Forum Post: There is no Keynesian Multiplier related to spending: example France
Posted 11 years ago on Nov. 26, 2012, 2:49 p.m. EST by TheRazor
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Since 1981 France has increased its government debt by 609% in inflation adjusted terms. Its economy grew by 73% in inflation adjusted terms. It was 22% of GDP in 1981 and now its 90%.
If there were any multiplier effect, France should have a very robust economy. It doesnt.
Someone reminded me that there is another term for Multiplier Effect. Velocity of Money. Good Question. How do they measure the effect of money spent either by consumers ...or by Industry ... or by Government?
Actually I have another couple of points. There are Economic Leakage components ...or Monetary Leakage Components.
1) For Instance, if a Cuban working in the USA sends Dollars through snail mail to his mother back in Cuba. Those dollars become part of the Cuban Economy (say 10-20% maybe). Anyway Investment in the US has to have some leakage ...
2) Say an Investor in the US or even a US Bank makes profit and puts that money into a retirement account like CDs or a Savings Account. That money leaks out of the system and is not flowing, not helping the economy, not being spent or not being paid as a salary to someone else. This is one reason why I say cutting taxes on the Wealthy doesn't increase spending or stimulate the economy.
3) Counterfiet Dollars are Leakage. But this is only a small part like 1% of the small amount of printed currency. Printed currency is a very small part of total US Dollars as well.
And that, I suppose, is one argument for increasing direct payments to the people. They're going to grow debt - a) if they do not the banks do not profit and b) the dollars that are continuously removed from the supply must be replaced. Velocity is slow so they do not expect it to be felt. But it makes no difference, they still profit and we as middle class are eventually reduced to poverty.