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.

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