In this podcast, Bruce, Michael and Dale discuss the economy, the Democrats’ “Blame Bush” strategy, and the anniversary of Hiroshima.
The direct link to the podcast can be found here.
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If you’re unfamiliar with the broken window fallacy, here’s a great short video to explain it and why things like a trillion dollar “stimulus” and most of what Paul Krugman whines about concerning what the federal government should be doing right now are nonsense:
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.
hat do you do if you’re a politician and you promised that if you did something good results would be assured. And then you did it and, in fact, things got worse?
Well that’s the situation the administration faces. It claimed that the "stimulus" was a bit like a FedEx package – something that absolutely, positively had to be done or we would be facing horrific unemployment – over 8%. So the Democratic Congress (alone) jammed through a pure pork package of almost a trillion dollars and sure enough unemployment which was below 8% at the time, eventually shot to 10% (and has now receded to 9.5% "officially").
Faced with that, what the administration has decided to do is run Tim Turbo Tax Geithner, the Secretary of Treasury, out there and pretend like the “stimulus” worked. No, seriously, that’s their plan – damn the facts, go out and essentially say they’ve got the economy in good enough shape that they can now step back and let the private sectors take over:
Treasury Secretary Timothy Geithner said the economy has now recovered sufficiently for government to begin to make way for private business investment.
Mr. Geithner’s comments on Sunday, which echo previous sentiments expressed by President Barack Obama, reflect a turning point in the government response to the worst economic downturn since the Great Depression, a period marked by deep federal intervention in the financial, housing, auto and other industries.
“We need to make that transition now to a recovery led by private investment,” Mr. Geithner said Sunday on NBC’s “Meet the Press.”
Now that takes some stones. To pretend that government intervention has done much of anything requires Hillary Clinton’s “willing suspension of disbelief”. The GDP is limping along in the 1 to 2% growth area, debt has shot through the roof, unemployment remains stubbornly high (and higher than when government “stimulated” the economy) and legislation passed by this administration – and its legislative agenda – has businesses sitting on the sidelines with a pile of money and refusing to participate because of the unsettled business climate.
However, running this meme allows the administration to step back from its failure by calling it a success and passing the blame, now, to the private side. This can have a two-fold effect for them if they can successfully run this bluff.
For one, they can claim the private sector is to blame for continued weakness. That’s very useful to them. Why? Because it sets up what they really want – a second stimulus and more government control.
“There’s going to be a good case for the government preserving some type of guarantee to make sure people have the ability to borrow to finance a house even in a very damaging recession,” he said on “Meet the Press.”
He said the administration would begin developing such a program very soon. “We’re going to take a careful look at a set of reforms that are going to be good for the country going forward and don’t leave us vulnerable to this kind of crisis in the future,” Mr. Geithner said.
And it provides something this administration desperately wants and needs: a scapegoat.
Of course, with midterms coming soon, this may end up being an attempt that is too little and too late. But frankly I don’t think it will take. It is far too cynical an attempt to sell something that already smells terribly rotten. Just as the majority saw through the attempt by Obama to claim that the “stimulus” didn’t have a gram of pork in it (as stated earlier, it was pure pork), they’ll see through this attempt to sell “the economy is better and it’s because of the “stimulus”” that Geithner is attempting here.
This, as usual, is more about political posturing and meme creation than it is about reality. And with this administration, that’s something people have already come to recognize and dismiss.
Apparently the only jobs the massive "stimulus" may have saved, at least temporarily, were government jobs. Now, even those are in jeopardy as state and local governments are forced to deal with the reality of their fiscal situation:
Up to 400,000 workers could lose jobs in the next year as states, counties and cities grapple with lower revenue and less federal funding, says Mark Zandi, chief economist for Moody’s Economy.com.
Layoffs by state and local governments moderated in June, with 10,000 jobs trimmed. That was down from 85,000 job losses the first five months of the year and about 190,000 since June 2009. But the pain is likely to worsen.
States face a cumulative $140 billion budget gap in fiscal 2011, which began July 1 for most, says the Center on Budget and Policy Priorities.
While general-fund tax revenue is projected to rise 3.7% as the economy rebounds in the coming year, it still will be 8%, or $53 billion, below fiscal 2008 levels, according to the National Association of State Budget Officers.
And that means that states will not be able to afford some of the services or staff they presently employ. And that, of course, means layoffs and even more workers seeking jobs. While to this point, many state and localities have been able to avoid layoffs by offering furloughs, that option is no longer viable for most.
And economic growth isn’t looking all that hot either. Wells Fargo economist Mark Vitner is amending his third quarter economic growth estimate from 1.9% to 1.5%.
If this is a recovery, I’d hate to see a depression.
If you were wondering why the stock market tanked yesterday, look no further than June’s consumer confidence numbers. Not good:
The Consumer Confidence Index came in at 52.9 in June, a jarring decline from 62.7 in May, according to a survey released Tuesday by the Conference Board, a private research group. It was the biggest drop since February and came on top of several gloomy economic developments in recent days.
Those “gloomy economic developments” of recent days include a 1Q GDP of 2.7%, housing sales that dropped 33% and unemployment numbers that while a tiny bit lower, showed nothing to indicate employers are hiring. Now consumers are indicating that they’re not willing to buy much of anything at the moment. That all adds up to bad news for the recovery – if in fact, we’re actually in one.
And the future isn’t looking much brighter:
In another troubling sign, forecasters expect U.S. auto sales to decline for June after growing every month since January. The Conference Board’s report showed that fewer people surveyed plan to make many major purchases, from homes and autos to refrigerators, over the next six months.
Again, not a good sign. In fact, what it is a sign of is something we’ve all been fearing:
"The more evidence that we get that consumers are losing their confidence and growing more tentative about things, the odds of a double-dip recession start to rise a little bit," said Tim Quinlan, economist at Wells Fargo.
Indeed. Wait … wasn’t all that stimulus money supposed to fix this?
That’s according to a survey of the members of the National Association for Business Economics (NABE):
NABE conducted the study by polling 68 of its members who work in economic roles at private-sector firms. About 73% of those surveyed said employment at their company is neither higher nor lower as a result of the $787 billion Recovery Act, which the White House’s Council of Economic Advisers says is on track to create or save 3.5 million jobs by the end of the year.
That sentiment is shared for the recently passed $17.7 billion jobs bill that calls for tax breaks for businesses that hire and additional infrastructure spending. More than two-thirds of those polled believe the measure won’t affect payrolls, while 30% expect it to boost hiring “moderately.”
The point, of course, is these are the people who would have seen any such positive impact within the market created by both the stimulus and the “jobs” bill. Almost 3/4s saw no effect whatsoever. That’s because the stimulus, among other things, was ill conceived, ill timed (if you’re going to do it, you don’t pay “stimulus” out over several years) and despite what President Obama said, almost 100% pure pork.
So apparently, as the recovery begins, it will be under its own steam and without the impact of any government “stimulus” spending.
When you give your money to someone in need, simply because you want to help, that’s called CHARITY.
When someone in need holds a gun to your head and makes you give them your money, that’s called ROBBERY.
When someone holds a gun to your head, makes you give your money to him for the benefit of someone in need whom he claims to represent, that’s called SPREADING THE WEALTH.
As a corollary, when someone takes out massive loans in your name and the names of your children in order to give that money to someone else, that’s called STIMULUS.
Of course, I don’t mean that all taxation works this way. I want a strong military, competent police and a functioning judiciary to protect our society and individual interests. “All taxation is theft” is fun to ponder, but not reality. Having a civil society will always cost something. It’s when taxation goes beyond what’s necessary to perform those minimal functions that “theft” becomes an appropriate term.
In this podcast, Bruce, Michael and Dale discuss the special election in Massachussetts, the dangers of hyperinflation, and Haiti. The direct link to the podcast can be found here.
The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2009, they can be accessed through the RSS Archive Feed.[ad#Banner]
Don’t you just love non-falsifiable government claims?
The Obama administration, in its latest progress report on the $787 billion stimulus program, said both the overall economy and employment continued to be in better shape at the end of 2009 than they would have been without the government’s help.
Better shape, hmmm? Wasn’t this the same stimulus which promised it would keep unemployment below 8% if passed? Yet here we are at 10% with no real relief in sight. Wasn’t this the stimulus which was promised to create or save millions of jobs? Even the administration has finally given up making such claims, instead quietly changing the way it makes such determinations and including pay raises and anything even remotely job related on which the money was spent. So when further claims, such as this, are made, they should be taken with a large and skeptical grain of salt:
Though unemployment reached 10 percent at year’s end—two percentage points higher than the peak that the council forecast when the administration proposed the stimulus package to Congress nearly a year ago—the number of jobs was between 1.5 million to 2 million greater in the fourth quarter than it would have been without the recovery plan, the council said.
This is the same council that made the 8% claim and changed the rules for counting “saved and created” jobs. If anything, their claims should be completely disregarded.
This is the stimulus which was claimed to be so necessary to the recovery, yet of the $787 billion signed into law, only $263 billion has been spent. How is that a stimulus? The theory is the government pumps money into the economy as quickly as possible to “stimulate” growth and hiring. Yet this particular bill is structured so that less than half the funds are spent within what most would consider the critical first year? That alone tells you two things about this particular bill:
It had little to do with stimulus and a lot to do with pork. In fact, it appears to be a 100% pork bill despite the President’s claims to the contrary. Just because individual earmarks weren’t in the bill doesn’t mean this bill isn’t a compilation of wasteful spending and pet projects. They were simply written up differently than they normally are. There was never any intention of spending this money to jump start the economy as witnessed by the amount spent in the first year and its lack of effect. It can be credibly claimed, in contravention of the administration’s claim, that it hasn’t done anything to stimulate economic growth. Don’t get me wrong, I’m not in favor of the spending that has been done or its continuation, but any objective analysis would make the point that $263 billion in a contracting 14 trillion dollar economy is likely to have little effect if any at all. So far the numbers seem to verify that.
Any claims made about the bill’s effect should be viewed very skeptically. In reality, this bill was a spending bill, not a stimulus bill. It was the bill which allowed Democratic legislators (and a good number of Republicans) to spend money on things they’d been unable to get through the body in the past. Again, its structure and the items upon which the money were spent make the argument pretty handily. Its failure to “stimulate” as advertised is precisely why there is talk of a second stimulus. There never was a first.
Whatever recovery has gone on in the economy has been largely a result of factors other than this bill. That includes the positive 3rd quarter GDP numbers they try to trot out as “proof” of the stimulus’s efficacy. Those numbers were driven by the cash for clunkers program, a program outside the stimulus bill, and were largely illusory. They were illusory because it was “growth” driven strictly by government spending, it was temporary growth because it was simply stealing from future sales, and when all the dust settled, that was quite apparent to those who analyzed the results.
What this present claim is all about is message preparation. These claims, which really don’t stand up to scrutiny at all, are being made now for a reason. The president has a State of the Union address coming up soon and needs some “good news” very badly. That’s why these non-falsifiable claims are being tossed out there now. Establishing these claims and repeating them often enough is done in the hope of having them become “conventional wisdom” by the time the SOTU address rolls around. Then when the President makes these claims, an uncritical press will parrot them, establishing them as “fact” for the administration and a part of the narrative that will be repeated in 2012.
That is how the game is played, folks.