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GDP measures the output of workers. So this result states that by giving people money, you either enable them to work, or enable them to employ other people by

GDP measures the output of workers. So this result states that by giving people money, you either enable them to work, or enable them to employ other people by spending that money. Presumably (I admit, TLDR) this conclusion comes from calculating the multiplied effect of what the food stamps are spent on. But how can we know that the net effect is positive? How can we know that, for instance, giving people money doesn't prevent them from working, thereby decreasing GDP? After all, there is no control group in economics, which is why (frustratingly) there are still totally opposite camps who keep claiming that current events prove them right.

nhaehnle 15y ago
How can we know that, for instance, giving people money doesn't prevent them from working, thereby decreasing GDP? I'm not familiar with the methods used, but the article claims exactly that, doesn't it? By spending money on food stamps, GDP is increased. Mind you, there might be types of spending with an even higher multiplier. And there might be types of spending that would be seen to be more beneficial for society even if their impact on GDP were smaller; for example: Why not just spend money to create jobs? Then spending on food stamps reduces automatically, as the number of eligible recipients decreases. After all, there is no control group in economics, which is why (frustratingly) there are still totally opposite camps who keep claiming that current events prove them right. This is indeed very unfortunate. Perhaps somebody clever enough with enough stamina could work on increasingly realistic simulations on the micro level and see which macro patterns emerge? Though of course then there would be an endless debate about how realistic the modeling of micro behavior is. The current story told in mainstream textbooks (utility maximization etc.) certainly isn't very credible, given all the psychological insights from behavioral economics; and just the mere fact that marketing exists and how it operates tells you that the classical micro story is rather fishy.
brg 15y ago
Statistical tools can allow for control. The best paper I've seen on this is the Romer and Romer study "The Macro-Economics of Tax Changes." Every dollar in food stamps comes from a dollar of taxation. Their study shows that the multiplier of the original dollar is -2.5. If we have 1.8 multiplier on the food stamp, then additively we have -0.7. Alternatively, every dollar which is 'spent' by the government in the form of tax cuts has a multiplier of nearly 3. http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf* http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf*

nhaehnle 15y ago

How can we know that, for instance, giving people money doesn't prevent them from working, thereby decreasing GDP? I'm not familiar with the methods used, but the article claims exactly that, doesn't it? By spending money on food stamps, GDP is increased. Mind you, there might be types of spending with an even higher multiplier. And there might be types of spending that would be seen to be more beneficial for society even if their impact on GDP were smaller; for example: Why not just spend money to create jobs? Then spending on food stamps reduces automatically, as the number of eligible recipients decreases. After all, there is no control group in economics, which is why (frustratingly) there are still totally opposite camps who keep claiming that current events prove them right. This is indeed very unfortunate. Perhaps somebody clever enough with enough stamina could work on increasingly realistic simulations on the micro level and see which macro patterns emerge? Though of course then there would be an endless debate about how realistic the modeling of micro behavior is. The current story told in mainstream textbooks (utility maximization etc.) certainly isn't very credible, given all the psychological insights from behavioral economics; and just the mere fact that marketing exists and how it operates tells you that the classical micro story is rather fishy.

brg 15y ago

Statistical tools can allow for control. The best paper I've seen on this is the Romer and Romer study "The Macro-Economics of Tax Changes." Every dollar in food stamps comes from a dollar of taxation. Their study shows that the multiplier of the original dollar is -2.5. If we have 1.8 multiplier on the food stamp, then additively we have -0.7. Alternatively, every dollar which is 'spent' by the government in the form of tax cuts has a multiplier of nearly 3. http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf* http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf*