Republicans are out, Democrats are in, and everyone must change sides! This dynamic may create awkwardness for those who have left a paper trail but will also create a target-rich environment for others. Let's start with the Most Influential Lib in the media today, Nobel Laureate Paul Krugman, writing in 2009 about the Obama stimulus recovery plan:
But the obvious cheap shots don’t pose as much danger to the Obama administration’s efforts to get a plan through as arguments and assertions that are equally fraudulent but can seem superficially plausible to those who don’t know their way around economic concepts and numbers. So as a public service, let me try to debunk some of the major antistimulus arguments that have already surfaced. Any time you hear someone reciting one of these arguments, write him or her off as a dishonest flack.
First, there’s the bogus talking point that the Obama plan will cost $275,000 per job created. Why is it bogus? Because it involves taking the cost of a plan that will extend over several years, creating millions of jobs each year, and dividing it by the jobs created in just one of those years.
It’s as if an opponent of the school lunch program were to take an estimate of the cost of that program over the next five years, then divide it by the number of lunches provided in just one of those years, and assert that the program was hugely wasteful, because it cost $13 per lunch. (The actual cost of a free school lunch, by the way, is $2.57.)
OK, keep that "dishonest flack" exhortation in mind and ponder this from 2003, when Krugman's topic was the Bush tax cuts:
Did you know that President Bush's economic plan will create 1.4 million jobs? Oh, and did I mention that the plan will create 1.4 million jobs? And don't forget, the plan will create 1.4 million jobs.
Not that the budget cost is minor. The average American worker earns only about $40,000 per year; why does the administration, even on its own estimates, need to offer $500,000 in tax cuts for each job created? If it's all about jobs, wouldn't it be far cheaper just to have the government hire people? Franklin Roosevelt's Works Progress Administration put the unemployed to work doing all kinds of useful things; why not do something similar now? (Hint: this would be a good time to do something serious, finally, about port security.)
Hmm, ten years of tax cuts with a total cost of $500,00 per job weighed against one year of earnings. Gee, it's almost as if the writer was making a phony statement about the school lunch program, or, dare we say it, was a dishonest flack.
While I enjoy these waves of nostalgia let me toss in the "explanation" eventually presented by Krugman at his website and recounted in this old post:
No, I didn't forget to divide by 10. (For God's sake: whatever you think of my politics, I am a competent economist, and know how to use numbers.) What I foolishly assumed readers would know - this isn't condescension, I really was foolish - is that no serious economist thinks that a tax cut or spending increase will have any effect on employment more than a couple of years from now. The reason is straightforward: normally the economy is operating more or less at full employment, and any demand stimulus from a tax cut will be offset by an interest rate increase by the Fed. The Fed, of course, polices the economy to prevent inflationary pressures. And eventually we will return to normal circumstances.
The only situation in which a tax cut or spending increase creates jobs is when the economy is operating below full employment, and the Fed is unable to remedy the situation.
So Krugman's point was that many of the 1.4 million jobs projected to be created by the Bush plan would have been created by the natural working of the economy over ten years. In that view, the "right" answer to the "cost per year" question would be found by estimating how quickly the stimulus plan (whether it be Bush tax cuts or Obama's proposal) closes the gap between employment over time as the economy lurches back to full output of its own volition and employment as kick-started by the government stimulus. Dividing by ten, in the Bush example, made little sense; dividing by one, as Krugman did, almost certainly made no sense either (link rot has crippled that old post but as I recall CEA estimates suggested that dividing by roughly 1.5 might have been about right. Darn Max for moving).
And unlike Krugman, folks currently talking about a $275,000 cost per job did not make an explicit annualized comparison to anything, although they certainly invited readers down a slippery intellectual slope with this:
Well, spending $275,000 one time to create a $50,000 per year job that would not otherwise have come into being for ten years sounds like a good deal. If the job would have been created by the natural workings of the economy during the next year, maybe not so much.
A better defense of the Obama plan is here - briefly, Joe Klein notes that a lot of the price tag, including the tax cuts, are not directly tied to spending-related job creation.
Let me close with this missed Self Awareness Moment from Krugman's new column:
Uh huh. And by way of contrast, there is not a lib to be found who is anything other than agnostic about the efficacy of Roosevelt's New Deal, and nowhere are there libs who are anything other than dispassionately curious about whether government activism and increased government spending really can be effective in improving society's well-being. The only cheerleaders are on the right - got it.
MORE: I am so profound and insightful on government spending and job creation that it will have to wait for a new post. No breath-holding...
WE SLOG (AND BLOG) FOR YOU: The details seem to have been lost in the transition but here is Krugman's recap of the original Obama recovery plan as presented by his advisers Romer and Bernstein (before Nancy Pelosi et al got ahold of it).
Let's focus on the chart projecting the unemployment rate with and without a recovery package (foolishly titled by Krugman as a "stimulus" plan.) At its peak, the Obama plan lowers unemployment by roughly 2%, or about 3 million jobs. The trick is to estimate the total area between the two projections, since that represents the job-years created by the plan.
My eyeballometric estimate is that 2009 starts with a zero job creation and ends with about 1%, for average job-years during 2009 of 0.5% of the work force, or about 0.8 million.
2010 starts with the plan at 1% to the good and ends with about a 2% improvement in employment - let's call that 1.5% for the year, for net job-years of 2.4 million.
2011 starts with a 2% improvement and ends at roughly 1%, which gives us another 2.4 million job-years.
Finally, 2012 starts at 1% and ends at roughly zero, so let's credit the plan with another 0.8 job-years.
Total job-years equals 6.4 million; total cost is about $800 billion (the price tag went up after Pelosi stepped in). Cost per job-year, or annualized job cost, is about $125,000. Hmm, yes, that is my final answer. Now let's ask the audience - here is Krugman, from his latest column:
The true cost per job of the Obama plan will probably be closer to $100,000 than $275,000 — and the net cost will be as little as $60,000 once you take into account the fact that a stronger economy means higher tax receipts.
Well, $125,000 is closer to $100,000 than it is to $275,000, so whatever - most folks seem to have made up their minds about Krugman's veracity, but this can be one more data point. And do keep in mind - annualizing the cost to present a smaller number doesn't really represent the cost. Even if the true *annual* cost is just $125,000, the total cost is still what it is.
Or maybe Krugman could help GM sell their cars. That new piece of rolling rubbish doesn't "really" cost $20,000 - since it will probably last at least, ahh, two years the cost is only $10,000. Yeah, that will move the iron - just don't anyone try writing a check for only $10,000.
LIBERTARIAN CORONARY ALERT: Krugman's column continues with this howler:
Next, write off anyone who asserts that it’s always better to cut taxes than to increase government spending because taxpayers, not bureaucrats, are the best judges of how to spend their money.
Well, the idea that tax cuts are *always" better is pretty bold, since corner solutions are rarely optimal. That said, what an absurd example - is it really inconceivable that a private system of air control could develop in the absence of a Federal government? The current system might well be more efficient that a private alternative but the notion that only the Feds stand between the flying public and frequent collisions is daft. But let me make a more forceful case for tax cuts, relying in this newly-developed Krug-logic: anyone who thinks that Federal spending is more efficient than tax cuts believes that the entire private system of restaurants and diners should be closed down in favor of government-run cafeterias located in every Post Office. Yeah! Chew on that!
MORE SERIOUSLY: Brad DeLong presents the anti-stimulus math of Kevin Murphy.