‘Jobs Created or Saved’ Is White House Fantasy-Caroline Baum

[spursncowboys]

Oct. 28 (Bloomberg) -- Heresy, thy name is Christina Romer.

Last week, the chairman of President Barack Obama’s Council of Economic Advisers -- a position that carried the title “chief economist” until Larry Summers took up residence in the White House -- testified to the Joint Economic Committee on the economic crisis and the efficacy of the policy response.

Here’s the executive summary in case you missed it:

The crisis: “Inherited.”

The economy: “In terrible shape” (the inherited one).

The shocks to the system: “Larger than those that precipitated the Great Depression.”

The policy response: “Strong and timely.”

The efficacy of the policy response: a 2 to 3 percentage point addition to second-quarter growth; 3 to 4 percentage points in the third; and 160,000 to 1.5 million “jobs saved or created,” a made-up metric if there ever was one. (More on that later.)

What was most puzzling about Romer’s Oct. 22 testimony was her comment on the waning effect of fiscal stimulus.

“Most analysts predict that the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009,” Romer said. “By mid-2010, fiscal stimulus will likely be contributing little to growth.”

At first it was just fringe elements, such as conservative blogs and the not-really-a-news-organization Fox News, that pounced on Romer’s statement. Then other news outlets started to question her statement, which seemed to fly in the face of White House assertions that only a small portion of the stimulus -- $120 billion, or 15 percent -- has actually been spent. Most of the criticism of the stimulus coming from the president’s own party has been, “too little, too late,” and here’s Romer saying it’s kaput.

Thanks for That

Instead of being banished to the woodshed, Romer was consigned to the White House blog, where she slipped into professorial mode to explain the arcane distinction between the effect of the stimulus on the change in gross domestic product and its effect on the level of GDP.

Stimulus has its biggest impact on the growth rate of GDP when it’s implemented, Romer said, using a car-and-driver analogy: Step on the accelerator, the car goes from zero to 60.

Stimulus will keep the level of GDP and employment higher than they would have been even after the growth-rate effect fades, she said.

Her logic is impeccable. It’s her premise that’s flawed.

Dispensing Lucre

When the government distributes lucre or loot, people spend it. If your interest is national income accounting, spending other people’s money is great. Spending is a back-door way for government statisticians to measure what matters, which is the real output of goods and services.

But the government has no money of its own to spend; only what it borrows or confiscates from us via taxation. Oops.

“Government job creation is an oxymoron,” said Bill Dunkelberg, chief economist at the National Federation of Independent Business. It is only by depriving the private sector of funds that government can hire or subsidize hiring.

That’s why “jobs created or saved” is such pure fiction. It ignores what’s unseen, as our old friend Frederic Bastiat explained so eloquently 160 years ago in an essay.

Econometric models synthesize all sorts of variables and spit out a GDP forecast. From there they derive the change in employment using something called Okun’s Law, named after the late economist Arthur Okun, which describes the relationship between the two.

Fiction Lags Reality

Actual hiring seems to be lagging behind the model’s land of make-believe. For small businesses, which are the source of most job creation in the U.S., the government’s increased and changing role in the economy isn’t a confidence builder. Businessmen have no idea what health-care reform will mean for their cost structure or what whimsical tax policies the government might impose when it realizes those short-term deficits are running into long-term unfunded liabilities.

No wonder capital spending plans were at an all-time low in the third quarter, according to the NFIB monthly survey.

Only 30,383 jobs were created or saved by the American Recovery and Reinvestment Act, according to Recovery.gov, the government’s once-transparent Web site that has become a complex blur of numbers, graphs and pie charts. These are only the jobs reported by federal contract recipients. The Obama administration will report the larger universe of ARRA-related jobs on Oct. 30.

An extrapolation of what would have happened without the fiscal stimulus isn’t much consolation to the 9.8 percent of the workforce that is unemployed. Nor is Romer’s prescription for the economy and labor market very comforting in light of the trillions of future tax dollars that have been spent, lent or promised by the federal government.

“If you take your foot off the gas, the car goes from 60 back down to a slow crawl,” Romer said in clarifying blog post.

Gentlemen, start your engines.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

[MannyIsGod]

Direct evidence on ARRA spending, taxes, GDP, and jobs
Relatively precise amounts by which ARRA reduced taxes, increased transfers (both to individuals and to states), and increased direct government spending can be obtained through the Recovery.gov Web site. Table 1 combines that data with the economic multipliers (i.e., the amount that a given dollar of increased spending or reduced taxes spurs in additional economic output) used in standard forecasting models. The result is a rough estimate of the influence of ARRA on GDP growth for the third quarter and on job growth in each quarter since its passage.1
http://www.epi.org/page/-/ib265/ib265-table1.jpg
These estimates indicate that the recovery package contributed 2.7 percentage points to annualized GDP growth in the third quarter and that it has cumulatively added a full 1.6% to GDP since it was passed. Given that hours have fallen 25% faster than employment since the recession began, if pre-recession levels of average hours worked are targeted, this should translate into a 1.3% (1.6*(1-.25)) increase in employment, or 1.5 million jobs. If one wants to be conservative and note that the last two recoveries following recessions have been accompanied by a 30% rise in the rate of productivity growth (which, all else equal means that less employment is required for a given rate of GDP growth), the 1.6% bump to GDP would translate into something closer to 1.1 million jobs (1.3*(1-.3)) created or saved by the recovery package.
All in all, the combined evidence—the timing of ARRA in relation to subsequent economic performance; the strong influence of taxes and transfers since ARRA; and direct data from Recovery.gov on the timing and composition of ARRA expenditures and tax-cuts—suggests that the recovery package has substantially boosted economic growth and created or saved 1.1 to 1.5 million jobs since its passage.
http://epi.3cdn.net/bb4f1bd7339f12b9a3_4im6bxb5c.pdf


http://www.epi.org/page/-/ib265/ib265-figureb.jpg

[spursncowboys]

http://blog.heritage.org/wp-content/uploads/2009/10/octjobsgap.gif


Whenever government throws billions of dollars at the economy, one would certainly expect to find some jobs at the end of those dollars. President Obama has worked hard to convince the nation that the mega fiscal stimulus he signed into law produced some 650,000 jobs. This PR blitz is amazing in the face of an economy that has shed 3.4 million jobs since Obama was sworn in, the unemployment rate is pressing toward 10 percent, and the Obama jobs gap – the gap between where he promised we would be and actual employment — rises monthly.



Political chutzpah aside, the numbers Obama is tossing around are grossly misleading. The problem is not the calculation itself. This is a political guesstimate and no doubt the duly tasked bean counters are doing their level best to count every last bean job. For that matter, the problem is not government inefficiency and waste. That was assumed from the outset, so it should not surprise anyone that according to the government’s own data some $173 billion has been spent thus far and all they can point to is a relative handful of jobs. The problem is the Obama figure only tells half the story.

The Obama jobs figure is a guesstimate of the number of jobs created from the spending. It is analogous to the gross income a company earns on sales. But what matters, of course, is net income, on in this case, net jobs, and that requires an estimate of the net cost.

The net cost in this case derives from the simple fact that the federal government is borrowing money to spend money. Government borrowing subtracts purchasing power from the economy just as government spending adds it back in. Absent the government borrowing and spending, consumers and businesses would have borrowed the funds and spent the funds. The same mechanisms that supposedly created the jobs from the government spending would have created jobs from private spending.

At best, the jobs created and destroyed are a wash. Of course, the jobs that are destroyed are scattered across the economy and across the country and cannot be identified specifically, though wouldn’t that be interesting. Imagine the pictures and story of the worker who lost a job because government borrowed money. However, the destruction of those jobs by borrowing is every bit as certain as the creation of jobs by deficit spending.

It is possible to calculate with fair precision the net jobs created by Obama’s attempt at fiscal alchemy. Adding jobs gained to jobs lost produces a big fat squadoosh, nada, zippo, zero. It’s also possible to show the increase in the national debt that produced this outstanding government policy result – by last count it was $173 billion.

[MannyIsGod]

:lmao

Government spending during a recession is crowding out private spending. Awesome.

[MannyIsGod]

Absent the government borrowing and spending, consumers and businesses would have borrowed the funds and spent the funds.

Funniest fucking statement I've read in awhile. Yes, thats exactly why we're in a recession. Because the government is stopping the private sector from borrowing and spending. Makes PERFECT sense given all of the information.

[Nbadan]

:lmao

Government spending during a recession is crowding out private spending. Awesome.

It's also only bad when socialists do it.....nevermind Dubya grew the economy on govt. spending for two years..

[MannyIsGod]

http://blogs.wsj.com/economics/2009/10/30/stimulus-created-or-saved-650000-theres-no-way-to-know-for-sure/


t’s easy to ridicule the White House’s estimate (http://online.wsj.com/article/SB125689799688318277.html) that 650,000 jobs have so far been “saved or created” by the $150 billion spent so far from their $787 billion stimulus bill. That’s because while it’s possible to measure jobs created by the stimulus (for example, counting the number of construction workers on an infrastructure project funded by the bill), it’s a lot less clear how you measure jobs saved by it. http://online.wsj.com/media/logo_A_20090731124843.jpg“One can search economic textbooks forever without finding a concept called ‘jobs saved’,” said Allan Meltzer, a professor at Carnegie Mellon University, in a memo to House of Representatives Republican leader John Boehner today. “How can anyone know that his or her job has been saved?”
The disparate estimates come down to the multiplier effect. There are jobs directly created, and then there are jobs that are created or saved because the direct beneficiaries are still employed. For example, the stimulus money may have financed a construction workers’ job, but it also may have saved the job of someone at the grocery store where he shops. There’s also the issue of government jobs saved. Many states were planning layoffs that were either canceled or postponed because of stimulus money. But again, those numbers are difficult to quantify.


Most economists agree that multipliers have an effect. Back in February, the Wall Street Journal’s forecasting survey showed economists expected the nation to shed 183,000 jobs on average over the next year — a grim figure, but a markedly better one than the loss of 271,000 jobs they predicted without the stimulus package. That estimate from 46 economists equals about a million jobs saved over 12 months — and that’s the figure Vice President Joe Biden says the stimulus bill will ultimately reach, once the rest of the funds are spent.
But the weakness in the U.S. labor market has surprised most forecasters. That February estimate would have meant 2.2 million net jobs lost from March 2009 to March 2010. Since that survey was conducted, the economy has lost an additional 2.4 million jobs, or an average 400,000 jobs a month. To reach the economists’ February forecast, the economy would have to add an average of about 50,000 jobs over the next five months. The rate of jobs decline has moderated since earlier this year, but a net addition of nearly 250,000 jobs over the next five months seems a bit far-fetched.
The biggest problem for stimulus proponents is that the labor market has been weaker than most private and public forecasters expected with or without government intervention. It’s harder to make the case that your policies have supported jobs when no one knows how bad it would have been had you done nothing.

[MannyIsGod]

http://blog.heritage.org/wp-content/uploads/2009/10/octjobsgap.gif

I love that image. Its so clearly represents that had the stimulus not been passed we would obviously not have lost a single job. If I have a 100 dollars, and I'm about to lose 50 of it, and my friend comes along and tells me he can save me 30, I should obviously end up with 130.

Right?

Heritage mathematics is cool!

[Winehole23]

http://blog.heritage.org/wp-content/uploads/2009/10/octjobsgap.gif


Whenever government throws billions of dollars at the economy, one would certainly expect to find some jobs at the end of those dollars. President Obama has worked hard to convince the nation that the mega fiscal stimulus he signed into law produced some 650,000 jobs. This PR blitz is amazing in the face of an economy that has shed 3.4 million jobs since Obama was sworn in, the unemployment rate is pressing toward 10 percent, and the Obama jobs gap – the gap between where he promised we would be and actual employment — rises monthly.



Political chutzpah aside, the numbers Obama is tossing around are grossly misleading. The problem is not the calculation itself. This is a political guesstimate and no doubt the duly tasked bean counters are doing their level best to count every last bean job. For that matter, the problem is not government inefficiency and waste. That was assumed from the outset, so it should not surprise anyone that according to the government’s own data some $173 billion has been spent thus far and all they can point to is a relative handful of jobs. The problem is the Obama figure only tells half the story.

The Obama jobs figure is a guesstimate of the number of jobs created from the spending. It is analogous to the gross income a company earns on sales. But what matters, of course, is net income, on in this case, net jobs, and that requires an estimate of the net cost.

The net cost in this case derives from the simple fact that the federal government is borrowing money to spend money. Government borrowing subtracts purchasing power from the economy just as government spending adds it back in. Absent the government borrowing and spending, consumers and businesses would have borrowed the funds and spent the funds. The same mechanisms that supposedly created the jobs from the government spending would have created jobs from private spending.

At best, the jobs created and destroyed are a wash. Of course, the jobs that are destroyed are scattered across the economy and across the country and cannot be identified specifically, though wouldn’t that be interesting. Imagine the pictures and story of the worker who lost a job because government borrowed money. However, the destruction of those jobs by borrowing is every bit as certain as the creation of jobs by deficit spending.

It is possible to calculate with fair precision the net jobs created by Obama’s attempt at fiscal alchemy. Adding jobs gained to jobs lost produces a big fat squadoosh, nada, zippo, zero. It’s also possible to show the increase in the national debt that produced this outstanding government policy result – by last count it was $173 billion.http://blog.heritage.org/2009/10/30/job-one-is-to-tell-the-whole-jobs-story/

[Winehole23]

Oct. 28 (Bloomberg) -- Heresy, thy name is Christina Romer.http://www.bloomberg.com/apps/news?pid=20601039&sid=aUuHhaDx8Hr8

[spursncowboys]

http://www.bloomberg.com/apps/news?pid=20601039&sid=aUuHhaDx8Hr8

I put her name on the title

[doobs]

http://www.voxeu.org/index.php?q=node/4144

[Winehole23]

I put her name on the titleSure. It's customary to give the link, is all.

[spursncowboys]

Sure. It's customary to give the link, is all.

Ah, mi mal. gracias.

[Winehole23]

http://gregmankiw.blogspot.com/2009/02/create-or-save.html

[spursncowboys]

http://gregmankiw.blogspot.com/2009/02/create-or-save.html

political genius=dishonesty.
IMO the best way to gauge the effectiveness is unemployment.
A little more cheerleading than most of your other links. I was surprised not to find any real data, just an economist praising BHO.

[hope4dopes]

Funniest fucking statement I've read in awhile. Yes, thats exactly why we're in a recession. Because the government is stopping the private sector from borrowing and spending. Makes PERFECT sense given all of the information. Wow if you think that's funny here's one that'll really crack you up...ready....O.K.....the recession is over..,.:lmao

[Winehole23]

A little more cheerleading than most of your other links. I was surprised not to find any real data, just an economist praising BHO.You should reread the article. The praise is backhanded: the "genius" of the "created or saved" formulation is that it is unmeasurable. Politically, that is astute; economically, it is hogwash. IMO that is what Mr. Mankiw -- an economist by trade -- was drawing attention to.

Consider the source too:


From 2003 to 2005, Mankiw was the chairman of President Bush's (http://en.wikipedia.org/wiki/George_W._Bush) Council of Economic Advisors (http://en.wikipedia.org/wiki/Council_of_Economic_Advisors).

[doobs]

Mankiw is no BHO cheerleader.

[spursncowboys]

You should reread the article. The praise is backhanded: the "genius" of the "created or saved" formulation is that it is unmeasurable. Politically, that is astute; economically, it is hogwash. IMO that is what Mr. Mankiw -- an economist by trade -- was drawing attention to.

Consider the source too:
Yeah to be honest, when I read the political genius part, I kind of got closed minded. I'll read it again.
UPDATE: I mistook the update for comments.

[MannyIsGod]

I hope that same blog post is cited by those who are critical the stimulus is not working. Do you see why?

[MannyIsGod]

Yeah to be honest, when I read the political genius part, I kind of got closed minded. I'll read it again.
UPDATE: I mistook the update for comments.

I'm absolutely shocked that you get close minded when reviewing ideas that do not agree with your predispositions. Shocked.

[Winehole23]

i hope that same blog post is cited by those who are critical the stimulus is not working. Do you see why?ymmv.

[spursncowboys]

I'm absolutely shocked that you get close minded when reviewing ideas that do not agree with your predispositions. Shocked.
You have no original opinion. You make no viable points. All you do is belittle with no real basis. Just like this. It's human nature to correspond "phrases" toward positive and negative connotations. Not ideas. I was raised by michigan liberals and my grandparents were reagan republicans. If I was allowed to talk as a kid, I had to use facts. That is why I find it so difficult to respond to you. All you do is go after me. Very trollish. Use your intellect and figure out a way to justify welfare without using the word "care".

WH- My questions may seem below your intellect and if that is the case I won't ask. I don't need to know why you think one thing or another. In response to the housing bubble. I read B. Graham, W. Buffet, Jason, Zweig, S. Forbes, and they all spoke about the housing bubble not always going up. In fact what I love about Value investing is how safetly is the biggest factor. Even Robert Kiosaki never said the housing would always go up. Put that with the idea that the invisible hand always has to correct itself, and you would have to be an idiot to think housing would never burst.

[Winehole23]

You have no original opinion. You make no viable points. All you do is belittle with no real basis. Just like this.FWIW, I do not agree with MIG overly, but I often think this of you.

[MannyIsGod]

And They Say That Allan Meltzer Used to Be a Real Economist...

Allan Meltzer should be ashamed of himself.
Here is the late Milton Friedman, arguing that supporting the banking system with extra open-market operations in late 1931-early 1932 after the shock of the British abandonment of the gold standard would have saved an awful lot of jobs--probably all the jobs lost between August 1931 and January 1932:

Suppose the [Federal Reserve] System... had accompanied the measure by purchase of government securities [for cash]... as called for by the "classic" remedy for an internal drain.... [L]et $1 billion be the amount.... What would have been the consequence?... Reserve purchases of $1 billion... would have meant an increase of $1,330 million in high-powered money... would have permitted a multiple expansion of deposits.... Even if... the deposit ratios would have fallen as much as they did--and for the deposit-currency ratio, the fall in so short a time was the largest on record--the result would have been to cut in half the decline in the stock of money.... Only a moderate improvement in the deposit-currency ratio--a decline from 8.95 to 7.10 instead of 6.47--would... have enabled the stock of money to be stable...
Here is Allan Meltzer, arging that the kind of counterfactual analysis Milton Friedman undertakes in The Great Contraction is nonsense:

http://gopleader.gov/UploadedFiles/10-30-09_Meltzer_memo.pdf: There is no greater recognition of the failure of the stimulus program to create jobs than the efforts to mislead the public into believing the program had saved thousands, or millions, of jobs. One can search economic textbooks forever without finding a concept called “jobs saved.” It doesn’t exist for good reason: how can anyone know that his or her job has been saved? The Administration can make up any number it pleases. The number has no meaning...
If the concept of "jobs saved" does not exist, how come Milton Friedman says that an extra $1 billion of open market operations in late 1931 would have stopped the Great Depression in its tracks.
You can critique models. You can critique parameters. You can critique parameters. You can critique how the calculations are done, but you cannot deny their existence, for the kind of counterfactualcalculations that Milton Friedman does are, of course, the steady diet of what economists and other policy analysts do every day.
So why is Allan Meltzer doing this--saying that Milton Friedman talked nonsense in The Great Contraction? Because it is to the temporary tactical advantage of the Republican Party for him to do so.
Exercise some moral responsibility, Allan.
Shameless partisan hack.


http://delong.typepad.com/sdj/2009/11/and-they-say-that-allan-meltzer-used-to-be-a-real-economist.html

[Wild Cobra]

In Oregon, 3/4 of these jobs saved or created are government jobs.

I wonder how many more social workers they need to keep up with the growing benifit eating population?

[clambake]

In Oregon, 3/4 of these jobs saved or created are government jobs.

I wonder how many more social workers they need to keep up with the growing benifit eating population?

did you get an increase on your lonestar card?

[Wild Cobra]

did you get an increase on your lonestar card?

What's a loanstar card?

[MannyIsGod]

In Oregon, 3/4 of these jobs saved or created are government jobs.

I wonder how many more social workers they need to keep up with the growing benifit eating population?

Link?

[spursncowboys]

What's a loanstar card?
I think it's foodstamps in a CC.

[Winehole23]

Correct.

[Winehole23]

(http://delong.typepad.com/sdj/2009/11/and-they-say-that-allan-meltzer-used-to-be-a-real-economist.html)http://delong.typepad.com/sdj/2009/1...economist.html (http://delong.typepad.com/sdj/2009/11/and-they-say-that-allan-meltzer-used-to-be-a-real-economist.html)Milton Friedman did it doesn't cut any mustard with me. I wouldn't say the impact of the stimulus is insignificant, but suggesting as Ms. Romer has, that "jobs saved or created" is measurable in any strict sense seems like a fib. It's a guesstimate, not a statistic IMO.

[MannyIsGod]

Milton Friedman did it doesn't cut any mustard with me. I wouldn't say the impact of the stimulus is insignificant, but suggesting as Ms. Romer has, that "jobs saved or created" is measurable in any strict sense seems like a fib. It's a guesstimate, not a statistic IMO.

That's a semantics game that serves nothing more than to remove credibility from the argument being made with the statistic. You can argue the statistic is less than exact but I don't know of how that would disqualify it as a statistic at all.

The fact of the matter is that economics is mostly less than exact because there is no way to get precise measurements. That is why these statements from economists don't make much sense until you take them as what they actually are: Ideological arguments and not based on economics.

[Winehole23]

The fact of the matter is that economics is mostly less than exact because there is no way to get precise measurements. That is why these statements from economists don't make much sense until you take them as what they actually are: Ideological arguments and not based on economics.As true of Ms Romer's statistic as its detractors IMO.

[MannyIsGod]

As true of Ms Romer's statistic as its detractors IMO.


That is simply not the case, WH. The detractors aren't giving any credit to the statistic in an effort to completely discredit the stimulus package and the effect its having. The critique wasn't on the accuracy of the measurement but that the measurement had not merit.

[Wild Cobra]

I think it's foodstamps in a CC.

Oh.

I guess he's an expert on the subject. Must use it allot.

[Wild Cobra]

Link?
You mean you didn't hear?

Do you only listen to the liberal media?

Here is a link. Finally have the time to waste for you:

Oregon Uses Stimulus Funds to Create Government Jobs, Provide Social Services (http://www.foxnews.com/politics/2009/11/02/oregon-reports-stimulus-funds/?test=latestnews)

Just took the first I found. Hard to link phone conversations with what family is telling me. I am two timezones out of state at the moment.

[Winehole23]

That is simply not the case, WH. The detractors aren't giving any credit to the statistic in an effort to completely discredit the stimulus package and the effect its having. And the proponents are using it to take credit for effects they are none too sure of.


The critique wasn't on the accuracy of the measurement but that the measurement had not merit.A distinction without a difference. "Jobs created and saved" is a non-measurable metric.

What data gives this information, anyway?

[MannyIsGod]

Just yesterday I posted links to an analysis with the methodology behind how they got their jobs figure yesterday. The point is if there is a critique to be made, shoudl it not be on specifics on that methodology and why it is incorrect as opposed to simple blanket statements that you can't possibly deduce this information when economists have been doing this very thing since the birth of economics?

[Winehole23]

Table 1 combines that data with the economic multipliers (i.e., the amount that a given dollar of increased spending or reduced taxes spurs in additional economic output) used in standard forecasting models.This is a black box; can you unpack it? Without knowing how this figure is arrived at, or whether the built-in assumptions apply to the given situation, what gives you confidence in the result?

[Winehole23]

All in all, the combined evidence—the timing of ARRA in relation to subsequent economic performance; the strong influence of taxes and transfers since ARRA; and direct data from Recovery.gov on the timing and composition of ARRA expenditures and tax-cuts—suggests that the recovery package has substantially boosted economic growth and created or saved 1.1 to 1.5 million jobs since its passage.What gives you so much confidence in a calculation that is so imprecise?

[Winehole23]

That the range of values varies up to 25% suggests to me that the metric can't be measured very well.

[MannyIsGod]

That the range of values varies up to 25% suggests to me that the metric can't be measured very well.

And thats fine - the point isn't to say that the stimulus package added 1.4 or 1.2 or .8 million jobs - the point is to show that the stimulus package is having a significant effect on the job market.

[spursncowboys]

And thats fine - the point isn't to say that the stimulus package added 1.4 or 1.2 or .8 million jobs - the point is to show that the stimulus package is having a significant effect on the job market.
With almost 10% unemployment, there doesn't seem to be any significant effect.