Jobs saved? I truly have to question the logic and numbers.

Posted by on October 30, 2009 1:41 pm
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Saved jobs are a great idea and something very hard to prove, no matter how many equations and mathematicians are involved.

Have you ever had a moment when just wanted to go back in time and put duct tape in your mouth?  Professionally, the next few words have been in my mind ever since, and I cannot believe I was not fired right there and right then.  I said, and I quote myself “…but Howard, you have to understand we avoided the cost of an additional 80 people…” and the world came to a complete stop; long before Howard’s face turned white with rage.  I realized what I had just said.  It was a rookie engineer’s mistake.  I had been taught that lesson in my very first cost accounting class.  I had been taught that in every single management accounting class.  I had been taught clearly that cost avoidance is the hardest thing to prove, and the easiest thing to hide behind if you have no idea if your idea worked or not.

Cost avoidance, one professor said, is best understood in the next parody (just like Job Loss Avoidance is playing with numbers).

Wife comes home from the shopping spree and shows off her mink to her husband.  She says to him, “…and it was not as expensive as you would think.”

“Oh,” he says raising one eyebrow

“Well, you see we talked about getting that new Mercedes Benz last week, and I decided I can use my old car for the next two years.”

“OK, I’m glad to hear you’ll use your Lexus for another two years, but what I don’t get is what that has to do with your new Mink coat?”

She smiles her prettiest smile at him, and says “Well, see dear, the Mercedes was going to cost us another $20,000 over the trade in on the Lexus and since we are not spending that, the Mink only cost me three thousand dollars.”

“Oh, Lucy!!!”

“Oh, Ricky…” and fade to black.

That is cost avoidance.  It does not work, and you can come up with many other examples.  So, now that you get my point about how I once stuck my foot in my mouth very deeply with the new president of the company I worked for,  now let’s move forward to the justification of the opening line “Jobs saved, I don’t believe it”

We invested 3 billion dollars in the cash for clunkers.  That spurred consumption in the automotive industry.  If you believe Edmunds.com only 125,000 cars were bought that otherwise would not have been bought.  Let’s start with that number because it is the most conservative of numbers (the one that has the least impact, and if that makes sense the larger number will too make sense).

How many jobs did the cash for clunkers save?  Let’s assume that a production line has X number of workers and you have Y number of cars per hour coming off that line.  So I take 125,000 cars sold that were not going to be sold, and divide that by Y cars per hour and find how many hours of labor I forced to be used by the new car sales.  Are you with me now?  125,000 / Y = the number of hours necessary for the production lines to make the cars sold: Simple math.

Now we take the Answer from above in hours of line of operation and multiply it by the X number of employees per line and we have the number of jobs we saved.  Wow!!!  That makes you feel so good, doesn’t it?  Especially if you bought one of those 125,000 cars – imagine if the White House numbers are right, imagine the numbers of jobs we’ve saved.

Here’s where it all falls apart: Sorry to say.

1) How many of those cars were in inventory?

2) How much of the family’s income was used to buy a car from inventory (was made long ago) that could have been used to buy a refrigerator, a dish washer, a new television, or to do home improvements?

3) Even if the 125,000 cars have to be put back into stock (and the automotive companies don’t have the cash to do it, so we flip the bill too), how long will the combined production lines in the US run?

No, all of those questions, and the hundred more imponderables that must be answered, will be glossed over by a simple calculation to make a point; a point without substance and a point that makes us thing the economy is “not as bad as it could be” but in reality (and you must deal with reality if the economy is to get better) the solutions to our economic conditions are only in the understanding of the true “constraints” in our economy, not by good intentions but by hard work.

Until we look at reality in the face we won’t solve the problems, we’ll just dig a deeper hole.  How deep are we going to let the politician’s dig this hole before we make our ballots count and get fiscally conservative minded politicians who get the government off the entrepreneurs back (taxes) and get the economy fired up by real value generation, not tax dollar driven government deficit spending.

Make you vote count, now and every time.  Contact your congressman and say “no” to any more bailouts.

Respectfully submitted
The Lee’s Summit Conservative

One response to Jobs saved? I truly have to question the logic and numbers.

  1. Zainea November 23rd, 2009 at 10:25 am

    It is economically correct to spend the 3 grand on the mink rather than the 20 grand on the benz. It's opportunity cost the most basic thing, if you spend the 20 grand on the benz that's 20 grand you could have spent elsewhere, that could prove better making the choice not to a good one, or it could prove useless. She can easily get more use out of her car as stated, and spend the 3 grand on the Mink, while allowing for 20 grand to be spend elsewhere in ways that have a great opportunity cost. While the 3 grand on the Mink may not be the best way to spend the money (low opportunity cost) the other 17 grand may have a better use.

    If inventory clears up, then in the long-run, which is what we should focus on, not the short-run that everyone loves to, there will be jobs saved because they will need to restock inventory, because no company will operate with out an inventory, that is logic.

    Focusing on the short-run is like trying to heal a scrape on your kids knee in a day by packing on the neosporin, when we all know its going to take at least a few days if not a week, even with the help of the neosporin. How much time does the neosporin really take off? That is up to debate when it comes to non-physical issues. Because the economy isn't made up of cells that work together and continually keep the economy growing and repairing, or is it?

    P.S. taxes are a good thing, especially when we have trillions of dollars of debt.
    before you look at the graph below ask yourself "are taxes worse now than in the 80's?" …

    http://gregmankiw.blogspot.com/2009/10/average-marginal-tax-rate.html … as you can see we are down from the 80's.