Monday, February 1, 2010

Obama's Job Bomb

So: in this post I'm going to connect two recent posts: the review of Rick Perry's handout to contributors TEF money-for-jobs program, and Obama's killing the return to the moon and American spaceflight in the new budget.

The link for them is the $100 billion in Obama's proposed 2011 budget designated as his "jobs program." One link is obvious, but the other not so much so- but be patient, I'll get there.

So, we established in the Rick Perry piece that handing free money to employers and trusting that they'll create the jobs they promise just plain doesn't work. So, what's Barack Obama's approach?

Hand free money to employers and trust that they'll create jobs.

Leaving aside the simple fact that it doesn't work and has never worked, Richard Posner of the Atlantic spots the main flaw at once:

The Keynesian theory of stimulus is that if private demand for goods and services falls substantially below the economy's productive capacity, government can replace the shortfall in demand by increasing its own demand. It can buy roads and airports and military equipment with borrowed money...

The job-stimulus plan is not aimed at increasing demand, and therefore is unlikely to increase employment. For think: if a company is producing 1,000 widgets a year with a work force of 30, and it adds a 31st employee and thereby earns a $5,000 tax credit, the company's total costs will have risen by the wages and benefits that he pays the new employee minus the $5,000. But his sales will not have risen. Participating in the job-subsidy program will actually reduce his profits (revenue minus cost).

So... $30 billion... which won't increase the demand for jobs one iota, and which will almost certainly go into the pockets of corporations whose lawyers and accountants are best at gaming the system. This is one hundred percent wasted money.

And as Derek Thompson reports, we tried this before- under Gerald Ford:

After the 1973-5 recession the New Jobs Tax Credit gave firms a tax break if they increased total employment by at least two percent. The policy was too complex for many firms to apply, and later studies struggled to agree that the tax credit boosted jobs by a significant number. A Department of Labor report ultimately concluded that it was impossible to observe what hiring would have been done without the credit.

Really, I knew Obama was imitating Ford by effectively pardoning his predecessor for all their many and egregious sins... but isn't this carrying imitation too far?

But the aspect of all this that truly intrigues me is this: in order to fully fund Projects Constellation, Orion and Ares for return to the moon by 2020, NASA requested a mere $3 billion per year above current budget for the next ten years.

That adds up to... oh... $30 billion.

And that money, I might remind you, WOULD create a demand for jobs- people building the rockets and spacecraft, people designing the systems involved, people overseeing the launches and spaceflights and tests, and all the knock-ons that would involve.

(Oh, wait- Obama is adding $6 billion, spaced out over five years, to NASA's budget, mostly to extend the space station's life to 2020 and to encourage private spaceflight to take over from NASA. So actually, fully funding NASA would be CHEAPER than Obama's $5000/head new-hire tax credit... and would almost certainly create and protect more actual jobs.)

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