalent of the Laffer curve -- the conservative promise that the government could cut taxes without losing revenue.
The Keynesian argument was not wrong exactly. It was just that we began to run out of good things to buy. An I-95 or an O'Hare airport: Yes, they probably added more to the economy than they cost. But public housing? Synthetic fuels? Boston's "big dig"? Not so much.
Through the 1970s, resurgent free-market economists showed that public spending typically yielded much worse results than private investment. Government still spent a lot. But more and more of that spending supported government's current operations: defense, health care, pensions.
After a generation of this priority shift, the nation's airports, roads, and bridges have begun to look a little tired. And the nation's Keynesian economists have begun to feel a little bolder. The chair of President Obama's Council of Economic Advisers speculated in a recent paper that with today's depressed private investment and aging infrastructure the multiplier on public investment might be higher than ever.
On the blackboard, it might even be true. But the Obama administration's plans won't be enacted on a blackboard.
High-speed rail in the Boston-Washington corridor might pay off. A Maglev train from Disney World to Las Vegas? That's politics, not economics.
The trouble with the Obama plans is not that Keynesian ideas are all wrong. The trouble is that even when they are sort of right, governments can't execute them to do more good than harm.
RYSSDAL: David Frum is a resident fellow at the American Enterprise Institute.
Comments
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05/01/2009
A Maglev train from Disney World to Las Vegas? That's politics, not economics.
Oh, look. A lie. Why am I not surprised?
From GA, 03/06/2009
"By Alan Harvey The multiplier effect has nothing to do with public goods" wow. I dont think Alan understands what is meant by the multipler effect. In economics it means that for every $1 the Gov spends it will cause a X% growth in GDP. So yes, it has everything to do with public goods.
From Corvallis, OR, 03/06/2009
I find no fault in what Frum states here. Most of the above comments are ridiculous. Frum never states that the Maglev train to Disneyland is a part of the stimulus package. He states that it is a bad idea for stimulating growth. It is a fact that the government is considering this train route. It is also a fact that the stimulus bill sets aside $8B for high speed rail. There is nothing wrong with Frum stating it is a bad idea. And no, it doesn't make him the equivalent of Limbaugh.
From Fort Worth, TX, 03/06/2009
The problem with Frum is that he recycles the debunked MAGLEV train anecdote. He has no excuse for believing it's accurate. Thus he engages in an intellectual dishonesty that should disqualify him from future commentaries.
From CA, 03/05/2009
I wish NPR would just come out of the closet - have Rush the drug addict limberger present your conservative views.
Just because Frum isn't smart enough to value in projects, doesn't mean they don't have value - just another conservative jerk pandering his pablum!
From Los Angeles, CA, 03/05/2009
Could the folks in charge of Marketplace please put Frum out to pasture? Or at the very least, issue a correction? Frum adds nothing; worse, by mangling Keynesianism and repeating a debunked falsehood, he worsens the public discourse considerably.
From Tacoma, WA, 03/05/2009
I see others have beaten me to it. David Frum has no idea what he is talking about. The multiplier effect has nothing to do with public goods. Keynes used burying ten pound notes in bottles and digging them up. One hoped this canned bull from the American Enterprise Institute would be reduced in supply once their theory got blown up by the facts of the crash.
From Tampa, FL, 03/05/2009
I read this entire article and think I lost more brain cells than a Friday night's drinking.
From South Royalton, VT, 03/05/2009
Frum finally makes it through a commentary without slipping into outright, Limbaughesque name calling. Now if he could just get his facts straight, but of course, that would only undermine his position. Thanks for the doublespeak Marketplace.
From Palo Alto, CA, 03/04/2009
I find it offensive that Marketplace gives David Frum a soapbox without better identifying his fairly hard-right political tilt. Simply noting his AEI affiliation after the commentary is insufficient for a former Bush speechwriter, National Review writer, & neocon. If he were talking about something non-political maybe you could get away with it, but when he's trying to sound like an economist reviewing Obama's stimulus package it is wrong. You harm your own credibility by giving him this airtime. To use Frum's own words, that's not economics, that's politics.
From Dallas, TX, 03/04/2009
Here's a relevant link on the Maglev issue:
http://www.factcheck.org/politics
/gop_stimulus_myths.html
I suppose factcheck can't be trusted, but then, I am only told this by people who get their facts from Fox News.
From Dallas, TX, 03/04/2009
How about some basic editorial fact-checking? It isn't hard to find debunking of the Magic Train That Does Not Exist. What next, you guys going to have George Will on to talk about global warming?
From Bethel, CT, 03/04/2009
Just about a month ago, Marketplace reporter Sally Herships and Wharton professor Justin Wolfers discussed the multiplier effect:
http://marketplace.publicradio.org/display/web/2009/02/06/mm_decoder_multiplier/
Not surprisingly, David Frum is misusing the term here.
He also mischaracterizes Chairman Romer's views: she does believe that spending on infrastructure will have long-term benefits to productivity, but this is a separate issue from the multiplier effect:
http://delong.typepad.com/egregious_moderation/2009/03/christina-romer-the-case-for-fiscal-stimulus.html
But my immediate impression on hearing this piece was of its incoherence - he starts out talking about the multiplier effect, careens off into crumbling infrastructure, and finishes by pronouncing government incapable of doing more good than harm. None of it follows from anything else, not even from the imaginary 'facts' pointed out by others here.
From NewYork, NY, 03/04/2009
Can you PLEASE find a replacement for this waste of airtime? I'm all for opposing viewpoints but Frum hasn't made a valid argument in the last dozen op-ed's. He's a living, breathing talking point that is unable to make any rational or coherent arguments on the same topics over and over again. His recycled arguments straight out of the AEI playbook is becoming tiresome. People need to hear altnernate opinions from different political perspectives and I applaud MarketPlace for doing so, but there are a THOUSAND more qualified and insightful conservatives who can actually think beyond bullet points and echo chamber rhetoric.
From Bainbridge Island, WA, 03/04/2009
It was insulting enough to listen to Bush mouth Frum's Canadian armchair reactionary swill for all those years, now we have to get thru his uninformed nonsense sandwiched inside a economics oriented, otherwise rational radio show? Who owes this ideologue so much as to pawn him off as a voice worth listening to on a business show? If I want right-wing whackjob radio there are many other places on the dial to find it. Please.
David
From Great Barrington, MA, 03/04/2009
Frum's commentary is ignorant. Economic multipliers have nothing to do with the notion that government spending has a "bigger impact on stimulating economic activity than private spending." The concept is about the rippling effects throughout an economy of an exogenous rise in spending, from whatever source. In fact, private sector actors would account for second, third and further round ripples in spending touched off by a government stimulus package -- just look at Marketplace's Decoder discussion on multipliers. Frum wants to attack Obama's stimulus package but he doesn't even understand the economics involved well enough to make a rational argument. But this is about all you might expect from the dilettante who coined the "axis of evil".
From Chicago, IL, 03/04/2009
Frum says it's politics not economics to include a train from Vegas to LA in the stimulus package. Seeing that this train doesn't exist, does that mean the stimulus package is, in fact, good economics?
I hope Marketplace doesn't let this Republican talking point go uncorrected.
From Mt. Airy, MD, 03/04/2009
Thanks Plainsboro NJ for setting the record straight. "Intelligent" multipliers? C'mon Frum--you know better (even if you're under 40). As Keynes himself noted sarcastically, "Two pyramids, two masses for the dead, are twice as good as one; but not so two railways from London to York. Thus we are so sensible, have schooled ourselves to so close a semblance of prudent financiers, taking careful thought before we add to the 'financial' burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment. We have to accept them as an inevitable results of applying to the conduct of the State the maxims which are best calculated to 'enrich' an individual by enabling him to pile up claims to enjoyment which he does not intende to exercise at any definite time.
From Emeryville, CA, 03/04/2009
Marketplace asks that commentary be "brief, civil, relevant." David Frum absolutely and positively does not strain the exhortation to be relevant or brief.
From Chicago, IL, 03/04/2009
Maybe Frum found the fictitious WMDs on the fictitious Disneyland to Vegas express train.
From Allentown, PA, 03/04/2009
I'll start taking the comments of Mr. Frum and his ilk seriously when they can point to the place in the stimulus bill (page reference please) where the non-existent "train to Disney" can be found.
Until then I take his views as seriously as his previous successes such as "compassionate conservatism" and "mission accomplished".
Dave Rakowski
Allentown, PA
From San Diego, CA, 03/04/2009
To Quote Mr Frum: "A Maglev train from Disney World to Las Vegas? That's politics, not economics."
A factually false and often debunked republican talking point. If the *esteemed* former Bush speech writer can't even get the basic facts correct; How are we suppose to accept his drivel?
--And just when did a failed speech writer qualify as an economist?
A curious mind inquires.
From Rocky Hill, CT, 03/04/2009
No matter what the economists call it, if the federal government spends money to build anything, most of that money will end up as payroll. Agreed?
If it ends up as payroll, it will be taxed. Agreed?
So for every dollar it spends, let's say 70 cents ends up as payroll, and 20 percent of that, or 14 cents will go right back into the federal coffers.
The remaining 56 cents will be spent to pay bills, buy groceries, gasoline, and utilities, all of which at some point employee people, pay taxes and spend money. And around it goes...
From Strongsville, OH, 03/04/2009
American Enterprise Institute....hmmm, already I am suspicious at the slant and postured misinformation that will be spewed forth. And after listening and shuddering at Frum's "commentary", I am confirmed: Conservatism is a continuing cancer that can't get past its own formulaic failures. Our troubles are many, not least of which were delivered in part by the "lack" of correctly applied gov't spending during the 8 years of the erroneous George W. Bush administration (what actually happened was that there was plenty of spending, it all went to "contracted" entities that was held unnaccountable, were failed enterprises,or were simply black holes swollowing up the money for personal gain with no trail of competitive bids necessary. Yes, the largest such practice in history.) You see, a Republican/conservative led U.S. gov't spends plenty, just not on behalf of the people who elect them. It isn't supported by their "theory" of what money should be spent on. And don't they howl and throw verbal tirades a plenty, as they are now, when an intelligent, decent, and honest attempt to spend and invest correctly in our nation's greatest natural resource: the citizens of our nation, are being applied. So sad to hear the same stiff lifeless words as though there is really no other way to do things correctly. Lets' finally get some openminded and educated commentaries from the better corners of the world, ie, progressive and forward moving liberals who can and do breath life into the cobwebbed ladden airwaves.
Thank You.
From Plainsboro, NJ, 03/04/2009
I think the reason that David Frum wasn't familiar with the Multiplier effect before this month is because he was asleep that semester when he had Economics 101. The multiplier effect is unrelated to the "intelligence" of the spending he refers to. That is cost-benefit analysis. The multiplier effect would be the same for a dollar spent on the big dig as it would be if it was spent on the most productive public works project...the point is that if you put someone to work they can take the money they earn and spend it on goods and services that employ other people, who then use the extra money they earn to buy goods and services that employ still more people. The multiplier is driven by the degree to which people spend (the "marginal propensity to consume") additional income and the speed with which that spent dollar changes hands (the "velocity of money"). I think Arthur Laffer would be as happy to take advantage of this effect as a liberal economist, and its just as easy for "conservatives" to take advantage of the multiplier. Ask Ronald Reagan. Unfortunately, when you give a political "conservative" with no real understanding of economic theory a microphone, he shows that he is really nothing more than an empty talking head.
From anaheim, CA, 03/04/2009
Not only is there no DisneyLAND to Vegas train in the works, DisneyWORLD is in Florida. He can't be bothered to get the name of the place right.
From anaheim, CA, 03/04/2009
Not only is there no DisneyLAND to Vegas train in the works, DisneyWORLD is in Florida. He can't be bothered to get the name of the place right.
From Hickory, NC, 03/04/2009
The MagLev train from Disney World to Las Vegas, much belabored by Republican talking heads, doesn't exist in the stimulus package. Frum could "multiply" his credibility by acknowledging as much. Marketplace could multiply its by holding him accountable to basic journalistic standards.
From New York, NY, 03/04/2009
Why do you insist on bringing this guy back? At the very least you can call him out when he spouts irresponsible and factually incorrect garbage.
From Brooklyn, NY, 03/04/2009
MAGLEV train from Disney to Vegas??? Hasn't this been proven to be a Republican myth?
03/04/2009
Frum, like so many, feels it necessary to recycle lies: there is no MAGLEV train from Disney to Vegas in the works. It is simply not true and he should be ashamed.
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