The Multiplier for U.S. Debt Spending

Sunday September 23rd, 2012   •   Posted by Craig Eyermann at 12:42pm PDT   •  

How much economic growth does the U.S. get for every new dollar it borrows?

That’s an important question to answer and really, it all comes down to what’s called the multiplier, which can be described as the value of extra economic activity that is generated for every new dollar that is spent, with a multiplier equal to 1.0 indicating that no extra economic activity was generated through the new spending.

In trying to sell President Obama’s “stimulus” plan after he first came into office in 2009, then chief economic adviser Christine Romer said the economic multiplier for the kind of debt-financed spending was 1.57, which means that for every new dollar that the U.S. would borrow to spend, the economy would generate $1.57 in new economic activity.

Did Americans get that kind of return in higher GDP? To find out, we’ve run some numbers covering the period of time since President Obama was sworn into office on January 20, 2009 through June 30, 2012, the end of the most recent quarter for which we have a good estimate of the nation’s GDP.

The United States government has, through June 30, 2012, borrowed some 5.23 trillion U.S. dollars, which has all been spent. Meanwhile, the Gross Domestic Product of the U.S. has only increased by 1.52 trillion dollars in that time, which we’ve measured from December 31, 2008 through June 30, 2012.

So by our math, the average multiplier for the U.S. government’s debt spending during that time is 0.29, far less than the value of 1.0 that would indicate that all this debt-financed government spending had only a neutral effect upon the economy. Put another way, for every $3.43 the U.S. government has borrowed during President Obama’s tenure in office, the nation’s GDP has increased by just $1.00 – a lousy rate of return on the government’s debt-financed “investments”.

Speaking of which, the value of the national debt now exceeds 103% of the nation’s income. On December 31, 2008, that figure was an “affordable” 75.4%.

More on that later….

Featured Image:
Source: Washington State Attorney General

Facebook Twitter Youtube RSS


By linking to from this page, The Independent Institute earns referral fees of 4% to 15% from whatever you buy. Bookmark the above link and you can support the Institute when you do your normal shopping!



September 2012