Building Value

We’re in a recession, and unemployment is high.  Some level of government stimulus is a good idea.  But how do we determine which programs are good? Is “Cash for Clunkers” a good idea?

I evaluate spending proposals by considering what long term value is being built.  The government can inject cash into the economy, but after the short term injection, will value remain in the economy which can benefit us for the long term?  Or is it just a short term spend?

Cars for Clunkers is a short term fix.  It adds cash to the economy for a short period, and allows Americans to continue consuming more goods than we probably need.   What happens to cars?  They get consumed – they get driven, used, and eventually (5-10 years later) get scrapped.  So when the government signs up to spend $5B on cars, they’ve injected a temporary cash boost to the auto-industry, and helped consumers get some “stuff”.  But in the end, Americans receive no long term value from this cash injection.  And when the government stops spending, the auto makers will need to layoff the workers they hired to accommodate the short term needs of the boost.

A better use of money is to build things of value.  If the government wants to create jobs, it should invest in building things.  Building schools, improving roads, and building national or local infrastructure builds long term value.  Unlike the car which will wear out in a few years and provide no value, building a school lasts for decades.  Not only do the citizens building and running the school benefit now, but the school is still usable by our children and grandchildren in the long term.

Tell your congressmen to vote no on any short-term cash injections.  All spending should build value.  If your senator can’t show long term value in their spending, it is not worth it.

4 thoughts on “Building Value

  • August 9, 2009 at 6:58 am

    I take another view on this. How many short-term US jobs are created by the effort. One estimate I heard in an NPR article ( ) discussing the matter for round 1 of cash-for-clunkers was the 40,000 cars that otherwise would not have been purchased were purchased. The rest were displaced purchases that would have taken place anyway either before cash-for-clunkers (and, knowing of the program, they waited) or after (folks who purchased sooner to take advantage of the $$$).

    So, $1B for 40,000 cars. That’s costing the taxpayer $25k per stimulated car purchase. Now how many jobs did 40k additional cars create? I’m fuzzier here. Let’s say we created 1000 jobs (which is probably a very generous upper bound). That’s $1M per job created. And the stimulative effect will actually _decrease_ car purchases as the program expires due to the purchase-timing effects.

    I rate that a _poor_ on the job creation efficiency scale. Paying people minimum wage to dig holes and fill them in would be dramatically more stimulative and more job creating per dollar. How many folks can we employee digging holes? Assume they bring their own shovels and that the real cost to employ them is 3x their wages. Minimum is what, $7h/hour these days? That means we can buy approximately 23k man years (52 weeks at 40 hours) of minimum wage labor for $1B. So let’s say we want to offset 500k folks unemployed. Okay, that’s only 2.4 weeks of hole-digging employment per person. Not so great. But much more distributed than the 1000 short-term jobs we might have created with this $1B.

  • August 9, 2009 at 8:13 pm

    Jeff, we’re in complete agreement. I had no idea that the car rebate was so inefficient ($25K to distribute a $4500 rebate? that’s 80% overhead?)

    Anyway, even if jobs are created – they are SHORT TERM JOBS. Short term jobs are not a way to build value. Giving people cars they don’t need also does not build value.

    Paying people to dig holes is silly. How about paying people to pick up trash at least? For building value, lets build homes, bridges, schools, and town halls. These are valuable today and tomorrow. They won’t be gone after the recession is over.

  • August 11, 2009 at 8:12 pm

    Blanket polices like ‘lets build schools’ doesn’t work any better than ‘lets build cars.’ I bought a house 2 years ago because it backed up to an elementary school, now that school and 2 others in my district are being shut down because of budget problems. Now not only is the school going to be vacant and useless, it will bring my property value down. So, no it’s not guaranteed to build value and might _in the long term_ even reduce value.

    Same thing with roads … in Alabama they’re building a roads with seemingly little value, short or long term. Search for ‘road to nowhere’ to find out more. And just like cars, buildings and roads require maintenance and eventually need to be replaced.

    I’m not saying cash for clunkers is the best program, or the 2008 bush tax rebate was the best program, or any other program is without fault. What I’m saying is that this type of spending does build value, and will have lasting effects if not as apparent as hiring 500k people to dig holes or build bridges.

  • August 15, 2009 at 5:47 pm

    Dan –

    Certainly building foolishly is bad. But cars are consumer goods. It’s like telling someone to go buy a big-mac. After you’ve eaten it, what do you have to show for it?

    Building roads, schools, offices, and houses builds value. These can be used by your grandkids. The car, it will die before then and need to be scrapped.

    So – on one hand – you are right – building roads to nowhere doesn’t have much value. But I don’t believe there are no roads to be fixed. I don’t believe there are no schools that need more buildings or classrooms, and I don’t believe that cars are a better investment for the future than building value.

    How about paying off the debt? Oh – who are we kidding – we’re just going to print the money!


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