A recent post in The Weekly Standard has claimed that the the jobs created by the Obama administration’s economic stimulus package have cost $278,000 each to create.
No, says the White House via USA Today, other expenses consumed by the stimulus render the $278,000 per job created figure incorrectly high.
While, as others have noted, it may be ultimately impossible to specify exactly how much any given job created by federal tax spending and borrowing actually costs to create, let us at least try to evaluate the effort.
If we simply discount The Weekly Standard’s figure of $278,000 per job created by 80% – a rather substantial if arbitrary discount – that yields us a figure of $55,600 per job created. Does that figure seem reasonable, that is to say, accurate? Is $55,600 per job created a good cost for us to pay federally, collectively, to produce a job that was otherwise not being created at the time?
Let us go further and take ten per cent of the original $278,000 figure: is $27,800 a good cost for us to pay collectively to produce a job that was otherwise not being created at the time?
What would be a good cost per job created that all might agree on?
While there are obviously deeper subtleties to be considered here – we are not exactly manufacturing jobs, like lollipops, on the assembly line of Government Jobs, Inc.; much of what we are talking about actually involves goosing the private sector into such job creation in various ways that, like any artificial stimulus, may or may not be good to the long term health of the system so stimulated – both sides in this dispute are touting “jobs created” as the index for measuring the success or failure of the actions taken.
So, as a taxpayer of good will who does not enjoy seeing your fellow citizens without useful, economically productive work (or even if you are not), what would be a good, fair average (understanding jobs will differ in nature) figure to spend collectively to create any given job that was otherwise not being created at the time?
H. M. Stuart
Alexandria
To answer this question, a proper cost-benefit analysis is in order, and that cannot take place unless the benefit can be measured in a validly similar way to the cost of the job creation.
Stipulating (actually agreeing, mostly) the assumption that such measurements may be difficult to impossible to acquire, the following hypothetical result should ensue: if the average cost per created job is $55,600 (I find that a reasonable guesstimate) and the average tax revenue generated by those jobs is (nothing up my sleeve) is $5,000*, the next question should be framed: Is 11 years a reasonable amount of time to break even on the investment?
* There are secondary effects from the created job, like sales taxes and other jobs being created because people are spending more money.
I guess part of the answer is philosophical. If times are very hard and unemployment high and one takes a Keynesian view that (to use his example) even burying money in Coke bottles for people to dig up is useful in that it stimulates the economy by giving people the resources to spend, then the question is not so much “how reasonable is a break-even time of X?” but “how important to us is it to have X jobs created?” After all, Keynes is well-known as advocating short-term deficit spending in such situations.
I’m not saying Keynesian economics will necessarily work right now–it’s debatable what, if any kind, will. Just pointing out that one’s philosophical assumptions precede even a cost-benefit analysis, since it matters how one even defines “cost” and “benefit”. One might define the benefit of jobs as so great that the break-even point is a secondary consideration.
Assuming you do consider the break-even important, it seems to me that you’d want to look at the multiplier effect. How much more revenue comes into government coffers as a result of money spent on goods and services and how much tax comes from the workers hired to supply those? Of course, as you said, it gets very complicated very fast, but it seems to me that you’e want to look a little deeper than just direct tax return per job created.
Broadly, I’d say that if the number of jobs created was fairly substantial, a ten-year break-even point wouldn’t be unfair. Of course, how “fairly substantial” is defined opens up a can of worms; but for an economy with somewhere between 10% and 20% un- or underemployment (depending on how define it, whether you count those who have given up and thus aren’t counted, part-timers, etc.), I’d say that even one or two percentage points overall would be worth it (I doubt any reasonable level of spending could create more than five percent, if that). It might cost a lot and take awhile to break even, but better for people to have money and more important to have it by actually working and not being on the dole or worse, than to have them wondering when the unemployment runs out or sending out résumés with no response week after week or hoping they can avoid losing the house and manage to feed the kids on a patchwork of part-timing it.
“if the average cost per created job is $55,600 (I find that a reasonable guesstimate) and the average tax revenue generated by those jobs is (nothing up my sleeve) is $5,000*, the next question should be framed: Is 11 years a reasonable amount of time to break even on the investment?” (FE)
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You seem to be presuming a ONE TIME cost here FE, where none is implied.
That net cost, be it $55,000, $28,000 or $278,000 appears to be an ongoing net cost.
A policeman or teacher may do vital work, BUT they COST X amount of dollars with an appx 50% return based on tax rates, amounting to a $50,000/year COST for each $100,000/year cop or teacher.
Such public sector jobs MUST be kept as streamlined (ie. as small a workforce as possible) in order that the private sector can grow.
We can only afford as many $50,000/year COSTS as our private sector revenues can support.
To date, NO country has ever succeeded in producing actual product (ie cars, oil, etc.) despite the USSR’s extensive government-run auto industry and the many government-run oil companies. Fact is government bureaucrats are NOT motivated to provide PRODUCT to eager consumers, but instead to produce as little product for as much compensation as possible. That’s why socialism’s command economy has NEVER worked, while corporatism DOES.
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“If times are very hard and unemployment high and one takes a Keynesian view that (to use his example) even burying money in Coke bottles for people to dig up is useful in that it stimulates the economy by giving people the resources to spend, then the question is not so much “how reasonable is a break-even time of X?” but “how important to us is it to have X jobs created?”
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Keynes argued that “creative destruction” stimulated economic growth, as much as does the production of any “value” (ie. the production of goods and services), as a city rebuilding after getting bombed out in a war.
That’s demonstrably false, as it fails to account for lost opportunity costs, the reduction in the standard of living due to reductions in real productivity (the production of needed goods, as that production is diverted to rebuilding), etc.
Make work jobs are ALWAYS a net cost because they produce nothing and their entire existence is a net cost passed onto others, either in the form of generational pass alongs via debt, or higher government costs via taxes, etc.
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“We seem to have no trouble accepting the fact that it costs private businesses money to “create jobs.” That’s why they keep asking for all those tax breaks. We are also willing to accept a calculation of “productivity per worker” that depends not only on the skill and diligence of the worker but also on how much money the employer (umm, that’s PRIVATE employer) puts into setting up the workplace. This is okay, we are told, because not only does it ‘create jobs’, it also produces goods and services that people want or need. Which (the Coke bottle example notwithstanding) is also true of government jobs.” (WS)
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Business ONLY creates jobs it needs to produce given products at a profit.
That way, goods and services are delivered to the consumer in the cheapest way possible.
What looks most cost effective, a private business buying the materials needed to make a specific good at the cheapest possible prices, then hiring labor at as low a price as possible in order to deliver the BEST value to a consumer (“the customer is ALWAYS right, so the worker must ALWAYS be wrong”), OR a government using well paid, lethargic government workers to mine the materials needed to produce a specific good, hiring the same sort of overpaid, menial factory worker to work in government plants to produce that same product?
In EVERY case, the private sector produces the goods and services BETTER (of higher quality) and CHEAPER (at a lower price).
When a cop or teacher gets $100,000/year in compensation and pays back $50,000/year in taxes, etc, the ONLY way to increase productivity there is to keep those workforces as small as possible. . .one rule of them is “Cut half again after they scream the loudest.”
The cost that government can most easily control is workforce size. . .and always the goal should “still smaller, and smaller still.”
WHY?
Primarily because government DOES NOT produce products that decrease our trade deficits or increase our GDP.
” “creative destruction”
I have always thought of that as the jobs destroyed as new technology or industries replace old ones. Buggy whip factories died off with the invention of the auto.
Steve
““creative destruction”. . . .I have always thought of that as the jobs destroyed as new technology or industries replace old ones…” (Steve)
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Progress and automation do NOT ultimately destroy jobs. . .they always increase both jobs and opportunities for entrepreneurs!
The number of buggy whip makers in the heyday of horse-driven transport wasn’t even a quarter of the number of people employed by the automobile industry that replaced it.
Automation and increasing industrialization and complexity ALWAYS produces more jobs, better jobs, more opportunities and more prosperity.
In using the term “Creative destruction” I’m referring to J M Keynes “Broken Window” viewpoint. John Maynard Keynes saw a vandal throwing a brick through a storefront window as “a good thing” because it resulted in a good deal of economic activity. He started off with the premise that the store owner, himself, was inconvenienced, but effectively unharmed, since that storeowner was insured. From there, John Maynard Keynes outlined a flurry of activity that Keynes believed led to a greater overall economic vitality, as from there, the insurer goes to work, the insurance company sends in the assessor and the assessor gets to work, after that, the glass maker, the window framer and the glazer all get work…and so on.
The key flaw is that Keynesianism makes no distinction between positive (productive) and negative (destructive) activity. That’s as absurd as someone observing two people in two different scenarios, in the first, seeing two people engaged in a cooperative, productive venture, while in the second, seeing the same two people observed in a brawl, rolling around on the floor throwing punches…AND making no real distinction between them, as in the second scenario, the emergency room doctors get work, perhaps the local dentist, as well as the police and court officers and eventually, defense attorneys all get to work. If the two combatants must buy new clothes and other items damaged in their brawl, even more economic activity is generated.
That failure to distinguish between positive/productive action and negative/destructive action is the real flaw of Keynesianism and why Keynesianism fails to realize that ALL productivity and creation is delivered by the private sector, as it’s produced by a combination of investors, entrepreneurial owners and workers who cooperate in producing all that.
Umm, no one claimed, including Keynes, that it ultimately destroys jobs or fails to create more jobs. What they are saying is that when capitalism works its best, it does destroy many jobs. As we find better more efficient products, the old ones disappear. Old trades disappear. 100 buggy whip makers disappear, 150 auto workers appear. However, there may also be an absolute drop in the number of jobs in a given industry. The agriculture sector employs a much smaller fraction of the population than it did in the early 1900s.
Beides numbers, there is a time issue. Workers may be dislodged very quickly due to technological change. It may take a long time to train workers into new jobs or it may take a while to create those new jobs.
Steve
“What they are saying is that when capitalism works its best, it does destroy many jobs. As we find better more efficient products, the old ones disappear. Old trades disappear. 100 buggy whip makers disappear, 150 auto workers appear. However, there may also be an absolute drop in the number of jobs in a given industry. The agriculture sector employs a much smaller fraction of the population than it did in the early 1900s.” (Steve)
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That’s a very practical advantage of Capitalism NOT a valid criticism of it.
And YES, pure free market Capitalism is NOT worker-friendly. . .”the customer IS always right,” in that view, making the worker “always wrong.”
Of course we don’t have Capitalism in the USA.
We haven’t had Capitalism here since 1912.
The Republican Party’s wealthy elite successfully instituted Corporatism in 1912 and we haven’t looked back.
Now Corporatism is very far from perfect, BUT it is more worker-friendly than free market Capitalism AND unlike socialism’s “command economy,” it CAN actually work in the real world.
How poor is the command economy?
back in 1974 when I was doing statistics in College, Ford’s profits were larger than the GDP of Albania. YIKES!
Of course, i could rework any set of numbers and make it appear as though Albania (“per capita”) is the most productive economy in the world! I wouldn’t do that, of course, though I could. . .and I know more than a few who sought to do exactly that!
You seem to be presuming a ONE TIME cost here FE, where none is implied.
JM, please have some respect for my word and phrasing choices. I’ve presumed nothing, and clearly marked my post with “hypothetical” and a perhaps obscure “nothing up my sleeve”. My example was deliberately simplistic.
In fact, I submit that a simplistic approach is the most appropriate one in light of HM’s original post’s tone. It is, after all, the defining principle in Congress where short-term blinders are part of the dress code and no one has the balls to press for long-term vision.
“…I’ve presumed nothing…” (FE)
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Presuming nothing then a job that costs $55,600 to create does NOT “break even” in 11 years, given that $5,000/year tax return from that worker.
Given the default position is a year-to-year cost, it is a “PRESUMPTION” to compute any projection based on a “one time cost,” as your hypothetical does.
While it is NOT a presumption to surmise costs as continuing and ongoing, it IS a presumption that’s as simplistic as presuming “given a perfect vacuum” in a physics experiment, to presume a “one-time cost.”
So given that fact, 11 X $55,600 = $611,600 is NOT offset by 11 years X$5,000 in taxes ($55,000). . .your numbers don’t add up EXCEPT as a presumption of an overly simplistic and unrealistic “one time cost” scenario.
We seem to have no trouble accepting the fact that it costs private businesses money to “create jobs.” That’s why they keep asking for all those tax breaks. We are also willing to accept a calculation of “productivity per worker” that depends not only on the skill and diligence of the worker but also on how much money the employer (umm, that’s PRIVATE employer) puts into setting up the workplace. This is okay, we are told, because not only does it ‘create jobs’, it also produces goods and services that people want or need. Which (the Coke bottle example notwithstanding) is also true of government jobs. They provide us with roads and bridges and hospitals and schools, and they implement our foreign policy, teach our children, and adjudicate our disputes. Can anybody give us the average amount it costs private business to create jobs? And what relationship, if any, does that cost bear to the average wage of the worker?
You also need to take into account the number of jobs lost or destroyed.