Tags: Van Hoisington | government | deficit | spending

Hoisington: Government Spending Won't Help Economy Next Year

Hoisington: Government Spending Won't Help Economy Next Year

Republican presidential candidate Donald Trump and rival Democratic nominee Hillary Clinton (AP)

By    |   Tuesday, 18 October 2016 12:08 PM

The economic stimulus proposals by Republican presidential candidate Donald Trump and rival Democratic nominee Hillary Clinton won’t help the country and may even stifle growth, according to Hoisington Investment Management Co. in Austin, Texas.

Billion-dollar spending on roads, bridges and airports won’t live up to the campaign hype because the United States is too deep in debt and deficits have a negative effect on the economy, the asset manager says in its third quarter report.

The so-called “multiplier effect,” in which the government stimulates the economy by spending a dollar that gets spent again and again by businesses and consumers, is a fantasy cooked up by economists.

“The government spending multiplier is in fact negative, meaning that a dollar of deficit spending slows economic output,” Hoisington writes, citing 2016 academic reports. “The government has to withdraw funds, via taxes or borrowing, from the private sector, to spend their dollars. When that happens, the productive private sector of the economy has fewer funds to use to make productive investments.”

The negative multiplier effect contradicts the theories of John Maynard Keynes, the most influential economist of the past 100 years, who argued that the government should use deficit spending as a way to spur full employment.

With U.S. economic growth slowing this year even as the government boosted spending, next year may be even worse.

“Unfortunately, the 2017 economic horizon is clouded by the rising likelihood of further increases in government spending and debt,” Hoisington writes. “The inevitable result will be slower economic growth and declined interest rates, a pattern similar to the 2016 experience.”

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RobWilliams
The economic stimulus proposals by Republican presidential candidate Donald Trump and rival Democratic nominee Hillary Clinton won't help the country and may even stifle growth, according to Hoisington Investment Management Co. in Austin, Texas.
Van Hoisington, government, deficit, spending
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2016-08-18
Tuesday, 18 October 2016 12:08 PM
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