Best investment: government/updated

The IMF has a new report out that says a number of interesting things. The summary by FT is as follows: It predicts a soft landing for China. If so, this is great news for the world economy. It trims growth forecasts for next year, but by a modest amount.

Most important, it says that the estimates of how much money is saved by cutting government spending have been wildly overdone. It has been estimating the multiplier for government spending at 0.5. In other words, $1 in government spending generates 50 cents in new growth. So cutting spending was thought to be relatively cheap. If government captures 20% of that growth in taxes, it would take 10 years to pay back the investment. But now the IMF says that the multiplier is 0.9-1.7. Even accepting the midpoint of that for calculations, it means that government spending pays itself off in about four years and thereafter generates a 26% annual return on investment. And, of course, the rest of us get the benefits of higher growth, especially jobs.

Now, whether things have a high or low economic multiplier depends on how the money is spent. Spend it on bombs for senseless wars, and there’s no return on investment, unless one considers Al Qaida to be a good thing. Spend it on wounded veterans, and instead of suicides you get taxpayers. So until one specifies a use for the money. there’s a huge uncertainty in what the multiplier will be. And there’s a reason why the multiplier is high now, and might be lower during more normal times: there’s so much slack in the economy that government spending of all kinds reduces the waste of human lives. When unemployment is low, government spending just causes inflation.

But consider: how many businesses generate a 26% return on investment?
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Update: Naturally, Paul Krugman agrees with me.

Did You Know That Walmart Workers Went On Strike?

Did you know that Walmart workers in Southern California went on strike this week?
Not if you depend on network TV news, as do most folks to this day in America, to tell you what you need to know.

Here is what you get if you do a search for “walmart strike” in DuckDuckGo:

Note that the references are all from places like Huffington Post, Salon, Common Dreams, and In These Times. With the possible exception of HuffPo, these are all places that most of your neighbors and co-workers likely have never heard of, as opposed to CBS, NBC, FOX, CNN, or NPR. About six cites down there is an ABC link, but it’s to a business blog, not to a story intended for ABC’s front page, much less for its evening TV news. And that’s it for the sort of mass media most Americans are likely to encounter on a daily basis.

Dear persons from outside of America: If you wonder why Americans know so very little about their own country and even less about countries that aren’t the US of A, do consider what a horrible news media we have.