Via Greg Mankiw I see Steve Allen’s got a plan for jobs
The numbers [for the new stimulus package] are sobering: $233k per job for the payroll tax cuts and $350k per job for the infrastructure spending. And these jobs would only be around for the duration of the new stimulus package!
My plan for zero unemployment: There were 14m unemployed workers in August. The $447b stimulus package could be used to generate a check of almost $32,000 to each and every one of them. As a condition of receiving that check, they would be asked to work at some organization, for profit or nonprofit, for one year. These jobs would last just as long as the stimulus package and some of them would no doubt turn into real jobs. Isn’t this a plan everyone could support?
So there are few issues with this plan. I understand that Steve is being facetious, but I will deal with why you should take facetiousness seriously in a later post. For now, we simply will.
So part of the problem is identifying who these 14M unemployed workers are. We don’t actually count up the unemployed people in America. We sample people using a telephone poll and use that to estimate unemployment.
The other issue is monitoring whether or not they go to work at some job. So once you find all of these people then you have to create some administrative system to ensure that they are complying with the terms of this proposal.
The third issue is the potentially very low real return on labor. So, if they can pick any job there is a good chance they will pick some pointless job. So the return on the labor is really low.
Contrast this with a payroll tax cut. First, off even if it created ZERO jobs its still might not be a bad idea because the government is now earning positive spread on borrowing for taxation.
You would need to structure the re-tax appropriately but you could lower the total tax obligation of the US taxpayers by pushing taxes into the future. So, that’s like a win right there.
Then there is the immediate positive impact on credit constrained households. I am not talking multiplier at this point, I am simply suggesting that in a credit constrained environment the marginal utility of income can go very high. The condition that the discounted marginal product must be equalized across time may not hold.
Indeed, we should expect that it does not hold or else people would not be complaining about there being a recession.
Then on top of that you create jobs and lower unemployment. So you get all of these baseline benefits AND unemployment goes down. You are not simply buying reductions in unemployment.
Infrastructure spending is the same way but of course depends on your estimate of the marginal return to infrastructure. If its high then the double dividend is the same or greater than the payroll tax cut case.
If the marginal return to infrastructure is low then you will get less of a return.
But, in neither case are you buying reductions in unemployment.
I think some economists are mislead because a common analogy is used in thinking about protectionism. However, that analogy does not transfer to this case.
4 comments
Comments feed for this article
Sunday ~ September 11th, 2011 at 11:58 am
Curt Doolittle
THe libertarian in me hates this, but yes, you’re right. Zero payroll taxes for three years (that’s the maximum planning window for most businesses). And yes, it will work and it will not go through the state – so people will be happy with it.
Yes, some companies will use the money for debt reduction or increased balance sheets. but then, that will allow banks to LEND at the low end.
And we borrow cheaply to do it.
Sunday ~ September 11th, 2011 at 4:58 pm
rjs
so you hire 14 million to sweep the streets…
who pays for the brooms?
Sunday ~ September 11th, 2011 at 7:31 pm
Rick
What if the workers still aren’t employable at 6.2% lower cost to employers? What if they are mostly ZMP-ish? Can we then just abolish the minimum wage, abolish unemployment insurance and expand EITC by $447 billion?
Thursday ~ September 15th, 2011 at 9:51 am
Boonton
The problem here is clearly twofold:
1. Missing the difference between jobs and income. Imagine a hot dog vendor. Before the recession his income was $40K. Now he is making only $12K, his family is on food stamps. After jobs bill he starts making $35K because workers occassionally eat more hot dogs at lunch now that they have less payroll taxes coming out….not quite all the way back but now he is at least more comfortable. That’s a success, but if you are only looking at “how many jobs” you see 1 job before the recession, 1 job during, 1 job after therefore ZERO JOBS WERE CREATED OHHH MY GOD HELP US THEY WASTED THE STIMULUS AHHHHHHHHHH!!!!!!!!!!!!!!!!!!!
2. Measuring jobs created is very difficult. In the above example, there’s no way to track where everyone spends a few extra bucks per day they get in their take home pay. Even if the hot dog vendor buys a new cart and hires a helper, there’s no real way to count that job. Because you’re only counting jobs you can directly tie to stimulus, your ‘cost per job’ will be wildly inflated.
This reminds me of a piece I caught on CNN a long while ago that purported to examine where the stimulus did and didn’t create jobs. One little piece was about signs on construction projects saying it was funded by the Recovery Act. Some states had these signs on the projects and others didn’t. CNN said the cost of all those metal signs was $1M and then put up in big letters “$1M spent on signs 0 Jobs created”
Err hang on….$1M of large metal highway signs just sprang up from the ground? If so why buy them for $1M? Certainly those signs were produced by sign shops that make signs not with magic beans or pixie dust but with workers. But since no one can keep track of which sign workers were hired, or not laid off to make $1M worth of signs it looks like zero jobs created.