I agree with the spirit of this post, though I tend to mistrust government estimates of project costs and benefits.
I’ve been thinking a bit about stimulus spending recently. In part this is because Emi Nakamura and Jon Steinsson just recently published a paper on the multiplier in the American Economic Review but it also came up as I was skimming through Paul Krugman’s lecture slides for his Great Recession class.
The logic behind economic stimulus spending is pretty straightforward. If you are in a recession caused by low demand, the government can step in as a surrogate spender to restore demand and hopefully get the economy out of trouble. Here is Rachel Maddow describing how she understands stimulus spending during the crisis. Her description is actually pretty good. The only thing she leaves out is much mention of the multiplier: the ratio between the final change in overall spending to the initial change in government spending. If the government spends money, the workers it employs spend some of their…
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