Menzie Chinn vs. Richard Posner: Basic Math for the Math Challenged
Last time Richard Posner demonstrated an inability to divide one number by 4 and an inability to multiply a second by four. This time--Menzie Chinn:
Econbrowser: Basic Math for the Math Challenged: Since Richard Posner has decided to exhibit his math skills again, I thought it useful to work through some math to see how one can obtain back-of-the-envelope estimates for the stimulus package. I'll use Mr. Posner's numbers to illustrate.
Stipulate that $89 billion in stimulus funds were expended (this is Economy.com's estimate), in combined tax rebates, transfers to support state spending on goods and services and transfers, and direct Federal spending. This is higher than the $60 billion cited by the IMF (page 6), but lower than the $100 billion cited by Dr. Romer in her study (where she used IRS information on tax cuts; as Donald Marron has pointed out, Recovery.gov reports only expenditures on goods/services and transfers).
Assume 40% of the $89 billion was transfered to the states, of which most supports spending on goods and services.
Note that the GDP deflator is about 10% higher now than in 2005.
Calculate real government spending on goods and services by end-2009Q2:
(89 × 0.40)/1.10 = 32.4 Ch.2005$
Divide this stimulus by 2009Q2 GDP, not at annual rates. 2009Q2 GDP is about 3223 billion Ch.2005$.
32.4/3223 = 0.01
The resulting percentage increment to GDP assuming the multiplier for spending on goods and services is 1.0 is 0.01.
Annualize the implied increment to 2009Q2 GDP:
(1.01)4 = 1.04
In other words, the $89 billion results in 4 percentage points increase in growth, assuming zero spending out of tax cuts. Assume 0.5 multiplier for spending on goods and services (kinda wierdly low, but plausible when discussing impact multipliers), and one still gets 2 percentage points increase in growth.
I'm actually not sure what Posner has done this time. Six days before the semester begins, you see, I have a very strange email from the furschlugginger Vice Provost:
Catherine P. Koshland, Vice Provost - Acad Planning & Facilities (Campus-wide)
Dear Colleagues:
EVCP Breslauer and I wish to inform you of an important change in the Fall 2009 academic calendar: the last three podium days of the semester (December 7-9, 2009) will be converted to a Reading/Review/Recitation Period. This is being done with the complete support of the Academic Senate and in keeping with the recommendations of the Joint Task Force on Exams, which addressed many complex long-term challenges during year-long deliberations that culminated in a May 15, 2009 report to EVCP Breslauer.... There will be no traditional classes or lectures... nor should instructors introduce any new material....
We know this gives relatively short notice to faculty members with completed syllabi for Fall 2009 courses, but we think it important to make this change at this time. We hope any inconvenience involved in revising syllabi is far outweighed by the obvious benefits of this change for faculty members as well as students. The Reading/Review/Recitation (RRR) Period has long been sought by students who want more time to prepare for final exams.... It has also been requested by a growing number of faculty members and Academic Senate committees for both pedagogical and policy reasons. In addition to the pedagogical advantages... implementation of RRR days... will bring other benefits... including... completion of the spring semester a week earlier....
Though faculty members are expected to be available to students, they may not require students to attend any review sessions or a particular presentation time as part of their final grade. Additional guidelines on acceptable uses of the RRR Period will follow in the near future, but we wanted to alert you now regarding the change....
The remainder of recommendations from the Joint Task Force on Exams will be implemented in Spring 2010. Though there is not space in this letter to address all the changes in the offing, more detail can be seen in the full text of the final report referenced earlier. We will issue comprehensive implementation plans for Spring 2010 in the next few weeks.
And so I need to rework my syllabus...
