Crowley, page 82

A critical part of Keynesian theory is the

multiplier effect," first

introduced by British economist and Keynes

protégé

Richard Kahn in the 1930s. It essentially argued

that when the

government injected spending into the economy,

it created

cycles of spending that increased employment and

prosperity regardless of the form of the spending.

Here’s how the multiplier is supposed to work:

a $100 million government infrastructure

project might cost



$50 million in labor.

The workers then take that $50 million and, minus

the average saving rate, spend it on various

goods and services. Those

businesses then use that

money to hire more people to make more products,

leading to another round of spending. This idea

was central to

the New Deal and the growth of the Left’s

redistributionist state. The great free market

economist and Nobel Laureate in Economics

Milton





















Friedman, among others, showed that the Keynesian

multiplier was both incorrectly formulated and

fundamentally flawed, in that it ignores



how governments finance spending —through either

taxation or debt.

Raising taxes takes the same or more out of the

economy than

saving; raising money

by bonds causes the government to go into debt.

Growing debt then incentivizes



the government to raise taxes or inflate the

currency to pay it off, which in turn decreases

the value

of each dollar that the workers are earning. The

Keynesians also ignore

the fact that saving and investing have a

multiplier effect at least equal to that of

deficit spending, without the drag of debt.