Why Government Spending Multipliers Are Smaller Than You Think

The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending · May 30, 2026 · 10m · transcript

Economist John Cochrane argues that fiscal stimulus has a lower multiplier than most policymakers assume. This episode drills into one overlooked mechanism: when the government borrows to spend, it crowds out private investment by raising interest rates. We walk through a concrete example from the 2009 Recovery Act and explain why the CBO's multiplier range of 0.5 to 2.5 is so wide. Lucas shares a paper by Valerie Ramey showing that defense spending multipliers are consistently below one. Luna pushes back with evidence from state-level studies where multipliers hit 1.5 during recessions…