Saturday, September 17, 2011

The Cost of Gov't Jobs That Are Already Paid For

Contrary to what many people think, a civil government cannot efficiently grow a national economy with centralized planning.

As a case in point, in this article, the Dept. of Energy has been accused of creating only 3,500 permanent jobs with $38.6 Billion in stimulus funds. The DoE defends itself by saying when they're finished it will be 60,000 jobs and many more in the supply chain. For the sake of argument, let's say the DoE is right, and let's say another 60,000 jobs will be created in the supply chain for 120,000 jobs total.

$38,600,000,000 divided by 120,000 jobs is $321,666 per job. That's using the DoE's most optimistic numbers.

$321,666 per job.

Somehow, the President and his administration think their trillion dollar stimulus program has "prevented the collapse of the financial system, saved millions of jobs, and put the economy back in a place where it's creating jobs and growing again," according to White House Communications Director Dan Pfeiffer. Of course, both parties habitually claim their policies are responsible for all the good things in our economy and the other party is responsible for all the bad things, and that's easy to do since reporters rarely challenge them on such claims. But $321,666 of tax money per job? C'mon, only morons could believe that's a good thing.

You know what would have had far better effects on our economy? If they hadn't taken that $38.6 billion dollars from taxpayers in the first place, and instead they embraced "The Stossel Rule": For every business regulation they pass, they must repeal two or more. Stossel's rule is based on the sound idea that "hiring doesn't come from new laws. It comes when government gets out of the way and leaves all of us with simple and predictable rules."

So forget the "PassThisBill, PassThisBill, PassThisBill, IfYouLoveMePassThisBill" mantra. The trillion dollar stimulus didn't work, and another half-trillion dollar stimulus won't work any better. Taking money from companies and families by taxation and spending $321,666, or more, of it to create one job is not a road to recovery.

As to the claim that it's paid for (the President used the present tense in his televised speech), that's a foolish claim. Even a claim that it will be paid for is foolish as long as the Federal budget isn't balanced.

Suppose you loaned me $10,000 at 2% interest to support some essential business ideas I had that were guaranteed to work and benefit you, me, and everyone! At the end of the first year I paid you $200 in interest and you loaned me another $10,000, because the expenses for my essential business ideas kept growing. Except first you loaned me the $10k, and then I paid you back the $200. We repeat it the next year, but I pay you $400 in interest because I now owe you $20k. But I decided I need more money for more essential business plans, so I talk you into loaning me $15,000 the next year. So I've borrowed $10k the first year, $10k the 2nd year, and $15k the 3rd year, for a total of $35,000 borrowed, and my next interest payment is $700. Wow, the interest I owe you keeps going up for some reason. I need to borrow more money from you so I can be sure I have plenty to do everything I want and pay the interest I owe you. Okay, now I want to borrow an extra $5,000 in the middle of the year for an essential new business idea. What? You're getting reluctant to loan me more money? Trust me! I know exactly what I'm doing. I have everything under control. And, most importantly, this new project is already paid for! How is my new project paid for if I still owe you so much and I'm borrowing even more money from you? Simple! It's paid for because I was going to borrow that money from you anyway eventually and use it for something else, but now I've changed my plans and now I'm going to use this extra borrowed money for my newest essential idea. And if you notice my newest essential idea is the same as my old essential idea, well, that proves how good my original idea was.

(For any critics of my analogy who may want to point out that it's not a perfect parallel to life, may I point out that the paragraph above is an analogy, and it's not intended to be a perfect parallel to life.)

Can you think of a huge problem my analogy didn't go far enough to cover? It's this: Compounding Interest. The amount of interest keeps rising if you only pay the interest and none of the principal, and you keep borrowing more money. It will eventually reach the point where you cannot borrow enough new funds to even pay the interest on the debt.

In 2010, we paid $196,000,000,000 (196 billion) in interest on the national debt. In fiscal year 2011, we're paying $205 billion dollars. Just think of all the good things we could have done with that $205 billion dollars if we hadn't had to pay it on interest. These figures are from the White House's Office of Management and Budget (OMB) (see the Summary Tables), which projects the interest over the next ten years:

2012, $240 billion
2013, $322 billion
2014, $421 billion
2015, $505 billion
2016, $584 billion
2017, $661 billion
2018, $730 billion
2019, $798 billion
2020, $863 billion
2021, $928 billion

This is not the amount of our debt, this is just the interest on our debt. And these figures are based on interest rates that are at historic lows. Interest rates will rise. And when they do, the amount of interest we have to pay will go up higher than these projections, unless the morons in Congress stop borrowing more money and dramatically pay down our debt.

Even if interest rates stay flat for many more years (not likely considering Bernanke's historic monetary expansions), if we keep borrowing more and more money, in a few years we will spend more money in interest on the national debt than we spend on Social Security or Medicare, or the military. A decade after that we may be spending more on interest than on Social Security, Medicare, Medicaid, and the military combined.

We are all fools if we continue to elect politicians who think taking your money and borrowing even more money to spend $321,666 of it to create one job will magically make us prosperous.

We don't have to wait for a balanced budget amendment to the Constitution to correct this problem. Find yourself a congressional candidate with personal integrity who will refuse to vote for another dime of deficit spending, and help them get elected in 2012 and in every congressional election after that.

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