November 30, 2016

Rethinking the multiplier

Comment on Mark Thoma on ‘Infrastructure, jobs and wages: It’s not so simple’


Standard economics is known to be axiomatically false. This implies that the familiar theory of the multiplier is also false. This, in turn, means that economic policy proposals have no sound scientific foundation.

This is rather bad because “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Economists have no true theory but only different opinions. What has been fateful already in the Great Depression is that economists lack the true employment theory since 200+ years. So unemployment is in the last instance the result of economists’ scientific incompetence.

To make a comprehensive analysis short#1 the basic version of the objective structural employment equation is shown on Wikimedia.

From this equation follows the correct multiplier. Keynes’s arguments about the role of aggregate demand have been commonsensically right but formally defective. More precisely, the Keynesian standard multiplier is provably false since 80 years.

Egmont Kakarot-Handtke

#1 See ‘The very serious blunders of very serious people