Economist Greg Mankiw re: Proposed Fiscal Stimulus: $280,000 per job

24 11 2008

Congratulations and thanks to Harvard Economist Greg Mankiw for his recognition of the cost per job for the proposed fiscal stimulus package of President Elect Barack Obama.  Following is the web address for the article….

http://gregmankiw.blogspot.com/2008/11/280000-per-job.html

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Monday, November 24, 2008

$280,000 per job

The Washington Post reports:

Facing an increasingly ominous economic outlook, President-elect Barack Obama and other Democrats are rapidly ratcheting up plans for a massive fiscal stimulus program that could total as much as $700 billion over the next two years….Obama has set a goal of creating or preserving 2.5 million jobs by 2011.

 

Let me amplify the last point with a rough back-of-the-envelope calculation. The average weekly earnings of production and nonsupervisory workers is about $600, or about $60,000 over a two-year period. Granted, labor income is only about two-thirds of national income, and we have to add a few supervisors into the mix. So let’s say each job created means $100,000 of extra national income. If we are generating $100,000 of income with $280,000 of government spending, the multiplier is only 100/280, or 0.36. By contrast, traditional Keynesian models suggest a multiplier closer to 2.0.

Dividing one number by the other, that works out to $280,000 per job.
What is going on here? Logically, it must be one of three possibilities:
1. The fiscal stimulus is going to be much smaller than is being reported.
2. The new administration is setting a low bar for itself when it comes to job creation.
3. The Obama team believes in very small fiscal policy multipliers.

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Greg Mankiw’s Blog address is http://gregmankiw.blogspot.com/

 

 

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