Sounds like a strang title? You know me, I like to keep it interesting and this one will be. we are often confronted with complex economic situations and find it difficult to determine the affects of this or that decision. Well there is a very simple way to cut thru the complexity in many cases and that is the "With and Without" technique. Let's take the "Cash for Clunkers" program by Obama.
What they did was to give everyone who traded in an older car $5,000 in cash toward the purchase of a brand new car. To make this easy to follow, consider that if nothing were done at all, 1,000 new cars would be sold during the promotion period and with the program, 1,150 cars would be sold. Was this a good deal and who was it a good deal for? First, how much did the program cost? The actual "cash" given to buyers of brand new cars was 1,150 x $5,000 = $5,750,000 and the administration was $2,250,000 for a grand total of $8 million dollars. Doesn't sound so bad when the talking heads in the liberal media get thru with it, but wait. Now "without" the program there would have been 1,000 car sold and "With" there was 1,150 sold for a difference of 150 cars. This means we spent $8 million to help sell 150 cars. With me so far? To understand this, we have to go to 4th grade math and do long division for the answer. If we divide 150 cars into $8 million dollars, we get $53,333 per car. Now that is far more than the average car costs in the first place. As tax payers, we would have been better off giving these 150 people a new $40,000 car for free.
In the public sector, this happens all the time. Public schools are the perfect example. Our officials propose to spend a small percentage more to get some benifit at the margin. You can take almost any public situation and find that the economics are just not there when you do a "With" and "Without" and then look at the cost of the difference. I like to use the Detroit school system as an example of how spending more would help and just how much more we would have to spend. That assumes that any additional spending has any positive affect. Detroit now spends almost twice what other states spend per graduating student and still can only graduate 25% with their low standards. If doubling spending per student would make the graduation rate twice as good, we would have three times the national average in cost and still be at only a graduation rate of 50%, same as Los Angeles. Rather than twice the national average for a high school diploma in Detroit, these additional diplomas would cost four times the national average or over half a million dollars each. Is that worth it?
