Here is an Italian estimate of the fiscal multiplier, which doesn’t have to rely on military expenditures as other authors (including myself) have done.
And here is an account of the German current account surplus which resonates with older theories of capital exports: it is, according to the author, anything but a testament to German ‘competitiveness’ (whatever ‘competitiveness’ means).
15 replies on “A couple of links”
“Here is an Italian estimate of the fiscal multiplier, which doesn’t have to rely on military expenditures as other authors (including myself) have done.”
Very interesting. Two points spring to mind:
1. Cutting capital spending, particularly capital spending at regional level has a disproportionate effect.
2. We’re cutting capital spending rather than current spending…
On German competitiveness:
“Norway’s production of natural resources led to a current account surplus of almost 20% of GDP in 2008 (China’s is around 9%, Germany’s highest was 7.6 % in 2007). Does this mean, Norway is „competitive“? Well sure, its natural resources make output per capita among the top 5 of the world. That sounds „competitive“. But what if Norwegians were not as thrifty and thoughtful about the future as they are? Wouldn’t they rather spend the petro-money they earn, making their current account surplus, well, zero?”
Um, it is only economic literates that measure competitiveness in this way. Illiterates look at whether there is conspicuous consumption, malinvestment (credit booms), rising house prices (bad), wages rising beyond sustainability, general provision of the state sector to the people of the country (public transport, health, education). From the illiterate point of view, German competitiveness is demonstrated by the fact that disposable income has increased without an increase in bling-und-tat shopping and getting rich selling houses to each other. I don’t believe national psyche tells the whole story, but government is, in general, a reflection of the voters…
PS the literate/illiterate is a joke! To make the point that economists look at different things when gauging competitiveness to non-economists.
PPS The third document:
“The idea that a country’s economic fortunes are largely determined by its success on world markets is a hypothesis, not a necessary truth; and as a practical, empirical matter, that hypothesis is flatly wrong. That is, it is simply not the case that the world’s leading nations are to any important degree in economic competition with each other, or that any of their major economic problems can be attributed to failures to compete on world markets.”
Indeed, and as I say most people do not judge competitiveness on those grounds. Perhaps “social competitiveness” would be a better term for what many people use as a comparison?
These ‘magic multiplier’ things. Can you or anyone else on this site actually identify one – that is, do they have an actual, physical reality
or are they a virtual, Ponzi-like construct? And if, the latter (which seems plausible), then how do they work their +ve and -ve magic? Just curious. Thanks.
I will read the various refs cited, but on a first inspection: no MMs in sight!
@ Mr Woods
Is this what you mean?
I work in theatre. A playwright is funded for e6k – 10k to write a play by the Arts Council for around 9 months work. When it is written a further e60k is required to produce it. People are employed and pay taxes. Audiences come and pay money for tickets. Say, first run, 2,000 at e20, so thats 40,000. Then the production can tour, costing as it goes in wages to the people involved, but generating income. Then it goes international, generating income for the company abroad, plus profile for Ireland (80 % approximate coverage of Ireland in the US is cultural). Then it is published and translated. More activity and revenues are generated through new productions and tourism is boosted. The playwright gains royalties on which they pay tax over e40k. The playwright can, if they wish, generate more activity through readings and courses.
I think the stats are more impressive for novelists – see Jk Rowling – but not as good initially for employment.
Gavin, you’re over-simplifying. For example, the initial e66k has to be raised in taxes, which is a disincentive to working. Then a certain fraction, debatable how much, of e40,000 ticket sales would have been spent across the road in the shop otherwise. The actual multiplier effect is diluted and hard to identify.
@Yoga: I think what you’re saying is that the Germans are very productive, and can thus sustain high living standards without blowing bubbles etc…productivity is a much less slippery concept than competitiveness, and a more useful one.
Competitiveness is a slippy concept, right enough. For my money the best indicator of competitiveness for a country with an open economy far from having sustainable full employment is that it is making progress towards it. Germany has made large strides towards apparently sustainable full employment, while the rest of the developed world has mostly been going in the opposite direction. Looks pretty competitive to me.
@ Gavin Kostic: Thanks a million! Not what I was expecting, but you have the correct (theoretic) approach to the matter. Good lateral thinking!
Enda H: He’s raising some problems – but the scent is getting stronger.
Q: Whence the ks?
The ref by Ilzetzki, Mendoza + Vegh (Vox 1st Oct. 2009) has a few close calls. Barro, NYT Op Ed piece (cited by Ilzetzki et al.) has some interesting pointers. Neither hit the bulls-eye.
As I mentioned above, there are two multipliers, one +ve, the second -ve. Both are ‘bad news’, contrary to what our econs are asserting about stimulus spending (fiscal expansion). Lets see what emerges.
Bye-the-bye. I hold to the definition that ‘inflation’ relates only to money – not to commodity, nor asset price, nor wage, increases. So if I mention inflation, I strictly reserve this term for an increase in the quantity of money.
@BCT: “…sustainable full employment…”
BCT, no offense, but there ain’t no such thing! Sustainability (in reference to an economy) means that you have an annual, decremental decline in aggregate economic activity – in the long run! Less and less each successive year! Cannot be otherwise.
Productivity? What in God’s name is that? “More bang, less energy” Surely there is some bad misunderstanding here.
@ Enda H
Yes, I think my use of figures, which are a bit arbitrary may not be helpful. I was trying to make the point of how inexpensive (sadly for the artist) it is to get a writer to produce a new piece of work.
The Arts Council is funded by a combination of the Lotto and taxation. So it depends a bit on your view of the Lotto and the impact on work. I have tried to find the exact mix in the past, but never got an answer.
I hear what you say about the €20 being possibly spent on other things anyway, which is why I added the international dimension, as it works more clearly to the benefit of Ireland, as it sucks in money from non-national sources, through tourism and cultural export. Cong, which I enjoyed visiting last summer, to this day dines out on being the home of “The Quiet Man”. Galway has splended year round activity and business which stems from Druid, Macnas and the annual festival. Also, international royalties from artistic production come back to the country – even from Library loans.
Just thinking out loud.
@BW, “sustainable” has more than one meaning, and my meaning should be clear to pretty much anyone looking here. Possibly even including yourself.
That said, your idea that full employment is impossible in an economy that is sustainable by your preferred definition is at very least contentious. As you should know by now, economic growth is consistent with decreasing resource consumption.
Gavin: I think I misread you initially. I thought you were giving an example of how the multiplier is calculated, rather than giving an illustrative example of the multiplier “in action”. My apologies 🙂
@ BCT: “…economic growth is consistent with decreasing resource consumption.” ???
Interesting comment, but I do not follow. Do you mean that some form of economic activity will continue, albeit at lesser level? If so, OK. I will buy the full employment bit provided we have a decreasing workforce paralleling decreasing resource use.
Your meaning of sustainability was not clear to me, hence my comment. Thanks for clarity.
@ Kevin O’Rourke
Philip Lane has an estimate of the multipliers for *Ireland*.
Perhaps they should inform the discssion about the feasibility, or otherwise of fiscal stimulus?
“I think what you’re saying is that the Germans are very productive, and can thus sustain high living standards without blowing bubbles etc…productivity is a much less slippery concept than competitiveness, and a more useful one.”
Right enough, but incomplete. They manage to be productive, in terms of production, but also in terms of investment. It is not enough just to not blow bubbles, you still have to invest well. There’s not much point in putting in a bypass to Kilorglin if there is no traffic there. So it is decades of productive investment that makes for competitive – building the right hospitals in the right places, the right hotels, the right roads.
Here we focus on the process, not on the delivery it seems – so we have a process that identifies bits of the Midlands as key gateways, spatial planning in the Shannon region etc. What is done to deliver that? The academic exercises in deciding what to do are done to a high standard here, I’d reckon, but beyond that, there is little evidence of an ability to turn good ideas into productive investment.
Instead we have bursts of mass investment (ending up in folly/ego investment) followed by droughts (as we go bust and cease investment). This, I reckon, is what is harmful to competitiveness – to butcher McCreevy – when we have it we piss it away, when we don’t we sow the seeds of the next disaster.
This applies not just to the state sector, but to large numbers of private companies in Ireland too. You’d see the best and newest jeeps, vans, truck, plant in firms that left their old, but servicable, kit rusting in a field somewhere. Around most farms there’s a fortune (at the time it was bought) in underused machinery rusting…