Beware The Huge Negative Lag Impact Of Three Rounds Of COVID Stimulus

The author is feeling the effects of a lag and it is beginning to bother them.

According to estimates from econometric analyses, the multiplier for government expenditures is positive during the first four-six quarters following the initial financing of the deficit. After three years it turns negative.

Now the lag begins to bite.

Lacy Hunt, Hoisington Management, has provided a real per capital average of GDP and GDI.

You can also find out more about the following:

Hoisington Managemen

t 2

023 Q2 Review

Lacy Hunt's book is another jewel. This quarter, his focus is on government debts, negative multipliers and lag time.

2023 Q2 Key ideas

The Budget Deficit is on the Rise

This year, the U.S. Government's budget deficit took a dramatic turn in the wrong direction. As enacted, the Inflation Reduction Act and CHIPS and Science Act 2022 will add more than $1 trillion to the budget deficit over the coming years. Penn Wharton Budget Model indicates, however, that the IRA's cost is three times higher than the amount appropriated to Congress due to how the instructions were written. The federal tax revenue for the current year is also down significantly from a year earlier. This is in line with the fact that real gross domestic product (GDI), which has fallen for three out of four quarters, has also declined.

The deficit is inflated by increased interest payments, and the shortfall in tax revenue does not stimulate economic activity. The new jobs, new roads, and new dollars of R&D are not created. The government spending multiplier is likely to have a negative impact on the lagged effects from the massive budget deficits in FY 2020-21.

According to estimates from econometric analyses of industrialized countries with high debt, the multiplier for government expenditures is positive during the first four-six quarters following the initial deficit financing. It then becomes negative after three years. This means that federal debt-financed expenditures, at the end of day, will reduce GDP.

Successfully time tested

Two separate rigorous studies, completed in 2011 and 2012, using different methods, concluded that government fiscal policies which either increased the size of the government in relation to GDP, or increased the government debt in relation to GDP, significantly weakened the trend rate of growth. Since the publication of this research, evidence has confirmed those findings. The government multiplier, as measured by more than a decade, is also becoming negative.

In 2011, Andreas Bergh (BH) and Magnus Henrekson published a peer-reviewed article in the Journal of Economic Surveys that determined that a percentage point increase in the size of government reduces annual growth rates in real GDP per capita by 0.05% to 0.10% per year. The increase in government size is a sign that the private sector, which has a high multiplier, is losing ground to the government sector.

The 20-year moving median of the ratio between government size and GDP at the time President Nixon closed the Gold Window was 25,2%. Meanwhile, the real per capita growth rate of GDP/GDI was 2,2%. This coincided with average real per capita growth rates since 1870. In early 2023, the government size was 34.3% and the growth of the real per capita average GDP/GDI was 1.3%. The government size increased by 9.1 percentage points, and the average real growth in GDP/GDI per capita decreased by 0.9% each year [Lead chart]. The actual results were within 0.1% of BH’s upper range, even though they spanned 12 years beyond the publication date of BH.

Reinhardt Reinhardt Rogoff

In a 2012 article published in Journal of Economic Perspectives, The Reinhardts, (Carmen and Vincent), and Kenneth Rogoff found that if gross government debt is above 90% of GDP over a period of more than five consecutive years, economies will lose 1/3 of their trend growth rate. The gross U.S. Government debt reached this 90% threshold 10 years ago. The trend rate of growth in real GDP per capita since 1870 has been 2.2%. In the past twenty years, the average growth rate fell to just 1.3%. This represents a slight loss of more than 1/3 the annual growth rate. If the U.S. economic trend was on track, the real GDP per capita would be around $73,000. This is almost $13,000 more than it actually is. RRR argued, too, that negative effects of high levels of debt would begin to accumulate even before the threshold was reached. And they did. This leads to the causal conclusion that excessive debt is a reflection of the law of diminishing return.


Over the last ten quarters, the productivity, or output per unit of time, in the non-farm sector has declined at a record rate. Productivity is the key to a higher standard of living and increased corporate profitability. Since January, the non-farm payrolls increased by 1.2 millions, but average weekly hours have dropped from 34.6 to 34.4, leaving the aggregate hours of work virtually unchanged. To increase productivity, companies will need to rationalize the workforce. This will reduce labor costs and inflation, while increasing household purchasing power.

Lacy Hunt's above paragraphs highlight some of my articles about the absurdly named Inflation Act, Industrial Production and declining productivity.

Work Productivity vs. Costs

Mish's chart of BLS data on labor productivity, costs and hourly earnings.

Long-Term Labor Productivity vs Costs

Productivity Dead Zone

The retirement of a large number of boomers is underway. The skilled boomers have been replaced by the unskilled zoomers (generation Z), which do not appear to have the same working ethic.

It's not surprising that productivity is down.

Discussions can be found at

Frida at Four Six and After


The Afternoon is a Dead Zone for Productivity

The Fed Reports Abhorrent Industrial Production Numbers, and Negative Revisions Too

Mish Charts: Industrial Production Data from the Fed

Recession lead times from IP peaks

The latest report on industrial production was a complete disaster. This is yet another sign that the economy is weakening.

Bloomberg Econoday's consensus estimate for May was unchanged from that of June. The Fed revised the May reading from -0.2% to -0.5% and instead, industrial production dropped by 0.5 percent.

Discussions can be found at

The Fed Reports Abysm

al Indust

The Production Numbers of rials are Negative and Revisions Are Also Included

Electric Vehicles

Please note:

Despite Huge Incentive


The number of EVs in Dealer Lots soars to 92 days

Why would you build a car that no one wants?

President Biden may impose ridiculous rules but he can't force people to purchase EVs.

The largest discrepancy between GDP and GDI for 20 years

BEA data on Real GDP, Final Sales and Real GDI, Chart by Mish

Economists are no longer optimistic about a recession. GDI indicates that a recession has already begun.

Please note that we have the

The largest discrepancy


In 20 years, GDP and GDI will be doubled.

It would be hilarious if a recession began just as the economists had given up on its possibility.

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