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Obama’s Job Plan Does Not Make Sense

As a public service we present the introductory remarks from the latest tablets handed down by the President Select (a pdf file):

(Click to enlarge)

The Job Impact Of The American Recovery And Reinvestment Plan

Christina Romer, Chair – Nominee – Designate, Council Of Economic Advisers

Jared Bernstein, Office of the Vice President-Elect

January 9, 2009

A key goal enunciated by the President-Elect concerning the American Recovery and Reinvestment Plan is that it should save or create at least 3 million jobs by the end of 2010. For this reason, we have undertaken a preliminary analysis of the jobs effects of some of the prototypical recovery packages being discussed. Our analysis will surely evolve as we and other economists work further on this topic. The results will also change as the actual package parameters are determined in cooperation with the Congress. Nevertheless, this report suggests a methodology for ensuring that the package contains enough stimulus that we can have confidence that it will create sufficient jobs to meet the President-Elect’s goals.

This report also presents some discussion of the trade-offs involved in choosing different elements of the package. For example, how do tax cuts, fiscal relief to the states, and increases in infrastructure spending compare in terms of jobs created? Similarly, how do the different types of spending differ in terms of the timing of the jobs they will create? The report also discusses the types of jobs that will be created and the possible demographic composition of the workers who will find jobs as a result of the stimulus.

We reach several key preliminary findings:

A package in the range that the President-Elect has discussed is expected to create between three and four million jobs by the end of 2010.

Tax cuts, especially temporary ones, and fiscal relief to the states are likely to create fewer jobs than direct increases in government purchases. However, because there is a limit on how much government investment can be carried out efficiently in a short time frame, and because tax cuts and state relief can be implemented quickly, they are crucial elements of any package aimed at easing economic distress quickly.

Certain industries, such as construction and manufacturing, are likely to experience particularly strong job growth under a recovery package that includes an emphasis on infrastructure, energy, and school repair. But, the more general stimulative measures, such as a middle class tax cut and fiscal relief to the states, as well as the feedback effects of greater employment in key industries, mean that jobs are likely to be created in all sectors of the economy.

More than 90 percent of the jobs created are likely to be in the private sector. Many of the government jobs are likely to be professionals whose jobs are saved from state and local budget cuts by state fiscal relief.

A package is likely to create jobs paying a range of wages. It is also likely to move many workers from part-time to full-time work.

It should be understood that all of the estimates presented in this memo are subject to significant margins of error. There is the obvious uncertainty that comes from modeling a hypothetical package rather than the final legislation passed by the Congress. But, there is the more fundamental uncertainty that comes with any estimate of the effects of a program. Our estimates of economic relationships and rules of thumb are derived from historical experience and so will not apply exactly in any given episode. Furthermore, the uncertainty is surely higher than normal now because the current recession is unusual both in its fundamental causes and its severity.

A. Aggregate Jobs Effects

Estimating the aggregate employment effects of the proposed American Recovery and Reinvestment Plan involves several steps. The first is to specify a prototypical package. We have assumed a package just slightly over the $775 billion currently under discussion. It includes a range of measures, all of which have been discussed publicly. Among the key components are:

Substantial investments in infrastructure, education, health, and energy.

Temporary programs to protect the most vulnerable from the deep recession, including increases in food stamps and expansions of unemployment insurance.

State fiscal relief designed to alleviate cuts in healthcare, education, and prevent increases in state and local taxes.

Business investment incentives.

A middle class tax cut along the lines of the Making Work Pay tax cut that the President-Elect proposed during the campaign.

A second step is to simulate the effects of the prototypical package on GDP. We use multipliers that we feel represent a consensus of a broad range of economists and professional forecasters. Our particular multipliers for an increase in government purchases of 1% of GDP and a decrease in taxes of 1% of GDP are given in Appendix 1. They are broadly similar to those implied by the Federal Reserve’s FRB/US model and the models of leading private forecasters, such as Macroeconomic Advisers.

The final step is to take the effect on GDP and translate it into job creation. Not all of the increased output reflects increased employment: some comes from increases in hours of work among employed workers and some comes from higher productivity. We therefore use the relatively conservative rule of thumb that a 1 percent increase in GDP corresponds to an increase in employment of approximately 1 million jobs, or ab out three-quarters of a percent. This has been the rough correspondence over history and matches the FRB/US model reasonably well. The effect on jobs using the estimates from most private sector forecasting models would be somewhat larger. We look at the effects in 2010Q4, which is the end of the two -year period that is the focus of the recovery plan…

(Click to enlarge)

You can read the rest of this highly dubious 14 page report by downloading the pdf.

To our mind it only raises several obvious questions.

First, how will it help the economy to pull even more money out of the capitalist system and give it to the government to dole out in its fashion?

Second, if the current financial problem is that capital (credit) is so tight, how will this be improved by the government sucking up even more of our limited capital?

Lastly, figuring that these 3, 500,000 jobs are currently estimated to cost $775,000K for two years – then each job then will cost about $110, 000 per year.

How many construction, retail or hotel jobs pay $110,000 a year?

Where is the rest of this money going?

This article was posted by Steve on Saturday, January 10th, 2009. Comments are currently closed.

23 Responses to “Obama’s Job Plan Does Not Make Sense”

  1. Colonel1961 says:

    Overhead, general & administrative, profits, etc. can typically be 100% of the cost of a salary. Said another way, if someone was making $50K per year, the business would have to charge $100k (directly or added on to the cost of goods sold) for their annualized service.

  2. bill says:

    Yes, as failed President FDR found out, government make-work jobs have the same terminus, the unemployment line. You only put off the point in time where that happens depending on how high you push the debt.

    Do you notice that Obama doesn’t seem to think you heard what he said yesterday? Probably works for the Junta in Indonesia, but not in the USA. He just goes on like yesterday’s speech never happened. Most people would say he is ;iying, or even politley, it’s just like, ya Know, jive talk.

  3. wardmama4 says:

    I think that The One’s ™ only goal is to ‘appear’ to be doing something (even if it neither works nor makes things worse) as long as it can last, about 8 years (he probably is arrogant enough to imagine another term). I think The One ™ will be lucky (most especially with the Blago ‘sitatution’) to make it through 4 years and I do believe that his adminstration will make Carter’s look absolutely stellar.

    The only up side of this – is that unlike FDR securing the Dems for 40 years – with the disaster The One ™ will create, cause and be part of (aided and abetted with Pelosi, Reid, Frank, Dodd, Murtha and of course Franken) – will insure that the Dems don’t get power for a long, long time again.

  4. retire05 says:

    We hear a lot about how the economy is so bad, yet the candidate who broke records in contributions, and is STILL begging for contributions, doesn’t seem to have a money crunch. If people are so broke where is all His money coming from?

    Let’s take just one suggestion from Congressman Louie Gommert’s tax holiday recommendation and put it into real terms:

    the federal government give Dell Computers a $5 million tax break for three years. In return, Dell is required to expand it’s operations. Now Dell already has electronic gurus working for it, so the government recommends that in return for the tax break, Dell starts building LCD TVs at a price comparable to Vizio (you can buy a 47″ Vizio for $895 @ Walmart now).

    Dell then takes it current facility, and adds on to it. It not only gets a tax break of $5 mil, it gets to write off it’s new constrution which is creating jobs in the entire construction sector. When the TV facility is complete, it then creates new jobs building Dell TVs. The city where Dell is located gets tax revenue from property taxes. The new employees pay income taxes. The city/state also gains in sales taxes from the salaries that are spent on goods and services. A product, that competes with foreign made TVs is now available to American consumers. The less American dollars going to foreign nations, the more that money is flowing in our own economy. Money flowing through the economy creates greater economic security. And the gravy in the whole deal is that as Dell’s profit increases, so does the stock and the dividend return to those who invested in Dell, and that spells out to a whole lot of 401K plans that have invested in Dell seeing better returns. It’s a win, win situation.

    To offset the tax break to Dell, which is producing a product, providing jobs, and stock market increases, the federal government could cut subsidities to groups like Planned Parenthood and AARP, both 501(c)3s that make a profit. There is no need to subsidize organizations that are profit making.

    Do this all across the nation. Have John Deere make small, cost efficient lawn mowers that can compete with the foreign market lawn mowers. I think you get the point.

    Economic health can be acheived by allowing the free market to operate without government interference. And if part of our economic crunch is that so many of our American dollars are going off shore, create incentives to make our markets more competitive.

    Also, let the taxpayer keep more of their earnings. Giving money to the federal government only means that over half that money will be eaten by bureaucratic red tape and government offices. If a worker gets another $25/per pay check due to a tax cut, he is not going to give $12.50 of it to someone to spend for him.

    • GuppyNblue says:

      “The city/state also gains in sales taxes from the salaries that are spent on goods and services.”

      And all taxes that come with the different stages of production. Harvesting raw materials, shipping, manufacturing, etc. It’s been shown over and over that lower taxes actually generate more tax revenue. But a simple mind couldn’t grasp such a thing – and then they have their politics too. Capitalism is the market left to act naturally. Socialism is political pandering that leads to economic poverty.

  5. GuppyNblue says:

    “We have assumed a package just slightly over the $775 billion currently under discussion.”

    This liberal idea of creating jobs with debt is dishonest, lazy and unsustainable. And it’s at a time when the Chinese are losing their appetite for US debt purchases. IMO, the best case scenario is Obama, like FDR, prolonging the slump. I think it could be worse this time around though.

    • pinandpuller says:

      I pay my gardner and personal chef with cash advances from my Visa card, what could go wrong?

  6. Lipstick on a PIAPS says:

    This plan makes PERFECT sense. It’s about money and power, NOT about helping main street. Ya think these private plane, limousine liberals give a flying reproductive act about the snot nosed unwashed masses who just voted for them?! LMAO

  7. BigOil says:

    What’s most notable to me is the original chart line that shows the unemployment level returns to 5% without any government intervention – proving the free market system (aka capitalism) works fine when left alone.

    SG – You will be able to pull this graph back out before the midterm elections to show that Obama’s stimulus plan will have failed to meet these dubious projections.

  8. proreason says:

    Words just words.

    There is a perfect test case for this nonsense, and it’s called the Great Depression.

  9. pinandpuller says:

    It looks to me like the Presidency is a make-work job for Obama.

  10. Shockedandawed says:

    The rest of the money goes into raw materials. Or does concrete and gas come for free nowadays?

    Nevertheless, this week we are seeing the first indications that European politicians are starting to comment on the exploding national debts in public. Mr. Obama is not there yet. It is time for our political leaders to start explaining us where they see the exit. There seems to be a thin line between the American Dream and self-deception.

    I’ve read an interesting related article on Crunchreport.com.

  11. 1laidbackRN says:

    This “job plan” is pure bunk. Any real plan would have some pretty solid figures on the amount of people it would actually employ. This plan seems to leave the employment numbers up to the writers imagination. I have seen numerous articles on this “plan” over the past few days and the numbers range from 2 million to 4.1 million. Come on Obama, you can’t just determine the number of people this will employ by the unemployment rate. We already pay enough people not to do anything. It’s called welfare….

  12. ptat says:

    I just can’t get past the fact that any real job growth, now and planned, is in the government. More evidence that we are going socialist. Soon, we will be paying 80% in taxes and 80% of the workforce will be with the government. This has got to stop!

  13. Chinnubie says:

    More than 90 percent of the jobs created are likely to be in the private sector. Many of the government jobs are likely to be professionals whose jobs are saved from state and local budget cuts by state fiscal relief.

    So why do we need to spend this money we DO NOT have because they obviously realize the private sector creates jobs NOT the guvment!!!!!!!!

    • proreason says:

      Because the plan will impose a tax burden on the entrepreneurial class that will insure they can never challenge the aristoracy again.

      The Kennedy’s are secure for another 50 years in their fiefdom.

  14. JohnMG says:

    ……”How many construction, retail or hotel jobs pay $110,000 a year?

    Where is the rest of this money going?…….”

    Down a black hole somewhere…….probably in Northern Illinois!

  15. proreason says:

    The huge flaw in any government job-creation plan is that central planners cannot predict what kind of jobs should be created. It has been proven over and over again that free markets are much better at allocating resources than Harvard eggheads.

    And since the package is politically driven, it will create mostly jobs that adhere to the Liberal vision. But if those jobs were useful, they would already have been created. Since they will not be useful, for the most part, the jobs will be make work.

    If the money was put back into the economy through tax cuts, temporary or permanent, then businesses would create jobs that the country needs.

    These packages, as John Stossel said yesterday, are the height of arrogance.

    But Stossel is assuming the architects mean well. It is more likely that the architects know full well that what they are doing has marginal usefulness. What they care about is a) satisfying the Liberal base, b) increasing the size of government to increase their own power, and c) destroying the entrepreneurial class with a tax burden that can never be overcome (“deficits in the trillions for years”), which in-turn insures that the 2-class society will be permanent, with them as the ruling class.

  16. Al Morone says:

    The BLS reports that the real Dec. 2008 unemployment rate (U-6) is 13.5%, not 7.1% that is reported by the media (the “official unemployment rate”).
    And, by definition, unemployment in double digits is defined as a “depression,” not a “recession.”
    Not good, folks.

  17. Confucius says:

    The graph is hilarious.

    It says the unemployement rate will end up the SAME with or without The Recovery Plan by 2014. Doesn’t this mean The Recovery Plan isn’t necessary?

    It also suggests PeBo thinks a 2-point spread is worth $775 billion dollars. I’d like to be his bookie.

  18. proreason says:

    “The BLS reports that the real Dec. 2008 unemployment rate (U-6) is 13.5%”

    In addition, unemployment is reported differently now than in the Depression. We don’t count people who are “discouraged workers” (pimps, prostitutes, criminals, welfare queens and liberals living in mommy’s basement…..nobody else can afford to be “discouraged”, since they would starve to death).

    There are reports that on an apples-to-apples basis, current unemployment is 16-17% vs a regular 25% in the Great Depression. I can’t confirm that, but there is no doubt that the current unemployment % is greater than it would be if reported with the method from the 1930’s.

    But there is a silver lining……Obamy says he will “create” 4 million new jobs building windmills and moving piles of dirt around by putting you in debt for a mere $10,000 per taxpayer. I would say “How generous of you!!!”, except that you will probably pay much more than that…..plus interest….plus whatever damage out-of-control inflation will cause.

  19. BillK says:

    Just as a step back, how, exactly are all these skilled labor Union jobs in construction to be filled?

    No matter how much money you inject into the economy, you don’t create thousands of new construction employees overnight.

    The most fun will be to see how many lawsuits the greenies file over the very projects Obama wants to get going.

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