Thursday, October 29, 2009

A million bucks per job

An interesting article appears on Explore Howard about how many local people are critical of the federal stimulus because it created so few jobs (the feds spend $8 million in Howard County to create or save only 8 jobs!). I too am critical of the federal stimulus (to put it mildly), but not for the reason that it created too few jobs. I am critical because it was spent largely on stupid stuff that politicians love to spend money on. In fact, I have argued in the past that the number of jobs created is not a good measure of any stimulus. If it were, a good idea would be to hire people to dig holes and fill them up again. An economist quoted in the article agrees with that point of view:

Robert Dye, senior economist for PNC Bank, said the stimulus should not be judged simply by the number of jobs created.

"There's a multiplier effect," he said. "Those people who get jobs in turn go to the grocery store, and they buy cars, and those actions create demand for other jobs down the road. There will be a multiplier effect that's not quantifiable."

He said the government should choose which projects to fund to get the greatest impact.

"The best projects are the ones that return a real economic benefit, like building a road or a bridge," he said. "Some projects may not be things that were highly needed. History will be the judge of that."

However, I do not believe that the federal government is at all equipped to direct money to the use which will have the highest bang for the buck. I fail to see how any great multiplier will come from winterizing houses (one of the uses of the stimulus funds), for example. This is especially true since the resources the government is spending have to be taken from the citizenry or the capital markets, which means that the stimulus comes at the expense of private investment (or private consumption). I think the best way to stimulate the economy would be via a substantial tax cut. Let the invisible hand of the marketplace figure out where to allocate those stimulus dollars.