Monday, October 16, 2006

Folkbum--Please Don't Teach Math!

Folkie goes to some trouble to show us that the Republicans are just eeeeeeeevil.

Too bad he didn't consult with Dad29's short course in Economic Growth; he could have used it when in his "discussion" of the Honda plant.

Folkie states that Indiana coughed up $140+ million in aids to Honda, or about $70,500/job. He sprays the foofoodust around by telling us that "That's got to be more than the annual salary of those workers."--as though that were relevant.

It's not. Indiana gummint was thinking in the 20-year term.

Let's help Folkie with Econ Math 101, using the same approximations Dad29 used for Menard's. First, we'll imagine that the Honda plant was built in Wisconsin.

1) There will be 2,000 jobs. Let's say that each of those jobs pays $25K/year, or $50,000,000 annually in direct payroll (doesn't count benefits.)

2) Let's say that each of those workers paid 3% of their wages in State income tax. $1,500,000 annual State Income tax revenue.

3) Let's say that each of those workers also spent $10,000.00 on items subject to the Wisconsin Sales Tax. $1,000,000 annual Sales tax revenue.

And let's keep this REAL simple--we'll assume that there is NO local property-tax income.

What do we have? $2,500,000 in State revenues each year. Multiply that by 10 years--it's $25 million dollars before the commonly-accepted 3.2X economic multiplier.

If you multiply $25MM by 3.2, you get $80 Million Dollars.

It's a "loser" until year 20--after which it is a "winner."

And that's before ANY local tax impact.


The Asian Badger said...

Great post. Too bad the left will never get it.

Anonymous said...

Okay, help me here, Dad, in terms of another post downscreen. On the one hand, doesn't the same upside apply to having lots of UW teachers who, even though we all pay part of their salaries (students pay more), are also taxpayers paying a lot of it back in income taxes, sales taxes, etc.? So I wonder what the effect is of the constant cutbacks in fulltime UW teachers.

On the other hand, you point out below a problem as those workers age and come due for retirement benefits -- but isn't the same true after 20 years for the home of Honda, in terms of the state pickup for a lot of costs even of private-sector retirees these days?

Seriously, it's all so complex that I would appreciate your take on the economic upsides and downsides -- as the main rule I remember from Econ is TINSTAFL (there is no such thing as a free lunch), so I wonder whether there are a lot of eventual bills that come due in states that attract these businesses that are increasingly unloading retirement costs on the public. There are few I have found who can get to such matters clearly and fairly as you do. (Are you a financial retirement counselor on the side or something?)

Dad29 said...

I'm not smart enough to be a retirement counselor.

The State of Indiana will not be picking up "retirement" costs for Honda workers except through Medicare costs. All other 'costs' will be Honda pension and/or 401(k) plus Social Security. Not the same as UW profs' situation.

The UW question is too complex to be addressed here--it would take at least two weeks for 3 people to agree on the purpose of the UW system, much less how to fulfill that purpose.

Once you determine the purpose of the UW, you can get around to "what will that cost." IMHO, the purpose of the system is NOT so that graduates "can get jobs."

If it's not higher-ordered than "jobs," it's not a University--it's a trade-school.

I happen to think that we have too many students (thus too many profs, buildings, etc., etc.)

But that's a philosophical question, not a pragmatic one, and it's national, not local.

Anonymous said...

Well, okay. I had read elsewhere that states get socked with more costs of retirees. . . .

But too many profs? When UWM has fewer than 700 faculty for more than 28,000 students? (Another problem with the report, at least as it was reported by media who have trouble figuring out who taught them, is that it looks to me like they used "faculty" for faculty, fulltime instructional staff, fulltime administrative staff, etc.)

As a UWM and UW grad, I do know that I was taught a lot more than how to get a job -- although I have gotten great ones and more than my money's worth, which I have paid back in taxes all my life here. And I do know that we have a problem in Wisconsin with the average educational level being below the national norm, and another problem with losing so many of our UW-trained grads to other states.

So I agree with those who say that we need more UW grads and more jobs for them here, since their jobs return a lot more in income taxes, sales taxes, etc. -- and right now, a lot of that is returned to other states.

Dad29 said...

When I said "profs/capita" I meant exactly "professors" and I was unclear:

"per capita" refers to the total population of the State of Wisconsin.

IOW, if Iowa has 2 full Profs in its State U system for every 1,000 citizens of the State, Wisconsin should not have 6 full profs/1,000.

Dad29 said...

You haven't yet told me why simply "having UW-system graduates" is a good thing.

If it's THAT good a thing, let's award degrees to everyone over the age of 25.

Jay Bullock said...

Folkie goes to some trouble to show us that the Republicans are just eeeeeeeevil.

In fact, no, that's not my point at all. If that's all you took away from that post, then maybe you need to come back to my English classes.

But more importantly, regarding the Honda plant, there are a few factors I think you're missing:

1) No one in Wisconsin believed it was anything other than an outside chance, not even the Walworth County officials who finally put in a half-hearted (late) bid. To argue that we somehow "lost" the plant is to argue that the Washington Generals "lost" to the Harlem Globetrotters. But if you insist on pressing the argument . . .

2) In order to make Wisconsin look attractive to Honda, we would have had to have offered more than $70k per worker to make up for our being so far out of the Honda supply-chain loop. I suggested maybe $100k.

3) I'm not so stupid as not to realize that investment is long-term, and heavy lifting now makes for easier returns later. But the question becomes, where do we get $200m to entice Honda? Our budget is already strapped; our legislature regularly cuts programs 1/100th the size because we can't afford it.

4) Your multiplier seems high, by both Honda's reckoning and other estimates I read.

But here's a key question raised by the article I referenced in the first place: Is it better to pursue chimeras like Honda or--admit it--the Menard's plant, or is it better to encourage growth within industries we already have? Mark Green would have us chasing geese.

Dad29 said...

The FIRST Rule of sales is that you chase EVERY lead. Then you determine whether they're actually do-able.

Walworth County AND the Governor apparently did not chase the lead--albeit Walworth sent a letter, or whatever.

My Econ 101 teacher was Les Aspin, and HE's the one who used 3.2 as a multiplier. I'm sure you won't question his credentials (D all the way...)

Your number of $100K may be correct; we'll never know...right?

Where the $200MM? I'd suggest the public schools, but you might not like that. However, there's plenty of money available in the Wisconsin budget when one looks for ways to SAVE it rather than SPEND it.

We could even BOND it, like our current Governor does with everything else.