Federal spending multipliers less than one

The blue line is the rate of change of total real GDP, including federal spending, relative to the rate of change in total federal spending.  All units are Year of Year changes.
The blue line is typically around 1/2. Every dollar of federal spending results in a half dollar increase in GDP. That is a multiplier less than one, and that results in less overall growth in GDP. 

The big spike in this graph around 1996, is basically sampling error, caused by a large change in one quarter that was not offset until the next quarter.  This is typical for quarterly results. 

When were the multipliers greater than one?

The red line is the deficit.  When it rises, government is borrowing less, and likely government is spending less and government is taxing folks to cover costs.  This is the change in the multiplier with respect to deficit. Multipliers went higher than one all the way thru the Bubba Clinton administration when DC was starting to run a surplus or reducing spending or making citizens pay for the federal crap they ordered. Keeping the deficit near zero results in more effective federal spending.

Here is the same chart focused on the recent period.  What are the two large spikes?  Another sampling error corrected in the next quarter. But you can see the blue line spent some time in negative territory. How did that happen? How does a dollar spent by the federal government result in a negative growth? Well, correlation is not causation, and likely the economy got slammed with higher oil import prices during the period. We see the same in recession where there is sudden collapse of growth that overwhelms the computation.

So, use this with care to estimate the long term effect, and you find the multiplier is generally less than one. Government spending in DC generally does more harm than good.

What about the near term?

Multipiers will drop to near zero, or lower, as the deficit increases.  We already know the federales are expanding deficit/gdp by 1/2 point, so that removes 1/4 point total from our current GDP average of 2%, But we can assume that there is at least another 1/2 point of deficit coming and that gets us to 1.5% GDP growth rate.  Beyond that the numbers are not linear, and I would expect we will skip along in near recession for quite some time.