White House Press Secretary Robert Gibbs lashed out in an ad hominem attack at Rick Santelli. He’s the CNBC correspondent who spoke passionately about the injustice inherent in the Obama mortgage bailout plan.
My, what thin skins these Obamians have. I’m sure we’ll soon learn all about Mr. Santelli, and how he once took three slices of a pizza, when he only paid his buddies for two.
Mr Santelli had the audacity to say, inter alia, that if the Keynesian multipliers were above 1.0, that is, if every dollar of government spending yielded more than a dollar in private sector growth, then why do we need to worry any more? We should just keep spending, and spending, and spending as we have been, and everything would be fine.
I am not an economist. I am not really even a mathematician. But I do knows me some logic.
Consider two towns across a river with no bridge over it, requiring a ferryman’s aid to conduct commerce. Building a bridge over that river takes some amount of money. Suppose the government taxes the people to raise money to build the bridge, builds it, and lowers taxes back to their previous level. Yes, I know the decrease would never happen, which is the biggest problem with this Keynesian junk science, but this is my blog, so bear with me.
Now there is a bridge over the river, and commerce can take place much more easily. The ferryman finds other work, perhaps running the toll booth. But the added amount of commerce taking place across the bridge is orders of magnitude greater than the ferryman enabled. The overall economy is much bigger and more robust. The government took a small amount of taxes and enabled a large boost in the economy.
Similarly, a distance up the river two other towns now must either use their own ferryman, or go all the way to the other bridge. Commerce is easier than with just the ferryman, but not as easy as at the towns with the bridge between them.
So to correct this inequity, the government builds a bridge with a stimulus program, the same as before. But this time, the economic impact is not as great, because there were already two ways across the river.
This scenario could repeat itself many times, until at some point the costs associated with building the new bridge would not be as great as the aid to the overall economy. Even in my simple scenario, it would be impossible to predict where that tipping point would be. In the real world, the situation is even more complex.
So we see that the multiplier of government spending is not a constant number at all, but a variable depending on a number of factors we don’t even fully understand, and cannot predict. The multiplier is actually a random function, rather than a constant. The effect of government spending is not linear, but increases to a maximum and then decreases after that point.
The multiplier function is also clearly different for different types of spending, and in different areas, and in different conditions. Building a school makes sense where there is no school, but only if there is a demand for a school, and teachers can be persuaded to teach there. Building a sports stadium may actually be just the thing to put a local economy over the hump to sustainability, or it may be a giant boondoggle, burdening the tax climate and thus driving business, and jobs, away.
But Mr. Gibbs did not address these points. He merely attacked an American citizen and journalist who dared to speak out, to raise his head up from his miserable work to question the One.