Multiplier Analyses Often Abused

In a letter to The Detroit News, the director of the Wayne County Great Start Collaborative states, “There is no higher return on investment than on money spent on the education and care of children before they reach kindergarten[.]”

This is an abuse of economic analysis. The argument comes from a study arguing that a dollar of spending on early childhood education results in $16 in overall societal gains. These multiplier studies are misleading.

The analysis would make it appear that any multiplier higher than a dollar would justify the spending of the dollar. This is incorrect — the actual cost is whatever that dollar would have been spent on. As I wrote before: You can’t drop a dollar on the sidewalk without it having an echo somewhere. The dollar would have had a multiplier before it was taken to spend on preschool.

These multiplier analyses may show which dollar can make the loudest echo, but it provides no economic justification for taking the dollar from someone in the first place.

Yet they remain a common ploy, being used to justify all kinds of government programs from art subsidies to the embarassing RASCO development.

Multiplier analyses should only be used to present to people who are voluntarily interested in donating to a preschool, but they should not be used to justify taxpayer spending.

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