As I understand the point that Dean Baker is making here:
Anyhow, it works like this. (Warning, this part uses arithmetic.) The collapse of the housing bubble led to a reduction in annual rates of construction of about $450 billion. The bubble in the non-residential sector is also in the process of collapsing, cutting annual demand by approximately $200 billion. The loss of $8 trillion in housing bubble wealth, coupled with a loss of roughly the same amount of stock wealth, is leading to a reduction in annual consumption of approximately $700 billion.
The total loss in demand is around $1,350 billion. The annual stimulus in the bill approved in February was around $300 billion. $300 billion in stimulus is not nearly enough to fill a $1,350 billion shortfall in demand.
he’s saying that the multiplier is 1.0. That is, every dollar in borrowing is a dollar added to GDP. As I further understand it that’s different than the multiplier that the administration was using which was substantially higher. Which is it?
Note that he’s talking about “annual stimulus” which is different than the total stimulus in the legislation. Is there any way other than a tax cut that an annual stimulus of more than a trillion dollars could have been pumped into the economy? And actually provide stimulus, I mean, rather than going into somebody’s Swiss bank account. I don’t see it.
The total amount of the stimulus package is something like $767 billion dollars which, with a multiplier of 1.5, gets pretty close to the $1.35 trillion Baker is talking about.
The current stimulus measures can’t get into the economy fast enough due to bureaucratic processes and resource contention. Quadrupling that could not possibly have improved the situation.
Is he saying its one or that the multiplier is less than 1350/300? For example say the multiplier is 2.5, then we get $750 gain with a $1,350 total loss for a net loss of $600.