A news service for the people of Michigan from the Mackinac Center for Public Policy

A new study on Michigan’s 2011 Pure Michigan advertising campaign repeats the common ploy of using  "multiplier" analyses to defend some line items in the state budget. This technique is often used to justify government spending on everything from public transportation to film subsidies.

Multiplier analyses take some economic activity and estimate its net economic impacts. For example, it looks at something like a customer buying a pair of shoes, and estimates what effect the retailer's use of the proceeds from the sale has as that money flows through the economy. Though they often use overblown and sometimes erroneous assumptions, the real problem with such analyses is they rarely ask where the spending comes from in the first place (where did the shoe buyer get the money to buy the new pair, for example).

There are economic consequences to all actions — you can’t drop a dollar bill on a sidewalk without affecting commerce. In this case, the money taken from Michigan taxpayers to pay for tourism ads has an impact that's not considered by the economic models used to justify the ads.

These models are better used to compare spending items, all others being equal (which they never are). For instance, the multipliers from this item can be compared to those of arts subsidies, whose proponents argue that they have a 51-times multiplier.

Government Initiative

Multiplier: "job creation"

 RASCO corporate subsidy

 2.34x

 Transit Spending

 0.6x

Transportation spending

 0.9x

 

Government Initiative

Multiplier (in dollars): "increased economic activity"

 Arts Grants

 51x

Early Childhood Education

 16x

Earned Income Tax Credit

 1.67x

 Film Subsidies

 6x

 Tourism Advertising

 40x

 Transit Spending

 4x

 

While multiplier analyses potentially could be used to weigh the economic consequences of different government spending programs, they appear most in the public arena to justify taking taxpayer resources.

The Detroit International Jazz Festival brings together music and charitable giving. Read more about this "spontaneous order" by clicking here: http://www.mackinac.org/7885


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