Tue, 24 Feb 2009

Dumbest Ad Ever

The "American Issues Project" is running one of the dumbest ads I've heard in a long time. It's a criticism of the stimulus package, and it tries to shock people into thinking that somehow $800 billion is a huge number to get our economy on track. Here's how they paint it:
"Congress just spent nearly $800 billion of your money. How much is that? Well, suppose you spent $1 million every single day from the day Jesus was born. $1 million a day for 2000 years. You wouldn't have spent more money than Congress just did."
Well let's see here. So their point seems to be:
2000 years * 365 days/year * $1M/day = a lot of money ($7.33B)
Let's massage this equation to make it a little more meaningful because I just don't see how Jesus fits into the picture here other than to get some kind of quaint association with "what would Jesus spend"...

Another way of spending $7.33B is to spend that money since the birth of the US. 233 is about 1/9th of the duration of 2000 years, so if you spend $9M/day for 233 years, you end up at the same amount:
233 years * 365 days/year * $9M/day = a lot of money ($7.65B)
And while $9M/day really looks like a big number, let's consider that the population of the United States is over 300 million... So lets gather the per-capita spending based on this "reasoning"...
233 years * 365 days/year * $9M/day / 300,000,000 citizens = $2,551.35
Interesting when you look at it within the scale. Now the amount of money doesn't seem so outrageous does it? So in one fell swoop, to extricate ourselves from the biggest financial crisis we may ever know in our lifetimes, Congress has spent the equivalent of $2,500 per day per citizen alive for every day since the US has existed.

Does that sound unwieldy? It should. Does $2,500/person sound a little less than "$1M/day since Jesus"?

As a concoted figure, it doesn't mean anything. It's like deciding how much to bet on a horse race based on a formula like "number of days in a year * the amount of change in your pocket / the number of cars you've owned * the mileage per gallon of a prius (highway) * your shoe size".

A much more meaningful look at a $800 billion stimulus package is the ratio of this cost to our GDP. Let's start with the intended outcome of the stimulus package. Obama has stated that this stimulus package will create or save 3.5 million jobs. That means our current unemployment rate at 7.6%, with 11.6 million unemployed, would drop to 8.1 million unemployed and a reasonable unemployed rate of 5.3%.

Our GDP is currently $13.8 trillion. On a per capita basis of employed workers (which hovers at around 50%) it is $92,000. In other words, on average, every employed person contributes about $92K to the GDP.

Now, what we are doing is spending roughly $800 billion over two years to get 3.5 million people re-employed or from losing their jobs. In other words, we're spending $228K per unemployed person to get them to contribute $184K to the economy.

At first, this sounds like a bad investment. Why spend $228K to get $184K per person? For one, it fills homes with working families. It raises market confidence and stock prices and personal investments. It keeps the fabric of society healthier by keeping people employed, and probably reduces suicide rates, depression rates, and makes for happier families. But beyond all these intangibles, remember that the combined federal, state, and local government tax rate for most workers is about 40% of income. In other words, $91K of that $228K is going to come back to the government in revenue anyway...

...Not to mention the other benefits, such as modernizing or health care records, saving billions in health care costs, doubling domestic renewable energy over 3 years, reducing our energy consumption by weatherizing and modernizing federal buildings and 1 million homes, investing in our young peoples' futures by funding Pell grants, and cutting taxes on 4 million students, and a huge investment in our infrastructure, which will compound the investment over the next decade (at a ratio of 1:1.6 or so), and cutting taxes and providing tax credits, which tends to have a 1:1 stimulative effect on the economy.

Now, this math isn't near perfect, but it is "order of magnitude" accurate. Much like an estimate that $100 of gas won't get you from Seattle to New York, and that $10,000 is probably too much, $1,000 seems like "on the order of" the right amount to spend.

And based on the logic above, $800 billion is "right sized" to fix the problem we're facing, arguments about $1M/day since the day Jesus was born, notwithstanding.

Khan Klatt

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