Stimulus Job Donkey Math

In Obama’s 100th day news conference he mentioned that the stimulus package had already “created or saved 150,000 jobs”.  As we all know by now, mainstream media is completely dead in this country. This number was never discussed or challenged by anyone.  It was like he never said it.  He did say it though, and last week some information came out about how he came up with such a number.  It’s called government stimulus job math.  I knew at the time he said this that only about 14 billion of the $770+ billion had actually been paid out, and that was 100% on Medicare.  Not sure how increasing Medicare payments lead directly to created or saved jobs, but it does not need to when you use stimulus job math.  You see there is this formula that says for every $92,000 in stimulus money spent, one job is created or saved for one year.  14 Billion spent means 150k in jobs have been created or saved.  To hit Obama’s goals for job creation and savings all he needs to do is spend the money.  It does not matter if any actual jobs are created or saved.  92k = 1 job-year by government estimates.

Now, I have a big problem with the “created or saved” language.  While you may be able to measure jobs created, jobs saved is pretty tough.  It allows them to use 92k because otherwise what they are doing would be immeasurable.  So are we getting a good deal here as taxpayers, even if one job was actually created per 92k?  Not really.  The average personal income of a fulltime worker age 25+ in the USA is 40k.  So we are spending 92k to create a 40k job.  The government skims 57% of the money right off the top and flushes it down the toilet.  Now what about the other 40k?  Is that what it really costs to create a job?  Maybe if the government is doing the creating, but how does it work in the private sector?  In the private sector, you need to look at the return on investment for hiring an additional employee.  If it costs you 40k to hire someone, and you figure they will produce 50k in additional gross profit, you might go ahead and hire them.  In a 40k/40k situation you would not.  It really just takes a nudge to get hiring to happen, and assuming it takes the entire salary amount, puts zero value on the extra gross profit you should get with a larger staff.  So an incentive in the range of 10-20k would easily be enough to get the private sector to expand.  They can’t now profitably, but if we could make it profitable by even a small amount they will start hiring.  This could have been done by dropping the business side contributions to Social Security temporarily, instead of refunding the employees SS contribution as a welfare payment like the stimulus actually does.  By my math the private sector could create 4-9 times as many jobs per stimulus dollar than the government.  Using the government to dole the money out is a complete waste of the stimulus money.

Now what about the math for jobs saved?  Spending 92k to “save” a job for one year borders on obscene.  Why not just pick up the 40k salary of someone who is about to be laid off, if the company agrees to keep them for at least one more year.  That saves 57% right there.  Again, this is bogus math.  You would not need to offer a company that much to do the same thing.  That assumes that people’s contributions to a business are worthless.  Assuming that the lay-off is happening because it is becoming slightly unprofitable to keep this person employed, you just need to make it slightly profitable to save the job.  5-10k seems like plenty of incentive to save a job year.  That’s 9-18 times more efficient than the government.

I question if the 92k figure is actually generous.  Out of the first 14 billion spent I doubt there were more than 1k in jobs created or saved based on where the cash was spent (Medicare).  With a lot of the money going to things like extending unemployment benefits and other safety nets a bunch of it will not really create or save any jobs.  For the money that is actually allocated to job programs like construction the 92k number may be good.  Lastly, if we give Obama the benefit of the doubt for a second, and assume the 150k job number is real.  That would mean that the stimulus package is creating or saving 75k jobs per month against a backdrop of 600,000+ new filings for unemployment every month.  Total numbers on unemployment are at an all-time high.  75k in jobs a month is not close to putting a dent in this crashing economy.  At least at the rate the money is being spent it will take many, many years to spend it all.