Posted by: graemebird | February 17, 2009

But Sinclair! There Is No Multiplier.

The multiplier is just a lie. So the entire interview is worthless. Its a sham. If you don’t take time to do the work and understand where BUSINESS-TO-BUSINESS spending fits into this picture you will never understand.

Here is me quoting Sinclair quoting the ABC:

  1. Last night on Lateline Tony Jones interviewed John B. Taylor.

    One part was very interesting. Jones asks,

    Well the University of Chicago’s study, the most recent one in 2008, tracked the spending of 34,000 Americans who received cash bonuses of $950. It shows there was increased spending from those people, in fact the spending of a typical family went up 3.5 per cent when their rebate arrived. So, that does look like a significant jump. Are you simply saying that didn’t happen?

    John Taylor says

    You don’t see that in the overall data. That’s a survey of, admittedly quite a few people, but it’s a survey relying on what they are saying in answers to the survey. I don’t want to say that that’s wrong, but if you look at the whole economy, if you look at consumption by the millions of people in the economy, you don’t see any movement like that.

    I sent around a note last week on that study. Reproduced below.

    +++++++++++
    The Australian Treasury are relying on an unpublished study by Christian Broda and Jonathan Parker to support their argument that the tax rebate announced as part of the federal government stimulus package will be spent and not saved.

    This particular study investigates the 2008 US$950 tax rebate by comparing spending in households that had received the rebate to spending in households that were eligible to receive the rebate but had not yet actually received the rebate. The econometric test determines whether or not consumption is higher in those households that have received the tax rebate compared to those households that have not received the rebate. It does not test whether the entire tax rebate has been consumed or saved. The study finds that those households that have received the rebate consume more than those that have not. Unsurprisingly, they find that low income households and liquidity constrained households that have received the rebate spend more than similar households yet to receive the rebate. (They claim that their test shows that low income households have spent more than higher income households, but it is not clear from the reported table that this is the correct interpretation – if that is the correct interpretation then additional explanation of the econometric procedure is required.)

    It is important to note that they have found that some of the tax rebate is spent. Of course nobody is suggesting that some of the tax rebate wouldn’t be spent. The debate is about (1) how much would be spent and (2) is this the best way for the government to stimulate the economy? Indeed, Broda and Parker could very easily expand their econometric analysis to determine how much of the US$950 was in fact spent, but do not do so. Rather they provide survey evidence of additional spending. The survey results indicate that US$448 was spent in additional purchases – approximately 48 percent of the US$950. That implies the other 52 percent was saved (at least temporarily). They conclude that ‘the stimulus payments are initially being spent at significant rates’. This is, of course, true; it is also fair to say that the Economic Stimulus Act of 2008 has not succeeded. If it had succeeded the current US stimulus package would either not have been required or could have been a lot smaller.

    A recent paper by Sumit Agarwal, Chunlin Liu and Nicholas Souleles, published in the Journal of Political Economy, investigates credit card transactions to analyse the response to the 2001 US tax rebates. They report that consumer initially save some of the rebate and then increase expenditure.
    “For consumers whose most intensively used credit card account is in the sample, spending on that account rose by over $200 cumulatively over the nine months after rebate receipt, which represents over 40 percent of the average household rebate.”
    It is interesting to reflect on that statement, 40 percent of the rebate was spent over nine months. Presumably the other 60 percent was either saved or consumed via other means. A previous paper by Nicholas Souleles (joint with David Johnson and Jonathan Parker), looking at the same 2001 rebate, also found that individuals initially saved the rebate (spending only a third of it in the first three months) and later increased spending. Overall about two-thirds of the rebate was spent over six months. The overall conclusions of the two papers are similar, yet the differences between them which lie at the heart of the current debate are not reconciled in the later paper.

    Sumit Agarwal, Chunlin Liu, and Nicholas Souleles, 2007, ‘The Reaction of Consumer Spending and Debt to Tax Rebates—Evidence from Consumer Credit Data’, Journal of Political Economy, 115: 986–1019.
    David Johnson, Jonathan Parker, and Nicholas Souleles. 2006. ‘Household Expenditure and the Income Tax Rebates of 2001’, American Economic Review 96: 1589–1610.
    +++++++++++

    Sinclair Davidson 

    16 Feb 09 at 6:02 pm”


    Its all a waste of time Sinclair. There is no multiplier. All they are doing is thieving spending from business-to-business spending so it shows up where GDP will compile it.

    As John Houseman said on the paper chase once:

    “Do the work Sinclair and you won’t need to do the dance.”

    Well I went looking for that Houseman quote on YouTube. And couldn’t find it and ran across Houseman in a movie called “St Ives” and then I found this scence from Bronson. So I think I’ll play it instead just to remind everyone how a man is supposed to act in all circumstances.


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Responses

  1. Here is Sinclair again. Allowing himself to be violated by his Keynesian masters:

    “On the saving v spending side I suspect a lot of people will bank the cheque straight into their credit card account, reducing the balance (and for some increasing the balance above zero – that then becomes ‘free’ spending money). It doesn’t wory me that a large chunk of the hanout will be saved. Afterall at some stage the banks will have to get off their bums and start making loans. Afterall paying depositors while having little interest income is not a viable business model. The bank guarantee makes it viable for longer but eventually the working capital needs wil force them into the market. (Still overall the stimulus package is a very roundabout way of doing what the government claims to be its objective).”

  2. Even non-Keynesian economists agree the multiplier exists.

    NOT ANYONE WHO UNDERSTANDS ECONOMICS DOES. SO LETS SEE YOUR REASONING TO SHOW THAT IT EXISTS.

    SINCLAIR ACTS LIKE HE BELIEVES IN THE MULTIPLIER. BUT ITS NOT CLEAR THAT HE REALLY DOES AND ITS NOT CLEAR THAT RATHER HE HAS SOLD OUT.

    MARK HILL BELIEVES IN THE MULTIPLIER. BUT HE IS AN IDIOT WHO WILL NEVER HAVE A GRASP ON ECONOMICS.

    MANKIW SEEMS TO BELIEVE IN THE MULTIPLIER AND THATS VERY DISTURBING. BECAUSE HE HAS WRITTEN GOOD TEXTBOOKS ON MONETARY THEORY. ONE SUPPOSES IF YOU INCLUDE THE MULTIPLIER IN A TEXTBOOK THAT YOU GOT A 4 MILLION ADVANCE FOR IT MIGHT BE HARD TO TURN AROUND AND DECLARE THE VERY CONCEPT BULLSHIT AND THEN PSYCHOLOGY MIGHT WEIGH IN TO BLIND HIM TO THE STUPIDITY OF THE CONCEPT.

    WE SEE SO MANY PEOPLE CLAIMING THE MULTIPLIER EXISTS. WE SEE MANY CLAIMING THEY EVEN HAVE THE NUMBERS TO QUANTIFY ITS EXTENT. WHAT WE NEVER SEE IS REASONED ARGUMENT THAT IT EXISTS OR THE EVIDENCE TO BOLSTER THAT NON-EXISTENT REASONED ARGUMENT.

    REASON TELLS US THAT THE MULTIPLIER IS EXTREMELY SMALL AND THAT IT HOVERS BETWEEN NEGATIVE AND POSITIVE. THAT IS TO SAY THAT REASON TELLS US THAT IT IS A MATTER OF SHEER SERENDIPITY.

    BUT THERE IS ALSO NO CLEARLY DEFINED DEFINITIONS OF WHAT IS MEANT BY ANY MULTIPLIER EFFECT. THE ONLY REASONED WAY TO GO ABOUT IT IS TO THINK ABOUT NOMINAL SPENDING. BUT LISTENING TO THE DEVOTEES WE SEE THAT AT ANY ONE TIME NONE OF THE PARTICIPANTS IN THE DISCUSSION EVER TRULY KNOW IF THEY ARE TALKING ABOUT NOMINAL SPENDING OR ABOUT SOMETHING ELSE.

    SINCLAIR STRIKES ME AS A SORT OF CONSCIENTIOUS SELL-OUT. A SELLOUT WITH A CONSCIENCE. ITS AS THOUGH HE’S SOLD OUT BUT IS AWARE OF IT AND IS MAKING UP FOR IT IN SMALL MEASURED AMOUNTS CALCULATED AS TO RISK.

    BUT ALL LIES ARE COUNTER-PRODUCTIVE EXCEPT UNDER EXTREME TIME DURESS OR IF YOU HAVE TO COMPROMISE FROM THE POINT OF VIEW OF PM AND TREASURER. OTHER THAN THAT PUBLIC POLICY ADVOCACY OUGHT ALWAYS BE TRUTHFULL.

  3. Hey Graeme
    check out this comment. BTW I have to admit I’ve become more interested in Austrian business cycle theory since the crisis. I’ve always been into Austrian microeconomics but the business cycles stuff didn’t really interest me much till now

    THATS A VERY CANDID ADMISSION AND MUCH APPRECIATED. BUT YOU DO REALISE YOU WOULD HAVE SAVED ME A LOT OF GRIEF HAD YOU ADMITTED IT LETS SAY AFTER THE SECOND!!!!!!!!!!!!!!! THREAD!!!!!!! OF !!!!!! DOOM!!!!!!.

    AND YOU WOULD HAVE LEARNED A LOT MORE THAT WAY TOO. STILL BETTER LATE THAN NEVER. SO YOU DIDN’T NEED MACRO FOR CONSULTANCY WORK YOU LAZY TIGHTASS BASTARD.

    http://clubtroppo.com.au/2009/02/17/an-austrian-in-australia-replies-to-kevin-rudds-assault-on-neoliberalism/#comment-346375

    observa said:
    The acid test is whether Gerry Jackson will be proved right and so far I’m backing his Austrian analysis and doing quite nicely thank you very much Gerry and antecedents. In July last year I agreed with Gerry’s analysis and sold my carefully constructed share portfolio and bought gold with 50% of the proceeds and bank term deposits for the rest. Actually I bought paper gold in the form of tradeable Perth Mint Gold Warrants since they are ultimately backed by the WA State Govt (the Feds now guaranteeing my other half) Essentially PMGWs are for delivery of 1/100th oz of physical gold in 2013, so their value tracks 1/100th the spot price of gold. At the time of purchase gold was around AUD$1000/oz and has now broken the $1500/oz barrier. I thank Keynesians everywhere from the bottom of my Austrian heart and fully anticipate to go on thanking them in the forseeable future, unless they ultimately succeed in achieving the complete collapse of fiat currency as they seem so hell bent on doing.

  4. Yeah Gerry saved me a bunch of money too. Because he tipped me off that the reserve bank were letting the money supply collapse. But I acted like a rabbit in the headlights. I argued with the rest of you assholes for two months before actually taking charge of my super.

    So by tipping me off he saved me about ten grand. But if I had translated his information to my own personal situation I probably would have saved twenty.

    Under any sensible national accounting we likely went into recession prior to everyone bar the Americans. Its likely that under some sort of Reismanian understanding we were in recession by about March 2008.

    The figures will likely show that we are slipping into recession now. But in fact right about now we may be cruising for too much monetary expansion.

    Your vitriole against this measure was out of context. For society-to-society comparisons we might rightly hold up our GDP against the Soviets all production and no consumption model. But I tried to tell you that when it comes to quarter to quarter comparisons within a single economy the only right way is the Reisman way.

    He’s probably coy about pushing his gear, infinitely superior from a technical point of view, to aid monetary policy. Because he doesn’t believe in monetary policy. There is some irony there I think.

    His understanding would enable the monetary socialists to conduct their hateful centralised monetary policy 100 times better than they have been doing so. But you won’t hear it from him. You are hearing it from me. Because he’s only interested in liberty and so he’s pushing for 100% backed commodity money.

    I may be viewed as an enabler pointing out that his technical economics would lead to a quantum-leap in the quality of filthy-fiat management. I let you know this without our greatest economists approval on the basis that few people listen to me anyway on this particular subject.


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