Much has been written about the economic multiplier, the relation between the increase in aggregate expenditure and the increase in net national product, originally proposed by Richard Ferdinand Kahn and later expounded by Milton Keynes. With economists differing wisely on the effects, its theoretical base becomes dubious.
Frankly, my logic questions that differences in types of spending and how the spending is formulated, create different multipliers.
Reasoning:
If no deficit is created, a lowering of taxes in any group must be countered by either an increase of taxes in another group or a lowering of government spending. Those who had their taxes raised essentially transferred their income to those who had their taxes lowered. Less spending by the raised tax earners creates an equal reduction in spending and net new spending = zero.

If the tax rebate comes from reduced government spending, then regardless of the nature of the reduced government spending or the type goods not purchased, capital or consumer, system wages equivalent to the tax rebate,will be lowered. After all, the price of all goods is equal to the cost of wages plus profit. Lower government spending means less goods purchased.

Those who theorize the economic multipliers seem to neglect that the price of all goods is equal to the cost of wages plus profit, and it doesn’t matter who spends the funds or how the funds are spent – the spending goes to unknown profits and indeterminate labor, which are not differentiated by propensities.

Government deficit spending is no different than any other spending from borrowed money, only directed differently. Here the economy gains a lift, but any multiplier is the same as in all market transactions.

Another aspect is that shifting taxes does not add to the money supply. Therefore, what money is multiplied?
Deficit spending adds money to the economy, with any multiplication either from fractional banking or reinvestment. Uninvested profit limits the multiplication.

That’s my basic analysis and contribution to doubt of the interpretation and use of a highly prized Kenesyian postulate.

 fertile ground

fertile ground

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