Dollar follies: Beltway econ IOI - Citings - Brief Article

Reason, March, 2002 by Sam MacDonald

WHEN IS A dollar not a dollar? When it costs you $1.40, according to a new study released by the Joint Economic Committee (JEC). If you don't buy that number, try listening to Senate Majority Leader Tom Daschle (D-S.D.). He says a dollar is really worth $2.15.

"Hidden Costs of Government Spending," a report released in December by JEC Chairman Jim Saxton (R-N.J.), offers a frightening throwback to freshman economics. It explores in full detail the concept of "deadweight loss," which measures the "hidden" cost of government spending by taking taxation's effect on prices into account. You can link to the lesson at www.house.gov/jec, or skip the gory details and read it here: Every extra dollar of government spending costs the economy $1.40. According to the study, that's because of expensive red tape and the efficiency lost in robbing Peter to pay Paul.

Saxton's report was only one shot in the long battle over how much to spend on stimulating the sluggish economy. Sen. Daschle and friends held a press conference to unveil their own figure. According to these big spenders, every extra dollar in federal spending directed at low-income and unemployed workers would actually boost the economy to the tune of $2.15. The gain comes courtesy of the magical "money multiplier," yet another bad memory for graduates of Econ 101.

So how much is a dollar really worth? That depends on which dead economist you believe. Here's hoping the folks on Capitol Hill come to a consensus pretty soon, however: Any stimulus plan that passes both the House and the Senate will likely be in the billions--a lot of cash, no matter how you do the math.