Wednesday, July 14, 2010

Adventures in arithmetic

Or Eating soup with a fork.

The administration is now claiming that the $862 billion stimulus package has created or saved between 2.5 and 3.6 million jobs.

Lets suppose this is true and do some arithmetic.

Lets assume that 3/4 of the 862 billion has been spent, and the number of jobs is in the middle of the range, say 3 million (that should prove I'm an economist, eh?).

Remember these jobs are not permanent, they are "job years".

So, 862 billion x .75 / 3 million = $215,500 per job year!

Wow.

Nice work guys. See you in November.

20 comments:

Anonymous said...

Wow! That's eating soup with a toothpick...

Anonymous said...

This estimate is consistent with the number that Russ Roberts at Cafe Hayek comments on regarding Oakland police officers. The average salary (+ benefits) for Oakland officers is $188,000.

David said...

Nice deficit coverage over at EconBrowser

http://www.econbrowser.com/archives/2010/07/a_comment_on_ke.html

The only thing worse than the Democrats, I'm afraid, is what the Republicans are likely to do.

I'm thinking of maybe moving to Greece

Unknown said...

Not all of the money was spent on labor. Why are you including the money spent on materials as labor costs?

Why did you apply all of the (nearly) 40% of the stimulus that was tax cuts to labor costs?

The number you calculated is meaningless without these (and other) adjustments.

Do you really think this proves you're an economist?

Angus said...

Mark: the "proves I'm an economist" remark refers to casually making assumptions and was meant as humor.

Feel free to kick me out of the club though.

But you know full well that the methodology used by the administration to count these "job-years saved" is NOT only applied to money directly spent for labor costs. Tax cuts are projected to "save or create jobs" too.

I think my number is a very long ways away from meaningless.

In fact, go ahead and cut in in half if you like and you still are not very close to using a spoon to eat that soup.

Angus said...
This comment has been removed by the author.
Anonymous said...

I'm sorry, ... did somebody say that getting us out of this mess that greedy business caused, would be cheap?

Anonymous said...

I agree, it IS a lot easier to smugly and smirkingly criticize the people who are trying to help, than to actually help. Keep up the razor-sharp analysis guys....

John Covil said...

Well now hang on a minute, Mark. Isn't the entire point of Keynsian stimulus to boost aggregate demand by putting people to work? The benefit of the stimulus was to be found primarily in how many are employed. So whatever was spent on the labor costs directly and what was spent on the cost of what went into the work that was done hardly matters.

Sure there's likely some value to be found in the actual projects themselves. But given that these were jobs that, by definition, state or local leaders may have wanted but never felt were worth the costs when they had to accurately account for said costs themselves, there's probably a fair amount of make-work to be found. Tack on to that the malinvestment incurred, and you're probably better off just looking at the jobs.

But really, the Obama Administration is confusing cause and effect, from a Keynsian perspective. All these people put to work were the spark that was supposed to raise aggregate demand and then cause the economy to sputter to life generally, and without further resuscitation. Which I guess raises the question. Is this number of jobs supposed to represent just the jobs directly created by the stimulus? Or is that number supposed to represent the number of jobs that were brought into being (or saved) because the original set of people were put to work, thereby boosting demand?

If it's the former, then, where are the follow-on effects? If the latter, I'd like to know how we arrived at the number, and what assumptions were utilized in doing so (eg. multiplier effect values).

Michael Ward said...

Interesting that anonymous above thinks that business greed has been tamed, that business greed can be tamed, and, more fundamentally, that business greed is a problem.

eightnine2718281828mu56 said...

How many jobs you get by giving the free market $300 billion:

ExxonMobil

2009 revenue: $310.58b
2009 employees: 79,000


So $310billion / 799000 = $3,887,108 per job year!

Wow.

The stimulus produced 18 times as many jobs as a private sector entity.

Not bad!

eightnine2718281828mu56 said...

typo; 79900, not 799000.

http://en.wikipedia.org/wiki/ExxonMobil#Revenue_and_profits

aub said...

89... said:

"So $310billion / 799000 = $3,887,108 per job year!

The stimulus produced 18 times as many jobs as a private sector entity. "

The federal government had a 2009 budget of $3.1 T and about 4.3 million employees, which means about $700k per job year.

89... has one way to look at it - the government can create more jobs with less money.

Another is that the productivity of government employees is much lower than free market employees.

But, considering both 89... and I use a sample of 1, there's nothing here but anecdotal evidence.

John Covil said...

If there's such a thng as anti-sense, 89's post makes a lot of it.

eightnine2718281828mu56 said...

---
If there's such a thng as anti-sense, 89's post makes a lot of it.
---

You've achieved rhetoric in its purest form: unsullied by facts. Congrats!

John Covil said...

Thanks, I aim to please.

But if you want some more, let's start with the facile comparison. Not so much apples to orange as apples to hand grenades. I suppose they're both round.

When I give Exxon money, I get gasoline in return. From my perspective, this is why they exist. In fact, every single time I've given them money, I've gotten exactly as much gas as I expected in return. I consider this a success. Maybe I pay more than I'd like (or always do -- if they gave it away free, I'd take it), but my utility in trading away dollars is increased because I value the gas more.

From Exxon's perspective, they exist to create wealth for their shareholders, as is their rational, legal and moral responsibility. When they get more money from me than they're willing to hold their gas for, they've succeeded. They're not always great at it, being a human enterprise. Perhaps some are vile and sneaky. Some there might actually wear monocles. But to the extent that the market is operating competitively, they are punished if they do fail. It never perfectly is competitive, as government like to meddle - and don't ever think they do so to help the consumer more often than not.

Anyway, you'll notice that in all of that, no one's goals are in job creation. One of the good things about competitive markets, and also darn near every other human endeavor (for better or worse), is that intent and outcomes are not held in lockstep. Self interest is utilized to drive resources to their greatest efficiencies with the information conveyed by prices. This creates a tremendous amount of wealth for all involved. And it does so peacefully, without coercion (or else it is not, by definition, a free market).

Contrast that with the aim of the stimulus. Its aim is to create jobs. It wants to force these jobs into being through the mechanisms of the magical multiplier. So you have confused the goals which the two actors are trying to achieve.

But that's ok, let's say your main concern with the world is the amount of jobs available. Of course, this is a worthy interest. And by your arithmetic, one company out there took in a lot of money, and didn't create jobs at even the rate the stimulus program (claims it) did. But you're only seeing what is obvious and staring you in the face. You haven't traced out what happened to a lot of that wealth that was generated when I filled up my car today (lie: I didn't fill up my car today, and last time I did it was at a Shell station). There's the wealth I received by being able to drive my car down the road. And getting to work and providing a service of value to my employer, increasing his wealth. And getting to the store and restaurants, etc. And there's the wealth generated for the Exxon shareholders. Wealth invested in other businesses hiring other people, used by retirees to buy golf clubs, or used by a bank to loan to some new start-up.

If you think that the act of my buying gas from Exxon only produces jobs for the employees of Exxon, you're being quite myopic. As Frederic Bastiat pointed out, being an economist means taking into account all the effects of our actions, whether they are diffuse or distant.

eightnine2718281828mu56 said...

---
There's the wealth I received by being able to drive my car down the road.
---

And if the stimulus money produced that road...?

eightnine2718281828mu56 said...

(setting aside for now the fact that you derive utility, not wealth, by driving down the road)

John Covil said...

If you'd really like to argue that the stimulus projects are worth the money in terms of the value of the projects themselves, then go ahead. That's never been the point, of course, of the stimulus, which was almost admitted to be make-work.

kyle8 said...

If any but a tiny fraction of the so called stimulus had actually been spent on infrastructure then maybe your critics would have a point.

But the reaility is that is was nothing more than a collasal slush fund for the Democratic machine to bestow taxpayer goodies on all thier clients.

We will never be able to track most of that money.