PELTO: "Creating Quality Jobs vs. Creating Quality Workers"

Cross post from Jon Pelto's Wait, What?

Having completed the task of dropping my child off at college, I'm reminded of the challenge that faces our chief elected officials, whether in Washington, or here at home in Connecticut.

In particular, as the effects of the Great Recession continue to take its toll on the nation; those of us in the trenches are left to ponder about what is the proper balance when it comes to using public resources to create quality jobs versus creating quality workers.

In one of my old college economic textbooks, I found a definition of a public subsidy as, "the provision of economic value by a public entity to a private entity for purposes beneficial to the public..."

That is, government, on behalf of the people, spends money, not to purchase goods and services, but to induce actions that have a longer-term benefit for society.

It might be providing grants, loans, or tax benefits to businesses to get them to maintain or expand the number of quality jobs they provide.

On the other hand, it might be providing grants, loans, or tax benefits to individuals, so they can go to college and have better, more productive lives and become part of a quality workforce that allows our economy to be successful.

Like many middle-class families, paying for college has eclipsed the challenge of buying and maintaining a home.  Earlier this summer, I once again signed the federal government's Parent Plus Loan promissory note to borrow $30,000 (at 5.9 percent); an amount the government formula said was my "share" of the bill.  Grants and subsidized loans covered the rest.

At this point, it looks like I'll need to borrow about $120,000 for the undergraduate degree.  With interest, the total cost over ten years will be $159,000,000, just over $39,000 of which will be interest on the loan.

There's more below the fold...
At about the same time, Connecticut's governor signed a "promissory note" on behalf of Connecticut's taxpayers to pay the world's largest hedge fund, Bridgewater, $115,000,000.  Although Bridgewater had enough money to pay its CEO $3.9 billion last year, making him the highest paid employee in the world, apparently the public funds were needed to persuade Bridgewater to stay in Connecticut, build a new headquarters and add 800 new jobs over the next ten years.

The public subsidy included a ten-year, $25 million forgivable loan, with an interest rate of one percent, $5 million in grant funds for job training, $5 million for an alternative energy system, and $80 million in Tax Credits.

If Bridgewater fails to create the 800 new jobs over the next decade, it will have to repay the $25 million dollar loan, but will be allowed to keep the other $90 million in public subsidies. The one percent interest rate on that $25 million loan means the company would have to pay about $1.3 million dollars in interest.

In the end, when you calculate the numbers, it really means that as a middle class family, I pay a carrying cost of 26 percent to get the funds I need while the world's biggest hedge fund pays a carrying cost of 5 percent.

Or put a different way, to create that quality job, Connecticut's taxpayers are giving Bridgewater about $150,000 per job, while I'm paying (after the various public subsidies) about $160,000 to help "create" a quality worker.

Truth be told, I've given up trying to figure out the fairness in all this, but as part of the ever-shrinking middle class, the modern phrase, "I'm just saying," seems particularly appropriate.

I'm just saying...

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