Eye on the Pie and Opinion

MARCUS: Multipliers are what you make them

July 9, 2011

The Amateur Numeric Society for Economic Evaluation, or ANSEE, met at a Hoosier casino. Arthur Average sipped his non-carbonated, non-caffeinated, non-caloric drink before suggesting, “The multiplier is in the range of 7 to 9.”

Bob Betteroff choked at Art’s words. Courtney Conmann slapped Bob’s back and said, “That may be high.”

“High?” said Dan Dare. “Preposterous is more like it.”

“It’s hard to know,” Evan Evasive declared. “Much study has been done on the question, and conclusive answers appear to be elusive.”

“On the contrary,” Frances Franklie said, “no one really studies the employment and income effects of an investment in a local economy. Virtually every economic impact report uses some formula or multiplier picked up from somewhere else.”

The conversation stopped. The cocktail hour was shrouded in gloom by this remark. Then Gerard Guile, refreshed by his gin and tonic, relit the candle of cheer.

“Everyone knows,” Gerard said, giving voice to what everyone knew. “Everyone,” he emphasized, “understands that an infusion of money income into a community recirculates through the local economy many times. Similarly, add jobs to a community and more jobs will be created to serve the first one. These are established facts.”

Harry Hunkerdown snorted. “Those are not facts. The actual effects are not apparent in most cases and will vary considerably with the community and the economic conditions present at the time the stimulus is applied.”

“Correct,” Isadora Isore whispered from the edge of the crowd. “When there are underutilized resources, new money may have much less impact than when there is full employment. New money will not necessarily mean new jobs at the beauty parlor or the barbershop if there are already empty chairs with people prepared to clip the customers.”

Isadora slipped into giggling at her witticism. June Juggernaut, however, took up the argument.

“Direct spending,” she said, “on people or equipment, buildings or land may have little effect on the locality where it happens. The people may be commuters from elsewhere, spending little in town. The equipment may be built overseas; the building may be standing already, need no modification, and sit on land owned by a foreigner in Pennsylvania.”

All about the room stronger drinks were being ordered.

“But no one questions the existence of multiplier effects for income and employment,” Kevin Klostomy asserted and asked simultaneously.

Lucille Lucid was first to respond.

“Oh, no. Any concept that is theoretically valid deserves quantification. It’s just a question of identifying the number. That’s why ANSEE is such an important organization. We authenticate the numbers used by our members. A vigorous, rigorous mathematical model can churn out a number for any nation, state, county, city or township. In truth, the town’s future may be changed by a well-chosen number.

“My favorite is 1.83,” Lucille continued. “It is a modest number with a nice roundness to it that looks good in almost any font. No pseudo-scientific confidence intervals, just a good solid number.”

“I agree,” I said. “Confidence must come from the one who supplies the number. If you give someone a number that person seems to want, you must seem to believe in it.”

“Then,” Ned Nostrum said, “we are agreed. A good number is the number we agree is good. Let’s order another round for the room.”

He got no argument on that one.•

__________

Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.

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