Mark Gritter (markgritter) wrote,
Mark Gritter

Dimensional Politics

I had to untangle a particularly hairy calculation during a code review a couple days ago, and did dimensional analysis to make sure I believed it. Which brought to mind a political rant. Let's eliminate "create N jobs" from the political vocabulary. The correct quantity is the job-year.

Suppose the state is considering building a new stadium. Will this stadium "create up to 8000 jobs"? The statement is meaningless. The new Twins stadium had 3500 different people work on it, but a peak task force of about 800. It's like saying your family's budget is $20,000 but neglecting to specify whether that's per year or per month.

Constructions projects are particularly bad this way. Hiring 10,000 people to build roads and bridges for a year is just 10,000 job-years. You could get the same job-year benefit by hiring 2,500 additional teachers on four-year contracts. Or by a policy that brought in a 350-employee company that stuck around for 30 years. (Obviously if you want to consider the fiscal benefit it should take into account some discount rate, so if your goal is stimulus spending 1-year employment is better than 30. But normally policies should favor long-term effects.)

At the Project Skyway kickoff party, Cem Erdem joked about wanting $1b for startups instead of $1b for a stadium. How would that compare in job-years?

Well, venture-funded startups tend to grow at 1.5x-2x per year until they mature or go bust. Most go bust. Suppose the state of Minnesota puts $300m into 300 startups, each of which start out as a 3-person team. Let's make up some numbers:

Year 1: 300 startups remain, 3 people each, 900 job-years, 15% go bust
Year 2: 255 startups remain, 6 people each, 1530 job-years, 30% total are bust
Year 3: 210 startups remain, 12 people each, 2520 job-years, 40% total exit by end of year
Year 4: 180 startups remain, 20 people each, 3600 job-years, 45% total mortality
Year 5: 165 startups remain, 30 people each, 4950 job-years

13,500 job-years total, easily beating the construction project even without looking farther into the future!

Startup numbers are tricky to find. SBA says 69% of new businesses survive 2 years and 51% survive 5 years. TechStars claims only about 10% mortality after three years--- and about 15% successful exits.

Google's corporate history has:
Sep 1998: 3 people (The third guy quit last week. I had him as a TA at Stanford.)
Feb 1999: 8 people
Nov 1999: 40 people
Mar 2004: 800 people

I don't mean to make a serious argument that VC is a better use of $300m of taxpayer money than a stadium. But if our focus is "creating jobs" then we need a long-term metric, not how many different construction people would work on a project.
Tags: economics, numeracy, politics, rant
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