DOES GOVERNMENT SPENDING HAVE A MULTIPLIER?

I keep hearing that government spending has no multiplier effect on the economy, and I have wondered what is behind this so I started Googling around and found the following article from the Heritage Foundation (URL at the bottom). I guess my thought is that the reasoning is partially correct and partially wrong. First I'll start with what I think is at least mostly wrong:

And if the original $1.2 trillion in deficit spending failed to slow the economy's slide, there was no reason to believe that adding $200 billion more in 2009 deficit spending from the stimulus bill would suddenly do the trick. Proponents of yet another stimulus should answer the following questions: (1) If nearly $1.4 trillion budget deficits are not enough stimulus, how much is enough? (2) If Keynesian stimulus repeatedly fails, why still rely on the theory?

The problem with this paragraph is that the $1.2 trillion dollar deficit was not from NEW spending by the government,it was almost entirely because of a decrease in revenues by the government from decrease income and production due to the great recession. In other words, the government kept performing its old programs while the money to implement them decreased. After all, you would have to eliminate the ENTIRE Federal government as we know it (including the DoD) to eliminate the estimated deficit this year. The following paragraph, however, makes some sense:

Congress cannot create new purchasing power out of thin air. If it funds new spending with taxes, it is simply redistributing existing purchasing power (while decreasing incentives to produce income and output). If Congress instead borrows the money from domestic investors, those investors will have that much less to invest or to spend in the private economy. If they borrow the money from foreigners, the balance of payments will adjust by equally raising net imports, leaving total demand and output unchanged. Every dollar Congress spends must first come from somewhere else. This paragraph would be true if the wealthy, for example, spent the money comparable to what the government does. In other words, if the wealthy increased the number of homes they were building, say, to counteract an increase of government infrastructure spending (most on roads, so far, I believe). Thus a billion dollars spent on new houses by the private sector would probably have a multiplier equivalent to a billion dollars spent by the government on roads. Would that reality be this way. I've explained why it would not more than once on this blog. For a long version: http://stopcontinentaldrift.blogspot.com/2010/05/effectiveness-of-taxes.html.

In brief, much of the wealth of the wealthy is not invested in productive things for this country, and the sums invested in productive things does not increase significantly in a recession. It is not just I who have this reasoning, but Greenspan too worried that too much of the gain from the Bush tax cuts would be invested in bonds by the wealthy and the middle class in paying off debt. Suppose the wealthy increased their purchases of real estate in a recession when it can be purchased at fire sale prices? To what degree would this stimulate the economy. So far as I can tell it would be none or at least very little. After all, the amount of real estate in the country is constant. But I do agree that much of the stimulus money spent so far has been defensive, i.e. spent on preserving existing jobs of teachers, policemen, firemen, etc., and, therefore, preserved jobs rather than create new ones. But if this was not done, there would be considerable purchasing power lost to the economy. Would the wealthy have picked up not only the slack, but increased their spending on productive things? I sincerely doubt it. Thus I think the government spending does have a multiplier, more like Zandi's analysis: Mark Zandi of Economy.com has boiled down the government's influence on America's broad and diverse $14 trillion economy into a simple menu of stimulus policy options, whereby Congress can decide how much economic growth it wants and then pull the appropriate levers. Zandi asserts that for each dollar of new government spending: temporary food stamps adds $1.73 to the economy, extended unemployment benefits adds $1.63, increased infrastructure spending adds $1.59, and aid to state and local governments adds $1.38.[4] Jointly, these figures imply that, in a recession, a typical dollar in new deficit spending expands the economy by roughly $1.50. Others, I am sure feel differently.

http://www.heritage.org/Research/Reports/2010/01/Why-Government-Spending-Does-Not-Stimulate-Economic-Growth-Answering-the-Critics

Slightly modified from Investment Analysis Clubs/Macroeconomic Trends and Risks of Motley Fool