

How Obama's Stimulus is Changing America - dsspence
http://www.time.com/time/nation/article/0,8599,2013683-1,00.html

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lzw
For government spending to create a job that pays around $60,000 a year, it
costs about $100,000. Figuring $40,000 in overhead. These are estimates, but
even if you change the figures, the math below will still work.

A business decides to hire an employee or not based on the businesses marginal
productivity. Employees, for most businesses, are profitable as the business
value of their labor exceeds the costs of their salary and overhead.

However, businesses must factor in risk as a cost, and in many instances,
employees or expansions such as new stores or factories are not immediately
profitable to businesses. Thus a business that is profitable per employee
cannot simply double its workforce and thus double its income by hiring a
bunch of new people. This "drag" on growth in employees is the marginal cost,
or could be called the profits cost.

It will vary by industry, but it seems that a %10 factor for the marginal cost
seems like a reasonable estimate. EG: for each $100,000 in operational profits
we will hire another employee (With the rest going to capital investment,
paying down loans, dividends to shareholders, etc.)

Thus, for the Obama administration to spend $100,000 to create one $60,000 a
year job, they must take $100,000 out of the economy... and in the process
remove that $10,000 from ten businesses, destroying 10 $60,000 jobs in the
process.

This is why stimulus is never beneficial to the economy.

Fortunately, businesses are still generally profitable and the economy
naturally wants to grow, so it will eventually recover from this damage. And
when it does, people will give credit to the "stimulus" though by looking at
the cost as well as the benefits, it is easy to see that it does more harm
than good.

I used example figures here that will vary by industry, but you cant' deny
that most employees are profitable, that businesses decide based on marginal
value and growth factors, and thus the "cost" of a new employee is a fraction
of their salary, and thus the creation of one job by the government will
destroy a multiple of jobs in the private sector. The ratio may be 10-1 or it
may be 5-1, but it is not "profitable" to the economy.

If it were, greece would be a roaring success story, because their government
has done nothing but spend, spend spend.

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dsspence
The point you're making has been debated ad nauseum in the past so I won't
attempt to refute it.

What I took from the article was that while the stimulus/recovery act was
largely sold, and perceived rightfully or wrongfully, as a jobs bill, that
likely won't be its legacy.

I think it is intellectually dishonest to compare the economy of Greece to
that of the United States. In fact the article states that the stimulus funds
aren't being directed like earmarks past, but acting in the same vein as
venture capitalists. In the United States 80% of new jobs are created by way
of small businesses. Yet that says nothing about how new industries are born
(e.g. the DARPA funding that spawned the current internet economy).

