Free Markets, Free People

People who live in glass houses…

When you accuse someone of stupidity, it’s probably wise to avoid saying something stupid yourself while doing so.  Sadly, E.J. Dionne fails to avoid that trap.

Our discussion of the economic stimulus is another symptom of political irrationality. It’s entirely true that the $787 billion recovery package passed last year was not big enough to keep unemployment from rising to over 9 percent.

But this is not actually an argument against the stimulus. On the contrary, studies showing that the stimulus created or saved up to 3 million jobs are very hard to refute. It’s much easier to pretend that all this money was wasted, although the evidence is overwhelming that we should have stimulated more.

Very hard to refute?  That’s nonsense on stilts.  Mr. Dionne may be so smart that rays of light emanate from his brow, but the paragraph above is an extraordinarily foolish position.

First, any statement of any jobs “created or saved” requires that we perform the impossible task of modeling how the economy would have performed in an alternate universe where a different policy mix was applied. We literally have no idea–nor any way to construct a testable hypothesis–that models how the economy would have reacted in the absence of the stimulus.  Even the Congressional Budget Office, while rather supinely delivering a report that ostensibly supported the administrations claims about job creation, was careful to note:

…it is impossible to determine how many of the reported jobs would have existed in the absence of the stimulus package.

Second, the methodology was extremely suspect.  In making its predictions of post-stimulus recovery, the administration simply plugged in an assumption about the multiplier effect of government spending.  They assumed that X amount in spending would result in Y% increase in aggregate demand, resulting in Z jobs.  What the CBO did in checking up on that prediction, was to plug essentially the same assumptions into their model, which, unsurprisingly, “confirmed” the predictions. Even the CBO seemed a bit embarrassed about that.

But the CBO, to its credit, has been fairly forthcoming about its methods and their limitations. In response to a question at a speech earlier this month, CBO director Doug Elmendorf laid out the CBO’s methodology pretty clearly, describing the his office’s frequent, legally-required stimulus reports as “repeating the same exercises we [aleady] did rather than an independent check on it.” CBO tweaks its models on the input side, he says—adjusting, for example, how much money the government has spent. But the results the CBO reports—like the job creation figures—are simply a function of the inputs it records, not real-world counts.

Following up, the questioner asks for clarification: “If the stimulus bill did not do what it was originally forecast to do, then that would not have been detected by the subsequent analysis, right?” Elmendorf’s response? “That’s right. That’s right.”

In other words, the CBO’s regular, legally-mandated reports, are estimates based on an economic model that doesn’t actually take inputs from the real world. They simply take the same estimates the administration used to create their predictions, then apply them to the monthly spending report, coming up with a number of jobs “created or saved” that is, unspurprisingly, exactly what the administration predicted.

Please note: this has no actual relationship to the number of real-world jobs that exist.  The only thing the CBO reports prove–by its own admission–is that it is possible to replicate the administration’s predictions by  duplicating the assumptions.

So, not only is it untrue, as Mr Dionne asserts, that “studies showing that the stimulus created or saved up to 3 million jobs are very hard to refute,” the CBO director explicitly refutes that notion by agreeing that “[i]f the stimulus bill did not do what it was originally forecast to do, then that would not have been detected by the subsequent analysis.”

But, let us say, arguendo, that Mr. Dionne is right, and the $787 billion did, in fact, create 3 million new jobs.  The price tag then, comes to $262,333.33 for each job created. That seems like a relatively steep price.

Happily, we know more or less precisely how many people are employed in the country, and how the size of the labor force has changed. We know this, because the Bureau of Labor Statistics releases those figures on a monthly basis, and they are publicly available at the BLS web site.  If we assume March 2009 to be the first month of the stimulus, we see that there were a total of 140,854,000 Americans over the age of 16 employed, including farm employment.  As of Jun, 2010, there were 139,119,000 Americans working. That tells me that there are 1,735,000 fewer Americans working today, than there were when the stimulus was passed.  If we exclude agriculture, and look at only non-farm payrolls, we see that there were 132,070,000 people employed in March, 2009, vice 130,470,00 in June, 2010.  Again, that’s a net loss of 1,600,000 payroll jobs.

I’m not seeing any net job creation there.

In at least one sense, though, Mr. Dionne is quite right.  Since the administration’s claims of 3 million jobs “created or saved” is empirically disprovable, they can tout them as much as they’d like, even in the face of 1.6 million jobs actually disappearing under the stimulus.  After all, they can always say, “There would have been 3 million fewer jobs if we hadn’t acted.  And if you don’t believe me, prove me wrong!”  It is, after all, so comforting to be able to take refuge in an unfalsifiable hypothesis.

18 Responses to People who live in glass houses…

  • In light of what we’ve learned recently about Journolist, it strikes me ridiculous that anybody assigns any more credibility to MiniTru than they would to Pravda, Der Sturmer, or fortune cookies.  What we see from Dionne is a piece of pure political propaganda; he might as well be a mere stenographer for Baghdad Bob, Plugs, or The Dear Golfer, because his prose is identical to what they say every other day.  It is completely divorced not only from economic reality, but also from the historical record.

    It’s entirely true that the $787 billion recovery package passed last year was not big enough to keep unemployment from rising to over 9 percent.

    Except that we were told at the time that it WOULD be big enough.  After the Dear Golfer, Dingy Harry and SanFran Nan rammed this thing through and they indulged in the usual orgy of preening, we were promised that unemployment wouldn’t get above (IIRC) 8.5%.  Now, even the regime has to admit that unemployment is likely to hover around 10% for months to come.  In short, they said it would work and it didn’t, so they have to pitch the idea that “it wasn’t big enough” with the usual corollary that this is the Republicans’ fault.

    Let’s also consider the paradox of calling this the “Summer of Recovery” even while lamenting that the stimulus MIGHT have BARELY failed to live up to the most rosy of expectations. 

    On the contrary, studies showing that the stimulus created or saved up to 3 million jobs are very hard to refute.

    Of course they are… because, to my knowledge, they don’t exist.  What we DO have are claims from the mouths of The Dear Golfer, Plugs, Tax Cheat Timmy, etc.,which show a surprising degree of variation.  In one speech, it’s 4 million.  In a press conference on another day, it’s 3 million.  An op-ed might say 2.5 million.  As Dale says, it’s a great thing to be able to say, “You’re wrong because you can’t prove me wrong!”

    This also completely ignores the fact that millions of people are chronically out of work. Hell, if Porkulus was so wonderful, why did the Congress just have to extent unemployment benefits AGAIN?

    Seriously, Dionne’s piece is the sort of thing I’d expect to read in the official government newspaper of some tinpot dictatorship.  It is beyond crap.  He should be ashamed… and unemployed.  Why a major “news” organization exposes itself to ridicule and shame by having such a no-talent hack working for them is beyond me.  Unless, of course, they aren’t really a “news” organization.

  • OK, I am going to take an unfair, but fun, shot.  Perhaps, Dionne reached his conclusions because he studied “The Myth of Free Markets” under Scott Erb.  Just teasing, Scott.

  • Dionne seems unfamiliar with the concept of a multiplier.  The Rohmer and Rohmer paper showed the most effective stimulus was tax cuts.  Other studies are showing that with the current national debt, debt based stimulus has a negative multiplier.   Barrow and Redlick discuss that:
    http://online.wsj.com/article/SB10001424052748704471504574440723298786310.html
    I can pull out other studies.  The problem with Keynesian Economics is that it has become the equivalent of a free lunch and we know what Friedman (or was it Heinlein?) told us about free lunches.  Politicians love Keynes because they think it means they can give away stuff and fix any problem.  But, we have reached the limits of Keynesian stimulus.  The cupboard is bare because we have way too much debt already.  The consumer and business are reducing debt, but the government thinks the end is not nigh.
     
    Unfortunately, we now have a tissue of lies from our politicians.  Medicare and Social Security cannot survive in their present form.  Our banks are bankrupt.  Our government will not be able to manage the current sovereign debt, let alone increase it.   We are Greece, but with the ability to print money and drive our citizens into poverty.  Bernancke is fighting to keep interest rates down, not so the economy can recover, but so the banks can continue as going concerns and so the government can afford the interest payments.

    • Economists generally consider tax cuts to be poor stimuli to an economy because they are inefficient — the money might get saved, might be used to buy foreign consumables, to pay off debt, or other things not directly stimulating the economy.   I’m sure you found economists who disagree — economists continually disagree — but the conventional wisdom here is against you Rick.

      • Would you please shut up. You have no idea what you are talking about, and “Economists consider” as an introductory phrase is the perfect indication of it. Then there’s the attempt to predict individual behavior, as if you could possibly know what people would be ready to do with THEIR money when allowed to keep more of it, or what impact what they do with it would have on the business cycle.

        I pity, really pity, any poor schlump of a UMF student who has to sit and listen to you spill your wretched bull urine into a classroom. Honest to God.

      • Economists generally consider tax cuts to be poor stimuli to an economy because they are inefficient…

        Oh, really?  Citations to  economists in general…not one or a few…for that proposition, please.  What a puke….

      • Scott, see the Paper by Romer and Romer:  http://ideas.repec.org/p/nbr/nberwo/13264.html
         
        Besides, we can see the current deficits of 10% of GDP are getting us 2.5%  GDP increase.  hardly a bargain.
         
        Second, do not confuse one time tax rebates with permanent tax cuts.
         
         

      • I also should add, we now seem to consider paying off debt as “saving”.  Yet, often it is required debt be paid off before there can be new spending.

      • Well, most of Obama’s cash for clunkers went to buy foreign cars. And the people who went for cash for clunkers were mostly going to buy cars anyway, it just brought some purchases forward, so he created a mini boom (followed by a mini crash) for Toyota and Honda.

        The money given to states simply allowed them to kick the can down the road on their overspending on public employee retirement plans.

        One can continue down, line by line, on each aspect of Obama’s stimilus, and see where it failed. And fail it did.

      • There is the moral matter of allowing the people who worked to earn the money in the first place decide how to spend it, since, after all, it is theirs and all.  If you decide to buy foreign consumables or bury your money in your back yard, that’s your right because it is your money.  It isn’t my flipping business to say anything about it, either, even if my local congress critter takes your money and puts it to a use which benefits me more than your own choices.

  • It’s entirely true that the $787 billion recovery package passed last year was not big enough to keep unemployment from rising to over 9 percent.

    Then why was it passed?  Why was it spent?  If that is so manifest now, who was lying to us during the passage?
     
    Of course, the truth is that NO amount of spending would push the economy into a healthy state.  Keynes was wrong.
     

  • For excellent reasons, faith in BIG GOVERNMENT is collapsing…which is all to the good.
    Our central government is at war with its own people.   It’s time we put an end to their rebellion.

  • The massive urban looting that was the Stimulus bill, the only thing I can compare it to that states how blatant a heist it was is the Nazi looting of art in Europe. The Stimulus was that monumental a theft and the price per job doesn’t even begin to tell the story. That thing blocked, it did not help, economic recovery. It sandbagged the recovery, and when the markets began to compensate for that effect, along came the economic mass murder of the health reform bill. When the market just seemed about capable of wrapping its head around that, with the hope that it could be repealed, then came the next cement overcoat, the financial reform bill.

    I am convinced now that this does not simply pose the threat of a Depression, but that it is an attempt to crack and break the extended order itself.

  • Don’t forget how many more jobs would have been necessary to add as well simply to keep up with the rise in the number of Americans of employment age over that time period…