A positive note on the economy—sort of

Arise ye wretched toilers in the education world—go forth and struggle proudly—

So the Obama stimulus plan is now being debated in the Senate.  Many Republicans and some Democrats say that the proposal is too big and needs to be cut—that there is too much fat—that spending needs to be focused on things that really stimulate and that means create jobs.

So—what are these political representatives thinking of cutting—mostly education spending.  According to the New York Times: “The proposed cuts, by various accounts, include $40 billion to help states (in large part with education budgets), possibly $14 billion for Pell grants, and $14 billion for other education programs (though late word from the Washington Post is that the Pell grants may have survived).”

Say what?  Education spending is not stimulus spending? Ridiculous.

Economists measure things like job creation using input-out tables based on government statistics.  Using these tables economists try to determine the employment effects of spending money on different goods and services, including direct, secondary and induced effects—outcomes differ because of differences in the wage rates, labor intensity, and import dependence of the relevant sectors.

Here are the results of a representative study (PDF) (presented to the House Committee on Education and Labor on October 24, 2008).  The study attempts to estimate the total job creation that would result from spending $1 million in six different ways—on educational services; public infrastructure; green investments; tax cuts for household consumption; military spending; and the oil and natural gas industry.  The category “public infrastructure” consists, in equal parts, of investments in transportation, water management, and institutional structures, including educational buildings. The category “green investments” consists of three areas of energy efficiency—building retrofits (40% of total); public transportation (20%); “smart grid” electrical transmission systems (10%)—and three sources of renewable energy, wind power (10%), solar power (10%), and non-food biomass fuels (10%). The study is based on the most recent 2005 input-output tables of the U.S. Commerce Department.

The results:

$1 million spent on educational services generates 23.1 jobs

$1 million spent on public infrastructure generates 17.2 jobs

$1 million spent on green investments generates 16.7 jobs

$1 million spent on tax cuts for household consumption generates 14 jobs

$1 million spent on military spending generates 11 jobs

$1 million spent on oil and natural gas generates 4.4 jobs

So, be proud—support education spending—wear buttons proclaiming that you are part of the solution not the problem.  And remember the more you get paid the more the economy gets stimulated.


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