Wednesday, November 15, 2006

On claims of multipier effects...

In the past few months (must have been the election season), I've heard claims of economic multiplier effects and, as usual, they have left me highly skeptical.

The general form of such claims is "every dollar invested in {insert proponent's economic activity here} generates..." some multiplier of a dollar (5X, 7X, 10X or whatever) in terms of economic benefits.

I'm not an economist, but it sure seems to me that on the first level of analysis any dollar directed at A is a dollar not directed at B, C or D. Even if the claimed multiplier effect exists, we're still left with questions of which alternatives to A also have multiplier effects and whether or not any hypothetical multiplier effects associated with B, C or D are even greater.

The opportunity costs are never mentioned or considered.


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