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Comment by tunesmith | Hacker News Reader

Well, that assumes the non-existence of "multipliers". The concept of a multiplier is that if a government debt-spends on something, some of the effects will be able to continue on their own power and contribute to economic growth after the government spending stops. That would be economic growth that wouldn't happen if the debt-spending didn't happen.

It's also sort of the heart of Keynesianism. The counterpoint is the more intuitive certainty that if times are tough, everyone should tighten their belts, including the government. That's sort of what drives the austerity efforts.

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The counterpoint is the more intuitive certainty that if times are tough, everyone should tighten their belts, including the government.

spinonthird has already pointed out the Paradox of Thrift. I would add that a lot of confusion surrounding this particular topic comes from the widespread inability to distinguish between real tough times and monetary tough times.

By monetary tough times I mean: bank collapses, loan defaults, low available income.

By real tough times I mean: lack of available resources, natural disasters destroying infrastructure.

In real tough times, it is true that everybody should tighten their belt. Typically, they are forced to do so via inflation, and if the government refuses to listen there will be hyperinflation.

In monetary tough times, tightening your belt personally is your only choice due to the constraints that you have. But it is exactly the wrong response for government to tighten its belt as well. Rather, government - especially monetarily sovereign government - should use its unique position in the economy to get the economy going again, to enable the real capacity available to be used.

Observe how a simple confusion of these scenarios can lead to incorrect predictions, similarly to how so many people predicted back in 2009 that raging hyperinflation should have happened by now. They were obviously wrong, and I posit that underlying their wrongness is the inability to properly distinguish between real and monetary phenomena.

And the counter-counterpoint is the paradox of thrift. http://en.wikipedia.org/wiki/Paradox_of_thrift

Is there evidence for or against the existence of multipliers? Sorry if this is a basic question.

The U.S. debt-spent to build most of the infrastructure we have today (highways, trains, power plants, etc), as well as to buy total U.S. military dominance in foreign affairs. It's been working pretty well for us so far.

That's the crux of the entire debate. There arguably is plenty of evidence of multipliers, but the problem is that when your lab is the entire society, there's no counterfactual - there's no control group. So you can never quite say that in the absence of the debt spending, the multiplier effect wouldn't have happened.

Anti-keynesians (hayekians?) point this out regularly and like to say that the burden of proof is on the keynesians, which will of course be impossible for the keynesians to ever prove. So that's where they get their handhold on arguing against keynesian theory. (Note I'm only a hobbyist with this stuff so my explanations may be way off - this is just my own sense of it.)

Now, there's something to be said for sometimes accepting something that is not potentially provably false. I think Darwinian evolution is an example of something that is not a strictly technical theory, but there's been such a body of experimentation over the years that you pretty much have to accept it as fact anyway.

And there's work done in modern Causality about how to tease out causality from correlation in the absence of counterfactuals. I've been trying to struggle through a causality textbook by Judea Pearl but it's really weird advanced stuff.

There's always work to be done in digging a deeper hole?

I understand you're joking, but just to point out - digging a deeper hole probably wouldn't be much of a multiplier, while other public spending efforts could have much higher multipliers.

On the other hand, if the deeper hold leads to a valuable public resource...

> if a government debt-spends on something, some of the effects will be able to continue on their own power and contribute to economic growth after the government spending stops

That's what investing capital is supposed to do, only it should be done with private funds and private risk. If the growth were likely to continue, capital would seek out those enterprises without debt-spending.

That's not always possible for all sources of multipliers. (Roads, dams, etc.) Although I recognize we're devolving into one of the common argument patterns that never get anywhere. :)

Since I don't take the sacrament of Keynesian multipliers, it will not go anywhere.

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