Here Comes The Fuzzy Math

As the new Congress and president forge ahead on an economic recovery plan of at least $500 billion, don't be surprised if you hear conservatives wail that it amounts to wasting $280,000 for every job it creates. And don't believe it.

Last week, former Bush administration economic adviser Greg Mankiw scribbled that estimate [1], taking news reports of a possible $700 billion package and dividing it by Obama's own goal of creating 2.5 million jobs. The number was picked up by the Investors Business Daily editorial board [2], the neocon Commentary magazine blog [3] and other conservative bloggers. [4]

But that number wrongly presumes every dollar of a recovery plan goes into job creation, when in fact any such plan will be multi-faceted. Tapped's Tim Fernholz [5] explains:

Or it could mean that not all of the stimulus package is focused directly on job creation. Which, in fact, it likely will not be, since most economists I've spoken to and many reports I've read predict that a big chunk of the stimulus -- tens of billions of dollars -- will include increased funding for things like food stamps, TANF [Temporary Assistance to Needy Families], and unemployment insurance. It will likely also include federal aid to states, much of which will be used to make up massive budget shortfalls on programs like medicaidare. While that aid doesn't directly create jobs, without it, states would have been firing public employees to balance their budgets, especially with the bond market as tight as it is.

None of those facets of the stimulus program directly create jobs, but they ease the pain for the millions of people losing jobs, preventing them from falling into deep poverty while the economy returns to course, and stimulate the economy in the aggregate. Subtracting the cost of these kinds of aid from the total cost of the stimulus will probably make the cost-per-job figure seem more reasonable.

Furthermore, today's news reports (flagged in today's Progressive Breakfast [6]) indicate that in addition to the above, a middle-class tax cut will likely be a part of the plan as well, which is also not about direct job creation.

In the NY Times, Gov. Ed Rendell said that $136 billion should go to infrastructure investment and explained [7] that "Every billion dollars spent on infrastructure produces 40,000 new jobs.” That's about 5.4 million new jobs at $25,000 a job. And that's a sensible investment when building items that strengthen our foundation and benefit us all -- such as bridges, broadband, high-speed rail and energy-efficient electrical grids.

In fact, in an update to his own post, Mankiw himself acknowledged various factor he overlooked [1] when coming up with the original estimate, including that "Obama['s] stimulus may take the form of tax cuts rather than spending hike."

But I have yet to see any conservative commentator who used the faulty estimate subsequently offer a correction.

So be aware. Fuzzy math is on the loose.