No Runny Eggs

The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.

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Can We Afford The Payments?

by @ 5:52 on December 29, 2008. Filed under Economy, Politics - National.

In an Oped piece in the Washington Post  yesterday, one of Barack Obama’s economic advisers, Lawrence Summers attempted to lay out the reasons for the next, still growing, stimulus package.   The stimulus package was originally discussed to be in the $600 billion range.   However, as Obama gets closer to his first attempt at sitting in the driver’s seat the numbers have continued to rise.   Lately, the  range  discussed has been as high as  $1 trillion.

Summers takes a typical liberal approach to spending lots of money that has no profit or benefit on the near term horizon; we’re investing in our future:

The Obama plan represents not new public works but, rather, investments that will work for the American public. Investments to build the classrooms, laboratories and libraries our children need to meet 21st-century educational challenges. Investments to help reduce U.S. dependence on foreign oil by spurring renewable energy initiatives (many of which are on hold because of the credit crunch). Investments to put millions of Americans back to work rebuilding our roads, bridges and public transit systems. Investments to modernize our health-care system, which is necessary to improve care in the short term and key to driving down costs across the board.

Funny, I seem to remember a lot of chatter from the portion of the “15th Century, here we come” Left that told us that drilling for oil on our shores wasn’t worth doing because it would take years before we would see the benefit.   Now we have the left telling us that “investments” that will take years to pay off are the right thing to do….anyone else confused?

Along with “investing for the future,” Summers uses the “it’s all about jobs” argument for spending billions of dollars we don’t have:

A key pillar of the Obama plan is job creation. In the face of deteriorating economic forecasts, Obama has revised his goal upward, to 3 million. For one thing, significantly fewer positions would be created in the absence of any recovery plan. Second, more than 80 percent of these 3 million jobs will be in the private sector, including emerging sectors such as environmental technology. This is a bold goal. But economists across the political spectrum recognize that it is far less risky to stand firmly against the forces propelling our economy downward than to be timid in the face of a mounting crisis.

The creation of 3 million jobs is a new target.   Obama’s original plan was a modest 2.5 million but as the economy has continued to soften Obama has stepped up his replacement plan.   The extra jobs is part of the reason why the amount of stimulus has increased.

A commentary by Caroline Baum uses comments by Paul O’Neill to show how inefficient the stimulus will be in terms of creating jobs:

O’Neill did the math so you don’t have to. Each job "will cost $250,000, which doesn’t suggest much labor intensity for the dollars spent," he said. "It makes me wonder if any of the planners or commentators are good at arithmetic."

Well of course they’re not but that’s beside the point.  

The real question in this is whether Obama’sstimulus plan can actually create 3 million jobs?   If he can, how will he and what silver bullet of economic development does he know that mere mortals in economics don’t?   The answer is found hidden, but accessible with a little work, smack in the middle of Summers’ oped:

A key pillar of the Obama plan is job creation. In the face of deteriorating economic forecasts, Obama has revised his goal upward, to 3 million. For one thing, significantly fewer positions would be created in the absence of any recovery plan. Second, more than 80 percent of these 3 million jobs will be in the private sector, including emerging sectors such as environmental technology. This is a bold goal. But economists across the political spectrum recognize that it is far less risky to stand firmly against the forces propelling our economy downward than to be timid in the face of a mounting crisis.   (emphasis mine)

At first blush that statement doesn’t really seem like much; 80% in the private sector sounds good.   However, that leaves 20% in the public/government sector.   Again, doesn’t sound too bad, at first blush.   According to the Bureau of Labor Statistics there are approximately 144 million people employed.   Of that, just under 2 million are employed by the federal government. State and local governments employ another 8 Million for a total government employment of about 10 million.

If 3 million jobs get created and they break down 80% private and 20% public, that would mean that 2.4 million jobs are created for private enterprise and 600,000 are added to the government ranks.   2.4 million jobs on top of the 134 million private sector jobs means that Obama’s plan will increase the private sector by 1.8%.   In contrast, adding 600,000 jobs to the existing 10 million government jobs means that Obama’s plan will grow the government sector by 6%, more than 3X what he plans to do for the private sector.  

Just to keep the “it’s for the children” crowd happy, I’ll do the math assuming that Obama really means the 20% to include education.   There are approximately 8 million public school employees.   Taking those from the private and adding them to the public still leaves the private sector getting less than 60% of the growth that Obama has slated for the public sector.

Lest you think I’m one of those folks that thinks government employees are a complete waste of time, I’m not.   Like cats, there are some useful purposes for them.   Also like cats, good etiquette keeps me from describing on a public forum, what  most of those useful purposes are.

Here’s the point, increasing employment by adding government employees is easy.   How tough is it to hire a bunch of people to do nothing particularly useful beyond increasing the rolls of union paying members?   The trick in this is how is Obama going to pay for those jobs long term?   Adding jobs to government when you are about to inherit an  $11 trillion debt and an annual deficit under the best circumstances that will be $500 billion, is the same as the folks who took out the 110% home equity loans but found that they couldn’t afford the payments when the interest rates went up.

It’s ironic that to justify this massive government spending, Summers is willing to discount and downplay near term benefits claiming that this is being done for our future.   I wish he was just as concerned about the future implications of the debt and bureaucracy that will be created.   Again, like the folks who bet on ever increasing home valuations and income streams, I wonder if we’ll be able to afford the payments?

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