Wednesday, February 03, 2010

How much can the government afford to pay to create jobs? Per job? 

The Obama Administration's agenda has become "jobs, jobs, jobs, cut the deficit, jobs, cut the deficit, jobs, cut the deficit" ... since the populist rising of right-wing... independents and centrists in Massachusetts killed Obamacare. All you have to do is consider the State of the Union Address to see that.

These two priorities -- increase deficit spending to create jobs, while cutting deficits from their staggeringly high, unsustainable levels -- seem to be in self-evident conflict.

Yet Obama and some economists will tell you they aren't. They'll tell you: "increase deficits now to boost job creation until unemployment falls, then cut the deficit later."

Well ... maybe.

The problem is: Can we afford to increase deficits now, even to create jobs? Will it pay off for us? Or is it a short-sighted, cost-inefficient policy that for a small gain (before this fall's election) will make our bigger, long-term problem much worse, to our ultimate regret?

If the U.S. had only a modest national debt to begin with, sure, we could afford to add some billions to it to increase employment today -- even if in an inefficient manner.

But the US's debt, including its accrued unfunded liabilities for Medicare and Social Security, already was well over $64 trillion going into 2009! And its future debt course is already so unsustainable that -- if it isn't addressed soon -- the credit rating of the US will start falling within the next several years, Fitch, Moody's and Standard & Poor's all warn.

With such problems ahead, can we afford to make the future even worse for gains today? Of course, that depends on the size of the gains today compared to their cost.

The multi-trillion-dollar question: Can the government create jobs cost-efficiently to make the overall economic situation of the U.S better in total, instead of worse? This is an empirical matter, so let's look at some numbers.

[] The average wage in the US is about $42,000 per year, says the BLS.

[] Last year, the Obama Administration predicted that its $787 billion stimulus package would create 6.8 million "job years" of employment -- a cost of $115,735 per job year. That's almost three times the wage of the average job, its benefit to the employee.

[] Today -- as per Keith Hennessey quoting the White House on its new plans -- CBO says (.pdf) the "most effective way" to spur employment is a jobs tax credit that rewards employers for making new hires "at a cost of $111,000 to $200,000 ... per new employment-year". That is near triple-to-near quintuple the wage of the average job, the benefit to the hired employee.

And that is the most effective jobs creation policy -- the Administration's proposals include several other less effective programs.

Let's give the benefit of the doubt to the Administration's and CBO's "job creation" estimates so far (in spite of the consistent over-optimism of their projections to date), and also assume that the jobs created on the whole pay as much as the average wage (even though pay for marginal workers is likely to be less.)

We can then say, conservatively, that the "jobs creation" proposals on the table today will cost taxpayers -- and add to the national debt -- at least three to five times the value of the jobs created to the workers who get them. (Probably more.)

Is paying three-to-five times the value of each job created a good deal? Can we afford it? How much of it can we afford?

You decide.