- The granddaddy of all stupid math comes from the President's economic stimulus program. The Congressional Budget Office estimated the final cost of the stimulus program to be $830 billion. The White House claims that this expenditure saved or created about 2.7 million jobs. Thus, by dividing the total cost by the generous estimate of 2.7 million jobs, you end up with a cost per job of over $300,000 per job. How can this be called successful when it costs so much to create or save a job? How can this be called successful relative to the average annual income of an average American household which is around $60,000?
At this rate, to get all 14 million unemployed Americans a job, it would cost $4.3 TRILLION. Of course, as a nation we would never do this, we could never do this since we would never find the money to pay for this. Plus, this kind of pseudo economic policy is based on the false premise that government can actually create jobs. All governments do is take wealth out of one part of the economy and put it into another part of the economy, there is no net gain.
There is no multiplier effect where somehow when government spends a dollar, via a stimulus program, in the economy it miraculously creates multiples of that in economic activity but when individuals and businesses are allowed to keep their wealth and they spend it in the same economy, there is no multiplier effect.
The fallacy of this multiplier effect was on full display when the President warned us that if his stimulus program was not enacted, unemployment in this country could go as high as 8%. The program was enacted and unemployment soared up and over 9% and has stayed in that area for what seems forever. So much for the magic multiplier effect.
- And the economic stimulus cost per job of $300,000 is very generous if you consider an analysis that was included in the October issue of Reason magazine. According to an analysis of the stimulus program done by economist Bill Dupor from Ohio State University and economist Timothy Conley from the University of Western Ontario, Obama's economic stimulus program did not create or save 2.7 million jobs.
Their analysis shows that the program created or saved about 450,000 jobs, mostly in the government sector while delaying or destroying about a million jobs in the private sector. In these economists' most optimistic forecast, their best case, if you stretch the assumptions, the stimulus program may have created 659,000 jobs, again mostly in the government sector. Under this best case scenario, the cost per job is almost $1.3 million per job. Outrageous, you cannot make this stuff up. Didn't they do the math in Washington?
Why was the payback so bad? According to the article and the analysis, much of the stimulus spending was used to continue existing state and Federal government programs, the money was not spent to create incremental activity. California, for example, used some of its stimulus cut to fund its existing state unemployment benefits program. Hardly an elegant, creative, and, in the end, an effective way to stimulate economic activity.
Other states took their economic stimulus money and also used it as a pure substitute for existing spending, not incremental economic actions and spending. Traditionally, according to the authors, when the Feds give state governments funding, the states are required to match those funds with their own money to ensure that the money is spent the way the Federal government intends it to be spent.
The economic stimulus plan was written so poorly that this type of control language was not included, resulting in the states spending Federal taxpayer money anyway they wanted. This resulted in such poor economic payback for over $800 billion worth of stimulus.
- And now the President wants to do it all again. He wants Congress to pass his newest economic stimulus program which will cost the Federal government and Federal taxpayer about $450 billion. Last week the President publicly asserted that his new plan will "create" about 1.9 million jobs.
As always, some serious math problems with this misguided view of reality. Simple math indicates that the cost per job created using Obama's own numbers comes out to almost $237,000 per job. Remember, the average annual household income in this country is about $60,000 so this latest problem would cost about four times what the average American household makes in a year. So even if the President was right, the payback is still atrociously bad.
And this assumes that he is right. Remember, in his first stimulus plan he said that unemployment would go as high as 8% if his plan was not passed. It was passed and it went beyond 9%. Thus, this President does not have a good accuracy record when it comes to economic projections. How many times are we going to believe him when he has been wrong so often and so badly in the past?
Doing some additional math, if the President's optimistic forecast is right, this latest stimulus approach would take about $3.3 TRILLION to get all of the 14 unemployed Americans a job. Certainly not an efficient way to get people jobs.
One more math calculation. The President claims that his latest plan will "create" 1.9 million jobs and reduce the unemployment rate by one full percentage point. But, every week, about 400,000 Americans have been filing for first time unemployment benefits, indicating that roughly 400,000 Americans are losing their jobs every week. Do the math, if the President can create 1.9 million jobs in a year, i.e. in time for the next Presidential election, this would average out to about 37,000 jobs created per week.
Thus, we end up with this serious disconnect: 400,000 people file for first time unemployment benefits every week while the President will create 37,000 incremental jobs per week, best case, which is less than 10% of the unemployment benefits filers. This raises they obvious disconnect: how is the unemployment rate going to go down to about 8% when there is this 10 to 1 ratio? As always with the political class, the math makes no sense.
- But for the worse math of all, consider the numbers from a Washington Post article last week. According to the Post article, using tracking data from the Department of Energy Loan Program website, $17.2 billion was loaned to companies to create so-called "green" jobs. These companies turned around to "create" 3,545 jobs. Using some simple math, this comes out to about $4.8 million for each job created. Again, you cannot make this stuff up.
The poster child for this waste is, of course, the Solyndra solar energy panel manufacturer in California. This company received over half a billion in Federal loan guarantees and they not only did not create any incremental jobs, they went bankrupt, went out of business, and took 1,100 existing jobs and the $500 million of taxpayer wealth down the drain with them.
Note: we will dedicate an entire post to this disaster in the next week or so. Disastrous is too mild a word to describe the political class behavior in this situation. Words like cronyism, kickbacks, and criminal are more apt to be accurate.
Just some simple math, I wish the politicians in Washington were good at this basic math. They cook up these grand plans that are based on nothing more than hope and their own, personal political positioning. Basic, simple math and looking at previous economic failures would help avoid the wasting of hundreds of billions of taxpayer dollars.
Instead, we pay around a quarter million dollars for each job attributed to these failed economic programs, with a 15 times premium to fund "green jobs." Will they ever realize that "government" cannot create jobs? They are not smart enough to do that.
Only individual citizens and businesses can effectively expend their wealth and money in such a way that economic activity is focused and efficient. Spending over $4 million to the government to create one green job is neither focused or efficient, it borders on criminal.
Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available, at http://www.loathemygovernment.com/. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
Please visit the following sites for freedom:
http://www.loathemygovernment.com/
http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment.com/
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