Monday, September 16, 2013

The Keynesian counter argument

Why this graph shows multipliers greater than one:
Remember, I said that high growth countries relied on G less than low growth countries. On the chart, high growth countries are above the computed line because they grow GDP with less G; thus proving multipliers less than one.

No so, say the Keynesians.  Countries near zero growth are in a different regime, one where multipliers can have great effect. What regime? The guassian regime where each component of GDP is independent, where the long term and the big things can be ignored. Thus, those countries near zero growth, the extra G is a direct add to of an otherwise low number for GDP, there is no much lest cost to increasing G.

But,but,but... That assumption is the fluid assumption, and has to admit to negative and positive multipliers.  At zero growth, investors are glum and expose their losses and gains, capital preservation, not growth is the norm. Look where the line crosses zero growth in GDP, call that the center of the zero growth countries. If they all take the shortest change toward the computed line, then an equal number will reduce G as will increase G. G, in the fluid norm, has to pick winners and losers. But in high growth mode, government moves can always be positive, sometimes less but still greater than zero. Different norms, can't carry derived principles between them.

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