Government
spending to jump-start
the
economy
in the short-run:
Getting the economics straight
By Jon Fernquest 
There
has been flawed
media coverage
in the US media
on government spending and how it stimulates the
economy (fiscal stimulus). Media Matters for America, a media watchdog in the US, has shown recently how the US media has failed to get its economics straight
(Read the first article and the second article cited by economist Mark Thoma. ).
The Thai government is starting fiscal stimulus programmes in coordination with western countries such as the US this year, in order to pull the country out of the economic downturn.
This means that understanding the long and short term effects of fiscal stimulus is important in Thailand also.
The root of the misunderstanding in the US media is that:
All
government spending is a short-run
stimulus to the economy.
All government spending will lead to additional spending in the short-run that will eventually create more jobs. However, some forms of government spending create more stimulus than others. Some forms lead to more additional spending and more jobs.
In other words, some government spending has a bigger bang for the buck or multiplier effect (See table on the right from Mark Zandy's report at Economy.com used in Congressional testimony).
Additional spending and more jobs is important right now because the global economy is like a car whose engine won't start. Hopefully, government spending with a "big bang for the buck" will get the car started again.
You can see in the chart above that government spending is better than tax cuts for short-run stimulus.
Short-run spending effects versus long-run investment
There
may be other valid
objections
to
certain forms of government spending. Some people might want government spending that is also an investment that will provide benefits and economic growth to our children and future generations, the same people who will have to pay back the money that the government borrowed to pay for this government spending (Read article).
"Building bridges to nowhere" is the usual example of government spending that will produce more spending and more jobs but is not a good investment (See photo on right of the Second Thai-Lao Friendship Bridge above, certainly not a "bridge to nowhere").
Multiplier effect
"Multiplier effect" means that a change in government spending or taxes produces an even larger change in national income.The bigger the multiplier effect of a government spending programme, the better that programme is at getting people to spend.
If people start spending again, they hopefully will lift the economy out of the slump it is in.
For example, if the government spends an extra 19 billion baht on education, this increases the income of many people whose work is related to schools such as teachers, book publishers, and school construction companies.
When a person receives part of this government spending money, they spend part of it and save part of it.
The money they spend goes to another person who makes the same decision to spend part of the money and save part of the money.
This happens over and over again. Spending creates more spending. Since each person saves some of the money the extra spending grows smaller and smaller over time.
Doing the math
The total extra spending that the economy gets from an initial amount of spending is called the multiplier effect and is calculated as follows:multiplier
= 1 / (1 –
percentage that people spend)
If people on average spend 50% of what they receive then the multiplier is 2.
If they spend 42% then the multiplier is 1.73 which is the highest multiplier in the table for different forms of US government spending above.
This means that if the government spends 1000 baht then the total spending will eventually be 1,730 baht.
For example, food stamps for the poor and payments to unemployed people to support them while they are looking for a job ("extending UI benefits") have the biggest multiplier effect or "bang for the buck" in the table above.
This table has been used in testimony before the US Congress, so it is pretty trustworthy.
Vocabulary:
jump start - start
a car again after it stops running การสตาร์ทเครื่องรถโดยการพ่วงแบตตารี่
short-run, economic short-run - firms can only change the amount of labour used ระยะสั้น
long-run, economic long-run - firms can change machines, factories (capital equipment) and add capacity, in addition to changing the amount of labour used ระยะยาว
getting it straight - having the right idea, saying what is right, not making a mistake ทำให้ถูกต้อง
flawed media coverage - when a TV programme or a newspaper article is not correct การรายงานข่าวผิดผลาด
stimulate - act so as to increase activity กระตุ้น
fiscal stimulus - either a tax cut of increase in government spending to increase economic activity and get the economy growing again การกระตุ้นเศรษฐกิจโดยร้ฐบาลด้วยการลดอัตราภาษีหรือให้เงินสนับสนุนหรือกระตุ้นเศรษฐกิจ
Media Matters for America - a web-based, not-for-profit, progressive research and information center dedicated to comprehensively monitoring, analyzing, and correcting conservative misinformation in the U.S. media founded in 2004 (See Wikipedia) การวิจัย ติดตามและวิเคราะห์ข้อมูลโดยศูนย์วิเคราะห์ข้อมูลบนเวปไซด์
media watchdog - an organisation that monitors the media (to make sure that they are telling the truth and not making mistakes) หน่วยงานที่ทำหน้าที่ตรวจสอบและเสนอข้อเท็จจริง
in coordination - working together to reach a goal ด้วยความร่วมมือกันระหว่าง ด้วยการประสานงานของ
root of the misunderstanding - the reason why they did not understand สาเหตุหรือต้นเหตุของความไม่เข้าใจ
bang for the buck, multiplier effect - the biggest effect with the smallest expense or effort ส่งผลกระทบอย่างใหญ่หลวง
congressional testimony - when an expert on a topic talks to the US Congress and provides them with information การประกาศหรือเสนอนโยบายต่อสภาคองเกรส
objections - things you disagree about การคัดค้าน
valid objections - things that you disagree about (that you are also correct about) สิ่งที่ไม่เห็นด้วย หรือคัดค้าน
economic growth - the increase in the amount of the goods and services produced in an economy over time, measured as the percentage increase in real GDP (See Wikipedia) การเติบโตทางเศรษฐกิจ
a generation - 20 or 30 years, the period of time it takes for children to grow up and have children of their own รุ่น (คนแต่ละรุ่น) โดยมากรวมถึงคนที่มีอายุไม่ต่างกันเกิน 20 - 30 ปี
future generations - the adults of the future (who may only be children now) คนรุ่นหลัง
building a bridge to nowhere - the standard example of wasteful government spending (even this government spending can create jobs and get the economy moving again, though one might ask for more) การทำโครงการของร้ัฐบาลซึ่งไม่ก่อให้เกิดประโยชน์ฝ่านใดเลย
Second Thai-Lao Friendship Bridge - a bridge over the Mekong River connecting Mukdahan Province in Thailand with Savannakhet in Laos (See Wikipedia) สะพานไทย-ลาว แห่งที่สอง
food stamps - a US government programme that provides food to people with no or low income (See Wikipedia) โครงการอาหารที่จัดให้สำหรับคนตกงานหรือยกไร้ จะจัดให้อาหารกินฟรี โดยที่ผู้เข้าร่วมโครงการจะได้รับคูปองมาแลกอาหาร
short-run, economic short-run - firms can only change the amount of labour used ระยะสั้น
long-run, economic long-run - firms can change machines, factories (capital equipment) and add capacity, in addition to changing the amount of labour used ระยะยาว
getting it straight - having the right idea, saying what is right, not making a mistake ทำให้ถูกต้อง
flawed media coverage - when a TV programme or a newspaper article is not correct การรายงานข่าวผิดผลาด
stimulate - act so as to increase activity กระตุ้น
fiscal stimulus - either a tax cut of increase in government spending to increase economic activity and get the economy growing again การกระตุ้นเศรษฐกิจโดยร้ฐบาลด้วยการลดอัตราภาษีหรือให้เงินสนับสนุนหรือกระตุ้นเศรษฐกิจ
Media Matters for America - a web-based, not-for-profit, progressive research and information center dedicated to comprehensively monitoring, analyzing, and correcting conservative misinformation in the U.S. media founded in 2004 (See Wikipedia) การวิจัย ติดตามและวิเคราะห์ข้อมูลโดยศูนย์วิเคราะห์ข้อมูลบนเวปไซด์
media watchdog - an organisation that monitors the media (to make sure that they are telling the truth and not making mistakes) หน่วยงานที่ทำหน้าที่ตรวจสอบและเสนอข้อเท็จจริง
in coordination - working together to reach a goal ด้วยความร่วมมือกันระหว่าง ด้วยการประสานงานของ
root of the misunderstanding - the reason why they did not understand สาเหตุหรือต้นเหตุของความไม่เข้าใจ
bang for the buck, multiplier effect - the biggest effect with the smallest expense or effort ส่งผลกระทบอย่างใหญ่หลวง
congressional testimony - when an expert on a topic talks to the US Congress and provides them with information การประกาศหรือเสนอนโยบายต่อสภาคองเกรส
objections - things you disagree about การคัดค้าน
valid objections - things that you disagree about (that you are also correct about) สิ่งที่ไม่เห็นด้วย หรือคัดค้าน
economic growth - the increase in the amount of the goods and services produced in an economy over time, measured as the percentage increase in real GDP (See Wikipedia) การเติบโตทางเศรษฐกิจ
a generation - 20 or 30 years, the period of time it takes for children to grow up and have children of their own รุ่น (คนแต่ละรุ่น) โดยมากรวมถึงคนที่มีอายุไม่ต่างกันเกิน 20 - 30 ปี
future generations - the adults of the future (who may only be children now) คนรุ่นหลัง
building a bridge to nowhere - the standard example of wasteful government spending (even this government spending can create jobs and get the economy moving again, though one might ask for more) การทำโครงการของร้ัฐบาลซึ่งไม่ก่อให้เกิดประโยชน์ฝ่านใดเลย
Second Thai-Lao Friendship Bridge - a bridge over the Mekong River connecting Mukdahan Province in Thailand with Savannakhet in Laos (See Wikipedia) สะพานไทย-ลาว แห่งที่สอง
food stamps - a US government programme that provides food to people with no or low income (See Wikipedia) โครงการอาหารที่จัดให้สำหรับคนตกงานหรือยกไร้ จะจัดให้อาหารกินฟรี โดยที่ผู้เข้าร่วมโครงการจะได้รับคูปองมาแลกอาหาร
