But We’ll Make It Up on Volume…

According to this (as yet unpublished, it appears) manuscript, the American Recovery and Reinvestment Act may have saved/created up to 450,000 government sector jobs at the expense of 1,000,000 private sector jobs. The best-case scenario, the authors claim, it that it saved/created a net of 659,000 jobs, mostly in the government sector.

Since the Act cost around $800 billion, at the good end that comes to about $12,000 per job saved, which would be a pretty decent value (although having most of them be government jobs is not encouraging). At the bad end we would have paid about $14,500 for each job destroyed. (Remember what I said in a recent post about the great disparity in calculating the multiplier on fiscal stimulus?)

The gist of the argument is that because much of the stimulus was funneled through the state governments they used the federal funds to replace lost tax revenue, so that state spending was kept from diminishing (or states having to raise taxes), but only remained constant, rather than increasing. Meanwhile, the stimulus seems to have crowded out private sector jobs, although the authors can’t yet explain why.

To be fair, Krugman has effectively made the “off-setting state spending reductions” argument–more speculatively and with less data, I think–and used it as the basis for his argument that the stimulus wasn’t large enough. But the private sector job-cost argument goes against his “of course federal spending stimulates” argument. There doesn’t seem to be any crowding-in of investment effect here, and unless I’ve missed it, Krugman doesn’t argue that crowding-in of investment only occurs after a certain crucial amount is spent.

Is this research more accurate than research finding a more positive effect? I have no idea. But for a policy that is supposedly beyond doubt, I think the uncertainty and discrepancies in the findings are rather troubling.


About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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2 Responses to But We’ll Make It Up on Volume…

  1. Pinky says:

    This seems to be more about the cost of government getting out of control.

    Whoever thought government should be run like a business in the first place?

    If that is what we want, we should get involved in State Capitalism; otherwise, maybe we should accept the fact that it costs money to run a government and that means we either raise taxes or take he energy industry away from private interests and allow the government to make those profits.
    Seems simple enough to me.

  2. Matty says:

    Whoever thought government should be run like a business in the first place?

    Whoever it was didn’t do a very good job on the implementation, businesses that consistently spend more than they take in tend not to be in business for very long.

    As for your alternatives, I would guess running the energy sector for profit and giving all those profits to the governmentis State Capitalism or at least a close relative.

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