Too Lazy to Waste? A Death Blow to the Fallacy of the Balanced Budget Multiplier
By Bryan Caplan
Russ Roberts points out that only a small fraction of the $787B fiscal stimulus has been spent. I’ve long scoffed at government inefficiency, but it never occurred to me that a full pork barrel could be so slow to empty. Apparently my expose on the balanced budget multiplier was truer than I ever imagined back in January:
[T]his argument is sleight of hand. How so? It assumes that government agencies automatically spend 100% of any new funds allocated to them.
And strange as it seems, that assumption is often false. It takes time
and effort to figure out how to spend new money, you often need the
approval of multiple levels of supervision to get started, etc. The
standard Keynesian analysis essentially compares a conditional effect of government spending to an unconditional effect
of tax cuts. Even within the confines of the textbook Keynesian model,
this is a clear case of stacking the deck in favor of spending.