 Many Republicans and other people have criticized President Obama's recovery act of 2009 as a failure. They point to the very slow recovery we have had since the great recession of 2007-2008. Now, in response, the Council of Economic Advisers of President Obama has just released a study of the effects of the Recovery Act. According to this study, the Recovery Act was actually an amazing success. It increased jobs by six million. It raised the level of the GDP or total income in the economy by two to three percent since it was implemented in 2009. Now, what it actually did, if you look at the slow recovery, you say, well, where are these new jobs? There are some jobs being increased. Well, the economists who wrote this report talk about counterfactuals. That is to say, what they're saying is that, well, without that Recovery Act, we would have had six million fewer jobs created and we would have had two to three percent less total income in the economy. But how can they prove this? Well, they use something called a multiplier. Now, this is a bit of Keynesian magic in which one dollar of government spending supposedly has the ability to create more than a dollar of total income in the economy. That's because if the government spends a dollar, the people who receive that money are going to save some of it, but they'll spend more of it. So in the next round, there's more of the money spent. And those people who receive the new income will in turn spend some of that on other goods and services. So the money goes round and round throughout the economy and it raises income. Now, they've estimated that for every dollar spent as a result of the Recovery Act, $1.50 of additional income was created. So they say, well, the multiplier is 1.5. But how can that be, really? Because all the Recovery Act did was take money from some people and give it to others. So it took money from taxpayers and it gave it to construction unions who were involved in government investment in infrastructure. Or it gave it to teachers. Or it gave it to inefficient solar panel companies that later went out of business. But no matter according to the Keynesians and according to the authors of the CEA report, this increased income. And what they don't tell you, and what's buried in the appendix, is that in fact this effect of having a greater amount of income created by each dollar of spending comes about as a result of the fact that there's been inflation. That is to say that in fact this additional government spending was really financed by an increase in the money supply. And this has a short run effect of possibly creating more jobs and creating new income. But in the long run, and many economists have studied this, ultimately what happens is that the government multiplier actually may very well be negative. Which is to say that for every dollar of government spending you might actually get two to three dollars reduction in income in the economy. And that's because as a result of the inflation, you have distortions in the economy and goods that labor and so on are invested in the wrong lines of production and eventually you have another recession. So what we can say in response to CEA report is that this idea that the Recovery Act created income is as substantial as the idea that simply printing up a dollar will create new wealth.