Napkin stimulus thoughts 1
Posted by Dave Bath on 2009-02-04
The Krudd A$42 billion stimulus seems predicated, despite Keynesian clothing, on trickle-down philosophy and might well be design ed to recapitalize banks rather than secure jobs, confidence and economic activity.
This is the first in a series that provides "back of the (table-napkin|envelope)" calculations and fairly straightforward psychological assumptions to suggest a very different approach.
If you are unsure of future employment, any cash surplus to immediate needs will be used either to pay down debt, or put into low-risk (preferably government guaranteed) accounts at banks. This is especially true of those who are better off.
If you are sure of future employment, you are likely to discount remuneration for security, and much more likely to spend money on discretionary items, boosting employment in other sectors.
Rudd’s giveaway doesn’t give any sense of job-security to anyone, so it won’t boost confidence, won’t have a follow-on effect on employment, with the main effect being increasing the capital available to banks.
This is indirect and disingenuous of Rudd. If he wants to capitalize the banks, he should use the same money in return for equity in those banks (or start up a "NewCommBank" in competition with the existing ones).
For every A$10 billion per annum, you can guarantee job security for 100,000 people and have a very good chance of saving another 50,000. The rule of thumb is that to employ a team of ten people, it will cost you A$1 million. Properly managed, the flow-ons can secure at least 150K jobs given A$10B.
To sustain an employee, including superannuation, the building they work in, the desks, the power, etc, it costs roughly twice that worker’s wage. This is slightly lower for higher-paid workers, because while they might have a laptop rather than a desktop, their desks, pens, photocopiers, lights and toilet facilities are exactly the same as the lowliest worker in the team.
For government employees, we need only consider take-home pay, because tax goes straight back to the government anyway, lowering the 2:1 ratio mentioned in the previous paragraph. Indeed, public sector wages could be given "tax free" to save on administration costs!
Given that "teams" (including service personnel like cleaners and receptionists in a "team" of IT geeks, for example) have approximately ten people of varying seniority, lets imagine a typical "spread" of take-home wages which are relatively generous:
- Team Mangler: 1 x $70K = $70K
- Expert Non-Managers: 2 x $60K = $120K
- Experienced Grunts: 3 x $50K = $150K
- Grunts: 4 x $40K = $160K
- Total Take Home Pay (11 people): $500K
- Double for desks, super, etc: $1M
So having 10 government employees, including pretty much all associated expenditure, should cost around $1M dollars.
Therefore, $1B = 10K public servants, and $10B = 100K public servants.
Increased Social Security Workers : Calculation
Let’s say that 800K extra unemployed is a valid extra load on social security agencies. This doesn’t include those other people that remain employed but are also financially stressed.
(800K / 40 hours per week / 60 minutes per hour) * (5 minutes per contact per week) = roughly 1600 extra public servants just to handle the newly unemployed! And that doesn’t lead to new productive work that generates things we can sell (either domestically or internationally)!
Hmmm… 1600 * 1M / 10 = $160M just to handle the extra unemployed!
Flow-on Employment Security
For every dollar in take home pay, let’s say that half of it (well above defined stress levels) goes on housing and utilities.
Knowing that we only need consider take-home pay because government gets tax back, that means for $10B on 100K public servants, half a bill goes back into circulation (because government employees feel secure and a happy to spend), which means another 50K workers (if public servants), or discounting for private sector profits and higher wages, lets say 40K.
Obviously, the more public servants in the series, the better, and the series would approach double the original number of employees (adding up to 200K), but with the inefficiency caused by profits and higher wages in the private sector, this would add up to more than 150K employees with secured jobs from $10B spent on public servants.
- The next installment will investigate what sort of tasks can be re-insourced from the private sector, and possible efficiency gains, and how time "insourced" can restructure things to be sold off again with higher than previous peak prices.
- Earlier posts that relate to the theme of this new series include