Over at the Motherblog, my colleague Tim Fernholz neatly dispenses with a bit of economics spin from Greg Mankiw. My hunch is you're going to hear Mankiw's point a lot in the coming weeks, so it's worth knocking it down. He begins by looking at Obama's intention to pursue a $700 billion stimulus measure and create 2.5 million new jobs. Using an ellipsis that cuts through four paragraphs in the original article, he manages to make it seem as if the stimulus is a policy meant to simply create jobs. He then does some back-of-the-envelope math and notes that this works out to approximately $280,000 per job. Not a very good deal. Fernholz responds:
Not all of the stimulus package is focused directly on job creation...most economists I've spoken to and many reports I've read predict that a big chunk of the stimulus -- tens of billions of dollars -- will include increased funding for things like food stamps, TANF, and unemployment insurance. It will likely also include federal aid to states, much of which will be used to make up massive budget shortfalls on programs like medicare. While that aid doesn't directly create jobs, without it, states would have been firing public employees to balance their budgets, especially with the bond market as tight as it is. None of those facets of the stimulus program directly create jobs, but they ease the pain for the millions of people losing jobs, preventing them from falling into deep poverty while the economy returns to course, and stimulate the economy in the aggregate. Subtracting the cost of these kinds of aid from the total cost of the stimulus will probably make the cost-per-job figure seem more reasonable.
You know who else is inefficient? Wal-Mart. With almost $400 billion in revenue and only 2 million employees, the Bentonville retailer is paying an average of $184,614 per employee. And they're considered an innovator in lowering labor costs!Except...they're not paying that much. The money goes to buy products and build stores and run ads and construct evil underground volcano lairs. Similarly, the stimulus package cannot be understood as spending divided by jobs. If California's Medicaid program faces a $10 billion shortfall, you're not likely to see a lot of doctors or nurses out on the street. But you are likely to see a lot of families that can't access health care. If Missouri's government falls into debt, the main injury will not be to the state's workforce, but to its schools and its roads and its projects. If $30 billion is spent to erect a bridge, that creates some jobs, but it also pays for machines and stones and steel and scaffolding. The envisioned stimulus is much bigger than simple job creation. It's infrastructure construction and aid to states and the preservation of the safety net.
