Economic Stimulus: Part 6 – Unintended Consequences

Where I live roads are being repaved early; years before they need to be. We received some “stimulus” money and we’re spending it.

Eventually, these roads would actually need repair. So, in a sense, the money is not being wasted. It’s just being spent early. Of course, value is lost because repaving early wastes the remaining value of the previous paving; it becomes a sunk cost. I’m sure VDOT knows what the sunk cost is.

Beyond the sunk costs there are now traffic jams where there were none before the repaving started. Now, I don’t know any of the details or costs of these projects. I’m just thinking and wondering so I’ll just make up some numbers to play with – let’s say 50 people are employed who wouldn’t be employed if not for the “stimulus” financed repaving projects. I think that estimate is ridiculously high, but I’m going with it just for the mental exercise.

So, if 50 people are employed for a year at $40,000 per year in total wages – again I’m just making up these numbers – then $2,000,000 in direct wages would be added to the local economy (plus the cost of material which would be spread out over the state economy and perhaps further).

$40,000 per person per year in wages equates to $19 per straight time hour (I’m rounding all of these numbers to the nearest whole dollar). If repaving related traffic jams reduce a person’s daily productivity by 10 minutes and the people in the traffic jams also earn $19 per hour then the value of the lost 10 minutes is $3.

If one person loses $3 per day in productivity and the repaving related traffic jams occur 250 days out of the year then the $2,000,000 in direct wages would be countered by the lost productivity of 2,496 people at 10 minutes each per day. It’s not a big stretch to believe that this could happen. Even if my fictional example overstates the effect by twice it still suggests that half of the direct wage portion of the “stimulus” might be totally ineffective. In fact, considering that people losing productivity in traffic jams are probably engaged in work that others are actually willing to pay for without the “stimulus” their $19 is probably more valuable to the real economy than the $19 earned by the paving workers.

Now, suppose someone is injured in a repaving related auto accident. One could coldly calculate that the cost of repairing the damaged vehicles adds to consumption, but more likely it just redirects consumption to the repairs from some other part of the economy. If someone is injured, however, their productivity could be impaired for weeks or months, or even the rest of their lives.

If two people suffered permanent loss of their productivity through injury or death and each effectively lost 25 productive years the $2,000,000 in direct “stimulus” wages would be counterbalanced; again assuming $40,000 per year in productive value per person injured; Not counting the possibility that a permanently injured worker could find himself on public assistance for the rest of his life. And not counting the possibility that his children may be unable to go to college, or to the college of their choice.

Like I said before, all of these numbers are made up. But I wonder if the value of the sunk cost of repaving early, plus the value of productivity lost in repaving related traffic, plus the productivity lost because of any repaving related auto accidents is really less than the “stimulus” money being spent; borrowed money that must be repaid by taxing our productivity

Links to Other Topics in the Special Report: Economic Stimulus