The fact that a specific amount of some economic activity caused a specific increase in total economy activity doesn't mean you can extrapolate it to infinity. Google has a (large) positive return on capital, but that doesn't mean that Google could generate infinite amounts of money simply by plowing arbitrary amounts of capital into its business.

So, yes, it is probably the case that $1 trillion in food stamps would not generate $1.73 trillion in economic activity. But that's not really a counterargument about whether the current spending has a 1.73x multiplier.

That's understood. In this case, I particularly referenced a trillion dollars, which isn't a gigantic sum in our economy any longer. It's a mere rounding error on our liabilities.

You also can't print magic dollars to continue to fake economic results without suffering consequences that completely wipe out the supposed gains that are being claimed.

For example, even just 6% real inflation times ten years becomes a disaster for a middle class whose real wages are flat lined. Every dollar the Fed shovels into the system, becomes inflation somewhere.

Food stamps = pure inflation in a government system running a $1.3 trillion deficit. The Fed has to monetize it all. Whatever you're supposedly gaining through one program, is completely wiped out by the inflation.

If food stamps are paid for out of taxes, money isn't created, just redistributed. To clarify, are you saying that because we're borrowing to pay for these, we're effectively printing money, thereby causing inflation?

Also: in terms of pure investment (not considering the moral good of helping the poor nor the moral evil of enabling freeloaders), even if the stated GDP growth is accurate, there is always the opportunity cost of not doing something else with that money. How much would it increase GDP to build more roads or fund more research?

I'm not arguing against food stamps here, I'm just trying to put this in perspective. And perhaps the answer to my questions is "nobody knows."

You'll note I'm not in any way making an argument against food stamps; that's an unnecessary argument. I'm arguing in favor of a fiscally responsible government - we had one of those 12 to 13 years ago, and for most of US history we've had a responsible government that kept our debt and deficits low. The greenback became "good as gold" because we were responsible with our currency (once upon a time).

You want to spend $50 billion a year on food stamps? Ok, slash it out of the military, social security, medicare, the NSA / FBI / CIA / HSA / TSA / whatever. You want universal healthcare, ok, disband the US military, or slash social security in half. Something will have to go, one way or another, sooner rather than later; the piper will get paid.

With a $1.3 trillion deficit, it's irrelevant if you argue that the food stamps are paid for by taxes, or if you argue the military is paid for by taxes, or if you argue social security is paid for with taxes. Because bottom line: $1.3 trillion per year is not paid for with taxes. Something is not getting paid for with taxes, it might as well be food stamps as any other program currently.

As another simple example of the inflation spread - if the Fed holds interest rates down, which is part of what the QE programs do, it generates inflation. When you get a mortgage adjustment at 4% courtesy of that Fed program, it is generating inflation by the difference in money you now have versus what you otherwise would have.

If the Fed props up property values with the QE and trillion dollar mortgage purchase programs, that causes inflation as home owners acquire value they otherwise wouldn't have.

Any artificial value, created by the Fed, and shot into the system, must inherently become inflation. Your dollar loses value accordingly. And since 1967 or so, the dollar has lost about 86% of its value.

I'm sorry, but there is so much wrong with this comment it's hard to figure out where to begin; it's completely inconsistent with mainstream economic analysis of inflation.

It might be wrong, but he makes a valid argument. And I am right there with it.

It's not an argument; it's a series of assertions about how economics works that are not backed up and incorrect. If you want to state opinions, that's fine, but this isn't religion where you can just invent facts.

In particular, nobody who studies the matter argues that all government spending automatically produces inflation; not even Milton Friedman took that line (and empirical data doesn't support it).

You can model this new, moralistic economics as follows: Some things are bad by nature. These include, inflation, deficit spending, any government spending, forex devaluation, trade deficits, debt, big banks, government loans ranging from bailouts to the discount window. All things that are bad can be thought of as the same thing. Since inflation=bad and government spending=bad, therefore government spending = inflation. There is no need for precise or careful distinct meanings of any "bad" term and can be used interchangeably as a matter of taste.

I think that you'll find that this model is simple to understand, has far less complexity or uncertainty than you may be used to and can be a lot of fun, too.

Nitpick - religion doesn't invent facts, it invents beliefs, many of which are not prove-able (i.e., assertions about 'right' and 'wrong') and many of which can be easily proved or disproved.

You can't invent facts, merely discover them. But you already knew that. /pedantic

EDIT:

Also, I don't think he asserted government spending causes inflation. I think he asserts that government deficit spending causes inflation. Minor difference.

Mainstream economic analysis of inflation has been wrong for at least 40 years. That is to say, Keynesian economics is wrong.

Which is why America is collapsing into a hovel of debt, extreme spending, deficits, and poverty: modern economic policy is completely wrong. Such has been the case since 'modern' economics began ruling America in the late 1960s. The US standard of living hasn't improved since the early 1960s, when America was the dominant manufacturing power; it has been downhill since then in real terms, with brief respites courtesy of technology. 10 year mortgages became 30; a high savings rate became a negative real savings rate; the middle class became the impoverished class.

When you run inflation far beyond the rate of real wage increases, the working class has no incentive to save junk dollars that lose value 24/7. So instead of saving, they spend, knowing full well their dollar will buy more today than tomorrow.

First of all, inflation is exceptionally low. Second of all, non-Keynesian mainstream economists reach similar conclusions; and in any case, have you actually read the Keynesian economics literature and economic data in enough depth to have reached an intellectual (as opposed to political) conclusion about its validity?

Finally, U.S. income in real terms has increased substantially since the 1960s; there is no credible measure of inflation, not even some of the alternate ones, by which U.S. real GDP per capita today is lower than in, say, 1965. What has failed to increase, or even declined somewhat, is real median income; real mean income has not similarly stagnated or declined. That's a problem of income/wealth distribution, not inflation.

First of all, inflation is not exceptionally low.

Calculated using the 1980 CPI, inflation is off the charts at about 9% right now. When it was last that high, Volcker was taking extreme actions to crush inflation with high interest rates.

In 1971 when inflation was as high as the Fed's current bogus CPI, Nixon installed price and wage controls.

The Fed CPI intentionally understates inflation by leaving out food and energy prices, which are prime inflation meters. So they get to hide the radical increase in the cost of a gallon of gasoline, heating oil, and food, over the last decade.

The CPI was adjusted during the Clinton Administration to hide the real rate of destruction.

US income in real terms has not increased at all since about 1965. The US Dollar, according to the Federal Reserve's own numbers, has declined by about 86% since then.

So no, real wages haven't increased at all when you have to calculate off of that decline.

It's trivially easy to prove it: run wages against the cost of a new car, the price of oil, the average price of a home, the price of gold, the price of silver, the price of a gallon of gasoline, the price of a gallon of milk, and so on. You'll see the same blatant trend line. How much did those things cost in 1965, and what was the average wage? For your own benefit, take a few minutes and run those numbers; you'll see that the US standard of living has gone nowhere.

Sure, the dollar has declined by 86% in nominal terms; but per-capita GDP in nominal terms has increased by 1170%. Inflation-adjusted, real per-capita GDP is approximately twice what it was in 1965.

The CPI includes both food and energy prices. There is a separate measure called "core CPI" that excludes those, but it's not the one normally quoted, nor the one usually used to correct for real dollars.

"Work force participation rate? hyper implosion. Government dependency? skyrocketing. Real wages? declining. Inflation? pain at the pump and grocery store. Trade deficit? Near all time record highs. Savings rate? miniscule. Household wealth? Less than 15 years ago. Standard of living? Hasn't moved in in 50 years. Debt? On the moon and rising faster by the day. Entitlements? $100 trillion unfunded disaster. Stock market? Hasn't moved in 15 years inflation adjusted."

You just explained everything wrong with our economy. Don't forget, we also have two parents at work while standard of living has remained the same. If I could sum up with whats wrong with our country right now, that quote would be it.

What? A fact-based intelligent comment is down voted? Sadly, it says a lot about effects of politically-correct brainwashing in our society.

On the other hand, a comment on top about the true voodoo economics is up and running well...

People mostly don't want the truth, and they certainly don't want to talk about consequences or necessary pain from decades of irresponsibility. Allow a natural recession instead of monetizing a fake recovery? Outrageous! Live within your means? Who would do such a thing when you can destroy the global reserve currency and buy some votes.

I think most people want to keep milking the collapsing system for as long as they can, for they're overly invested into that system's survival. Anything else literally scares them. It's why the politicians spout the same drivel year after year, right or left. They're just feuding over how to divide up the last crumbs.

The crumbs are running out.

@shingen, Your profile says nothing about you, yet I have this urge to know more. You have an email or something?

mine is username + gmail.

It's an inconvenient truth.