Keynesians tell us that government spending stimulates the economy because it’s subject to “the multiplier effect.” When government spends a dollar, it creates more than a dollar of added consumer spending — maybe several dollars — and that means higher GDP! That’s why pseudo-economists declare that whenever the economy slides into recession, the solution is for the government to increase its spending.

Sounds too good to be true — the economic policy equivalent of the perpetual motion machine. And it is too good to be true, as Tad De Haven observes in this post, linking to a new National Bureau of Economic Research paper finding that the “multiplier” is less than one.

You arrive at the same conclusion just by asking how well government uses resources. It’s very prone to wasting them on political nonsense like subsidies for losing companies. The more government spends, the more we divert scarce resources into politically-driven follies. That can’t lead to greater prosperity.