sbark
01-31-2009, 12:27 PM
$646,214 Per Government Job
by Alan Reynolds
Alan Reynolds is a senior fellow with the Cato Institute and the author of Income and Wealth (Greenwood Press, 2006).
Added to cato.org on January 28, 2009
This article appeared in The Wall Street Journal (http://online.wsj.com/) on January 28, 2009.
If the intent of the plan is to alleviate unemployment, why spend over half of the money on sectors where unemployment is lowest? Another 22.5% of the $550 billion would go to social programs, such as expanding food stamps and extending benefits for the unemployed and subsidizing their health insurance.
After subtracting what House Democrats hope to spend on government payrolls, health, education and welfare, only a fifth of the original $550 billion is left for notoriously slow infrastructure projects, such as rebuilding highways and the electricity grid
That's because "government spending shocks crowd out both residential and non-residential investment," while "the [positive] response of consumption is small and only significantly different from zero on impact" (i.e., temporarily). But suppose all of these recent studies were mistaken, and the House Democrats' spending spree worked as advertised. We're still left with three million jobs added or saved at a cost of $825 billion -- $275,000 per job.
In short, a growing body of evidence suggests that a dollar of extra spending is likely to lift nominal income by less than a dollar, arguably much less. Several studies suggest the multiplier may be less than zero after a couple of years, because private investment (including housing) eventually falls by more than government spending rises. Another $550 billion of deficit spending on top of a deficit already above $1 trillion is likely to prove more dangerous than helpful to an economy already overloaded with risky debt.
http://www.cato.org/special/stimulus09/cato_stimulus.pdf
by Alan Reynolds
Alan Reynolds is a senior fellow with the Cato Institute and the author of Income and Wealth (Greenwood Press, 2006).
Added to cato.org on January 28, 2009
This article appeared in The Wall Street Journal (http://online.wsj.com/) on January 28, 2009.
If the intent of the plan is to alleviate unemployment, why spend over half of the money on sectors where unemployment is lowest? Another 22.5% of the $550 billion would go to social programs, such as expanding food stamps and extending benefits for the unemployed and subsidizing their health insurance.
After subtracting what House Democrats hope to spend on government payrolls, health, education and welfare, only a fifth of the original $550 billion is left for notoriously slow infrastructure projects, such as rebuilding highways and the electricity grid
That's because "government spending shocks crowd out both residential and non-residential investment," while "the [positive] response of consumption is small and only significantly different from zero on impact" (i.e., temporarily). But suppose all of these recent studies were mistaken, and the House Democrats' spending spree worked as advertised. We're still left with three million jobs added or saved at a cost of $825 billion -- $275,000 per job.
In short, a growing body of evidence suggests that a dollar of extra spending is likely to lift nominal income by less than a dollar, arguably much less. Several studies suggest the multiplier may be less than zero after a couple of years, because private investment (including housing) eventually falls by more than government spending rises. Another $550 billion of deficit spending on top of a deficit already above $1 trillion is likely to prove more dangerous than helpful to an economy already overloaded with risky debt.
http://www.cato.org/special/stimulus09/cato_stimulus.pdf