8.13.2011
Today's Stimulus Rant
That some among the Blawgconomics' contributors are not big fans of stimulus packages (particularly any that begin with 'QE' and end with a number) is no secret to regular readers. No matter how hard we try to view flooding markets with liquidity positively, the numbers just never seem to add up for us. Yet another example of the scales being tipped wildly toward the 'stimulus wasn't worth it' side of the equation came to our attention this week. Though we are aggressively in favor of green technological development at Blawgconomics (with too many examples to link to), $2 million per job, no matter how green it may be, will never add up for us...
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The article is missing a fee jobs. The factory added 150 jobs. But what about the jobs added by suppliers to the factory? What about the jobs added at retailers where 150 newly employed people shop? What about the jobs added at doctors' offices where 150 newly insured families bring children for healthy child checkups?
ReplyDeleteAn what about the 150 jobs that they still have next year, and the next, and so on? The was a one-time investment that built a factory and shipping facilities. For one year, it's inefficient. But amortized over the length of the factory's existence, this is surely less than 2 million per job.
I'm reminded of an explanation of why it makes sense for the Mint to make dollars, though it costs more than a dollar to make one. The thing about a dollar is, it stays a dollar. Use it to buy an apple, and the apple gets eaten but the doar remains. It's then used to buy apple seeds, and the seeds get planted but the dollar remains. That's then used to pay wages to a worker who packs the apple seeds, who uses it to buy a pear ...
My point is that, while not every dollar from they rant was spen on wages, as opposed to WPA make-work programs, it was a one-time cost that created self-sustaining jobs. If they're not self-sustaining, the economics will look differently than if they are. But attempting to invest one-te grants in self-perpetuating private employers is potentially more efficient than WPA-style male-work programs (of which I'm also a fan, but that's a different argument).
Thanks for the comments.
ReplyDeleteWhile I agree that investment in private employers is probably both more efficient in the short-term, and more beneficial in the long-term than make-work programs, I think I have to disagree on how much of a multiplier effect this kind of stimulus has.
Even if twice as many jobs as the 150 are ultimately created, that is still $1 million per job. No matter how long the jobs last, and no matter how far you amortize that out, the numbers just don't make sense to me.
Such an argument, of course, also entirely puts aside the idea that public tax dollars are going directly into private investment, which in and of itself is objectionable to many.
However, even if you don't find this kind of strategy to be incompatible with a free market approach to micro-economics, the fact remains that more money is being spent on each job at that factory than each one of those workers is making and therefore spending in the economy. Such a strategy is necessarily inflationary, devalues the dollar and adds to a debt which just lost the US its AAA rating. That is poor policy in my book.
I agree we should put aside the issue of public investment in private enterprise, since that wasn't an objection in your original post. I also agree that it devalues the dollar and adds to the debt. Some smart guy--name started with "K"--told me that's okay.
ReplyDeleteI'll also agree that we can call it a million dollars per job for today (assuming 150 "other" jobs created). But when the factory succeeds, won't it hire more workers? So maybe it's $500,000 per job over ten years, when total jobs created doubles as the business succeeds and expands. That's $50,000 per year, per job. And we're not done, because the jobs persist and the investment stays the same. So over the next decade, maybe it doubles again. Now it's $12,500 per worker, per year (because both the workers and the time horizon doubled), after twenty years. Those numbers don't work for you? How about over thirty years? Fifty?
I think you can agree that numbers won't make sense to you if you genuinely don't want them to make sense for you. But to my eye, the government borrowed money and pumped it into the private economy, which is precisely what it should do in a recession.
Finally, in this case the cost per job is a result of dual policy goals - i.e., the President wants not just jobs but also green energy. These justified additional spending per job in the eyes of the current administration. So, not just 150 jobs, but a cleaner planet. And if we calculate dollars per carbon emission reductions, we have to amortize that over the, say, the life of the Earth, which makes any price look like a bargain.
Okay, you caught me...a personal aversion to the policy behind and practical application of the stimulus package leads me to really dislike it when I see numbers like this (anyone who has been following this page for a while knows that my aversion to stimulus in general, and QE2 in particular, is no secret).
ReplyDeleteIt might even be a case of 'confirmation bias' where not liking quantitative easing has led my roving eye to settle upon the juiciest of headlines produced by an all too willing media.
However, putting my admitted biases and negative feelings, I think I can still push back against your very well stated follow up without too much heavy lifting...if we disagree then, maybe we will just need to agree to disagree...
Let's focus on the time horizons you use. First off, I disagree that it will create twice again as many jobs over the next decade. It is likely fully staffed now, and with over 10% unemployment in the area, people are not likely to leave soon. However, even if it does, the costs you state do not factor everything in. You brought up the concept of amortization in the first comment.
Using that concept, the plant will be amortized out in, I believe, 25 years under the least aggressive schedule (someone can check me there, I just did a quick IRS search so I might be missing something). So let's put a 25 year cap on the plant. We also need to consider the interest rate on the debt taken out by the US to provide the grant.
I forget exactly where we are by now, but I hope you can agree that it isn't just a matter of dividing a few times to find the cost per job over the long term. Now, you still may believe that the cost is worth it. And I think you made a very defensible and respectable argument of that point. Therefore, this might just be where we agree to disagree...
That said, I would certainly agree with you that the $2 million I quoted in the post itself doesn't include long-term or subsidiary benefits of stimulus, which is, of course, one of the main goals of such a program. Color me biased for not noting that at first I suppose.
As for the green goal, I can again acknowledge that this is worthwhile.
However, first off, Johnson Controls is not some new start up on the cutting edge of battery technology. It has been around since 1885. And though it was hugely impacted by the same issues that have plagued the American auto industry that it supplies, it should be the kind of company that can build a new factory if it believes that doing so is a good business move.
Further, and I can say this with confidence after publishing work on the topic, there are much much cheaper things that could be done by the administration to meet its green goals. From production tax credits to changing the infrastructure rules, there are many steps that could be taken to put a charge into the green industry that are more cost effective (check out some of our S-REIT posts for more).
Thanks again for the comments...