David49
Do you not understand that all the money spent in the NHS has a multiplier effect of about 3 in economic activity?
OK, justify that not with flannel with actual figures
Well David, my short answer is that I can't because I'm not an economist or a mathematician. I repeat what economists say about the multiplier.
So I went to that useful tool, Chatgpc and asked how it was worked out.
Reply was this:
Let’s go step by step through how economists reach the conclusion that government spending on the NHS can have a multiplier of about 3.
🧩 1. Start from the theory: the Keynesian multiplier
The Keynesian spending multiplier measures how much total national income (GDP) changes when autonomous spending — such as government spending — changes.
The theoretical formula is:
𝑘
=
1
1
−
𝑀
𝑃
𝐶
(
1
−
𝑡
)
+
𝑀
𝑃
𝑀
k=
1−MPC(1−t)+MPM
1
where:
MPC = marginal propensity to consume
t = marginal tax rate
MPM = marginal propensity to import
The intuition:
Each time someone receives new income, they spend part of it (MPC) → that spending becomes someone else’s income → repeat.
But part of the income is lost each round through savings, taxes, and imports.
🧮 2. Use realistic values for NHS-type spending
Empirical research and UK data suggest the following rough values for lower- and middle-income earners (like many NHS workers):
ParameterTypical valueReason
MPC0.8–0.9NHS staff spend most of their disposable income
Tax rate (t)≈ 0.2Including income tax and NI
MPM0.05–0.1Most NHS-related spending is domestic (food, housing, services)
Plugging these into the formula:
𝑘
=
1
1
−
0.85
(
1
−
0.2
)
+
0.05
=
1
1
−
0.68
+
0.05
=
1
0.37
≈
2.7
k=
1−0.85(1−0.2)+0.05
1
=
1−0.68+0.05
1
=
0.37
1
≈2.7
That’s very close to 3.
So — in simple terms — each £1 of NHS spending could generate roughly £2.7–£3 in total GDP, depending on the leakages.
📚 3. Use empirical and policy evidence
Economists don’t rely only on theory — they look at real-world data and studies.
Some research findings:
IMF (2014, 2020): Fiscal multipliers are larger (2–3×) during recessions or when monetary policy is loose.
UK Treasury and OBR studies: Public sector wages, healthcare, and education spending tend to have higher multipliers than infrastructure or tax cuts.
OECD studies: Labour-intensive, domestically focused sectors (like health) retain most of the spending within the national economy.
This supports the empirical claim that health spending can have a multiplier in the region of 2.5–3.
🧠 4. Apply logical reasoning to the NHS case
Here’s the reasoning chain:
Government injects £1bn into NHS (no offsetting cuts).
NHS spends this almost entirely within the UK economy (high domestic content).
NHS employees are mainly middle and lower earners → high MPC.
Their spending circulates in local communities (shops, services, housing).
Little leaks out through imports or savings → the process continues through many rounds.
Cumulative GDP impact ≈ 3× the original injection.
⚖️ 5. Important assumptions
The economy has spare capacity (so output can rise rather than prices).
The spending is additional, not offset by tax rises or cuts elsewhere.
Interest rates don’t rise to “crowd out” private spending.
When these hold — as they often do during sluggish growth or high unemployment — multipliers are largest.
✅ Conclusion:
Economists reach the conclusion of a multiplier of about 3 for NHS spending by combining:
Theoretical multiplier formula (with realistic parameters),
Empirical studies showing high health-sector multipliers, and
Reasoned analysis of spending patterns and leakages.
Apologies to all that it's so long but the equations don't reproduce well.
