If You Assume That the Stimulus Created Jobs, Then It's a Safe Bet You'll Find That the Stimulus Created Jobs

Would the American economy be worse off right now without the stimulus? That’s certainly what President Obama and Democrats in Congress would like people to believe. And in an article on a new Congressional Budget Office check-up on the $825 billion stimulus package, Politico reports that, in contrast to critics who say that the stimulus was a waste, the “nonpartisan CBO figures offer a more nuanced picture of how government spending impacted an economy still coping with unemployment above 9 percent” and “an alternative glimpse of an economy with even higher unemployment and drastically lower growth.” A similar report in The Hill offers an even more triumphant take on the legislation:

The Congressional Budget Office (CBO) said Tuesday that President Obama’s 2009 stimulus package continues to benefit the struggling economy.

The agency said the measure raised gross domestic product by between 0.3 and 1.9 percent in the third quarter of 2011, which ended Sept. 30. The Commerce Department said Tuesday that GDP in that quarter was only 2 percent total.

CBO said that the stimulus also lowered the unemployment rate by between 0.2 and 1.3 percentage points and increased the number of people employed by between 0.4 million and 2.4 million.

But what neither of these reports note is that, according to the CBO’s top official, the figures in this report and previous mandatory stimulus don’t actually tell us whether or not the stimulus created jobs. That’s because, as I’ve noted so many times before, the reports rerun slightly updated versions of the same models of that were used to estimate that the stimulus would create jobs prior to the law’s passage. And lo and behold, if you create a model that predicts the law will create jobs, and then you rerun a mild variation of that model a few years later using updated figures about what money was actually spent, it still reports that the stimulus created jobs. But there’s no counting here, no real-world attempt to assess the reality of the stimulus—just a model that assumes that stimulus spending will create jobs and therefore reports that stimulus spending has in fact created jobs. As CBO director Douglas Elmendorf confirmed on the record last year in response to a question, “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.”   

That doesn’t mean we know the stimulus created zero jobs. Indeed, there’s on the ground evidence that the stimulus did fund at least some full-time jobs, though this doesn’t tell us anything about its net job-creation effects. It just means that the CBO’s estimates don’t tell us much about how many jobs it did or didn’t create.

But let’s assume for a moment that the CBO is basically on track with its reports. If so, the case for the stimulus is still not terribly strong. For one thing, as the CBO explains, there’s tremendous uncertainty involved in its projections, and even if you accept the CBO’s estimates, there’s still a reasonable chance that they’re far too high. As the CBO explains in its report:

If, for example, recipients’ reports include employment that would have occurred without ARRA, the impact on employment suggested by the reports could be too great. Some people whose employment was attributed to ARRA might have worked on other activities in the absence of the law—for example, a business might have bid on other projects if its resources had not been committed to projects funded by ARRA.

And in fact, we have some reported evidence that this is the case. When the Mercatus Center’s Garett Jones and Dan Rothschild conducted extensive in-person interviews of businesses that received stimulus funds, they found that “hiring people from unemployment was more the exception than the rule in our interviews.” In their survey of 85 organizations that took stimulus money, “just 42.1 percent of the workers hired at ARRA-receiving organizations after January 31, 2009, were unemployed at the time they were hired.” 

Further complicating the case for the stimulus is that the CBO reports that “in contrast to its positive near-term macroeconomic effects, ARRA will reduce output slightly in the long run.” CBO estimates the overall economic output could be reduced by as much as 0.2 percent after 2016 thanks to primarily to the $825 billion increase in public debt caused by the law. Nor, the CBO projects, will the law have any substantial long-term effects on unemployment.

You can’t separate these numbers from the more positive short-term effects the CBO estimates. If you accept the CBO’s estimate that the stimulus gave the economy and unemployment a short-term boost, you also have to accept that the law also creates a long-term economic drag.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Joe M||

    Nice pic, Suderman. Now give us a Skyrim review already! If it makes you feel better, you could call it Skystim so it ties into political/economic idiocy more.

  • cynical||

    I knew it was a Suderman post as soon as I saw the picture.

  • cynical||

    He could review the Stormcloak/Empire conflict as an analogy for the shittiness of Team Red/Team Blue partisanship or something.

  • Peter Suderman||

    Are you kidding? I'm only 40 hours into my first playthrough. And I'm too busy playing the damn game to actually write about it...

    Actually, I'll have a very very very short note about it up at the spouse's blog soonish, as part of the video game guide. And I may write something a little longer at H&R before the end of the year.

  • DBN||

    You too?

    Work. Go home. Play Skyrim. Pass out in front of Xbox. Have dreams of snowdrenched aspen and the constant rushing of the wind. Wake up. Work. Go home. Play Skyrim.

  • Peter Suderman||

    I find myself walking through the neighborhood wanting to click on various flower bundles.

  • Amakudari||

    I went to a nice restaurant with my lady for my birthday. There was a small hatch on the floor nearby, probably for wiring, but it looked close enough to a trap door.

    My first thought: probably an alchemy lab.

  • ||

    Xbawks? Enjoy your dramatically inferior graphics.

    Though I suppose playing with a menu interface that was actually designed for your controller is a consolation. It should be fixed by a mod soon enough!

  • Amakudari||

    An Xbox controller can only assign 2 hotkeys to favorites. I have 7 spells that I keep in heavy rotation.

    In any case, you can always buy an Xbox controller and use it with your PC. The only real advantage to an Xbox is that they get DLC a month earlier, if you're into that.

  • DBN||

    I'll keep my 55 inch flatscreen and surround sound, thank you very much.

  • Some Guy||

    So you are under the impression that PCs don't have HDMI connections?

  • ||

    Is it still "creating jobs" at the cost of over $200,000 per job "created?" I heart that statistic.

  • Some Guy||

    It's pretty sad that their wildy optimistic fantasy numbers STILL make it look like a terrible idea. (Though I suppose if they actually did anything worthwhile like fixing bridges and stuff instead of throwing money away, then the per-job number is less relevant.)

  • Old Bull Lee||

    "a more nuanced picture"

    Anytime I see with the word "nuanced" in journalism I know I'm in for some bullshit.

  • ||

    Beat me to it. But that's becasue it is from the French, and originated from the Latin nubes, which means cloud. A big big cloud of bullshit.

  • ||

    A shit storm, as Mr. Lahey would say.
    http://www.youtube.com/watch?v=tjMkqFmRGL4

  • John Henry Eden||

    We live in an age of poverty, greed, violence, destruction. Indeed the very seat of the federal government, Washington D.C., has been reduced to what is now known as the Capital Wasteland. The Capital Wasteland, how did it come to this America? How did your leaders allow the most powerful nation on Earth...to die? The answer is really quite simple. Incompetence. Incompetence at the highest echelons of power. We put our trust, our faith, in halfwits. Our intrepid leaders had everything they wanted; power, wealth, prestige. It made them lazy, America. Oh yes, and laziness breeds stupidity. Rest assured, I will not make the mistakes of my predecessors. When John Henry Eden builds a country, he builds it to last. The American Way. Don’t you, my darling America, deserve that? Don’t you deserve a future free of war, and fear, and terrible uncertainty? Of course you do. As President of the United States, you have my solemn pledge. That I will never rest, never rest, until we have what we deserve. A place to truly call… Home.

  • mad libertarian guy||

    It's incompetence if you define their job as doing whatever is in the best interest of America.

    Unfortunately that isn't what DC is designed to do. What it's designed to do is to continuously grow the scope of government at the expense of everyone, and at that they've done a swimmingly good job.

  • ||

    If only we had The Right People in charge!

  • We join the Right People..||

    Right person 1: *clink*
    Right person 2: *clink*
    Right person 1: *clink*
    Right person 2: *clink*
    Right person 1: *clink*
    Right person 2: *clink*
    Right person 1: *clink*
    Right person 2: *clink*
    Right person 1: *clink* Connect 4!

  • kinnath||

    this rock keeps tigers away.........

  • Cliché Bandit||

    ...you don't see any tigers around here do you?

  • ||

    Lisa, I want to buy your rock!

  • mad libertarian guy||

    The agency said the measure raised gross domestic product by between 0.3 and 1.9 percent in the third quarter of 2011, which ended Sept. 30.

    Of course GDP rose with government spending; GDP Includes government spending. In other words, this bit is fucking meaningless to anyone who knows even the most basic of macroeconomics (which likely includes only about 5% of the people).

    If the government were to spend $16T, we'd DOUBLE GDP! We need someone on this, STAT!!!

  • ||

    I too have a very gross domestic product. I thought that the avocado was a little squishy.

  • Red Rocks Rockin||

    Spending 10-12% of GDP in deficits to get a 0.3-1.9% return isn't exactly getting our money's worth.

  • chris||

    Exactly this. When four trillion is spent to create 800 billion in wealth, the long term cost is going to be strongly negative.

  • Brad de Lounge||

    Heretic!!!!!

  • ||

    "If the government were to spend $16T, we'd DOUBLE GDP! We need someone on this, STAT!!!"

    I understand you're point but that is just wrong. The problem is money spent by the government is not always additive, it very often replaces other economic activity that would have otherwise occurred.

    Sometimes a basic level understanding of macroeconomics is just not enough.

  • ||

    I'm pretty sure the stimulus did create jobs - in the short term. They essentially put those salaries on a credit card instead of taking the funds from elsewhere in the economy right then.

    The problem is that when it's time to pay the bills to the Chinese and Japanese bondholders, all that money plus interest will have to be sucked out of the economy somehow, either through job-killing taxes or quality-of-life-killing inflation. The notion that this will probably happen when the economy recovers is specious at best, because the assumption is this will happen before the debt bubble bursts. The short term impact might have softened the blow, but it did not fix the economic problems at the root of the recession, and the long term impact will be far more painful as a result.

  • Mr Whipple||

    There's no doubt that the Stimulus provided funds to Superfund sites. There's one in my town that has been ongoing since the mid-80s. The Stimulus provided a boost to it. I suppose eventually those jobs would have been "created", anyway since the EPA clean-up was already approved. The entire project has been a giant fucking circle jerk since the EPA put it on the Superfund list in 1984. I'll be glad when it is finally over with. If it means taking Stimulus funds to accomplish that, so be it.

    http://www.thedailyjournal.com.....rogressing

    The Recovery Act of 2009 includes $7.2billion for EPA-administered projects and programs.The largest proportion of these funds, some $6billion, will be used for community-based water quality and water infrastructure projects. A total of $600million is earmarked for hazardous waste cleanup at priority sites.

    VOLUME2|ISSUE6|MARCH18,2009:

    http://grapevinenewspaper.com/2009/03/

  • Red Rocks Rockin||

    What your post and Proprietist's demonstrate isn't that the stimulus created jobs, but that it provided a temporary backstop for jobs that were required anyway.

    For example, on I-25 in Trinidad, CO, there's a highway overpass project that's been going on for several years. But after ARRA was passed, those stupid signs were put up insinuating that the only reason it was being constructed was due to the stimulus.

    The real story of the stimulus is that the states were compelled to use stimulus money as a backstop, because the administration made a hedge bet that the economy was in a 1991 or 2001-type of recession, and not a 1981-type one. Now the states are confronting reality with their budgets, the economy hasn't improved, and we're another $3 trillion in the hole.

  • ||

    I had the unexpected opportunity to pose some questions to Larry Summers after a dinner last week, where he was the guest speaker and his remarks were followed by an audience Q&A.

    He's very well spoken and seems quite intelligent, but his curious notions on macroeconomics are very likely what's ruining the global economy. He argued that what the US needed now was even more Federal investment in infrastructure to stimulate demand and restore economic growth.

    I asked him how the US government planned to deal with its $15 trillion in debt and annual deficits now pushing $1.5 trillion, when neither cutting spending nor raising taxes are politically feasible. If his "solution" was to spend even more, in the long run, wouldn't the US end up just like Greece or Italy, with a debt burden that it could never hope to repay?

    He said something about the US not being like Greece or Italy because it has the ability to issue more currency.

    I probably should have asked if he's ever visited Zimbabwe.

  • ||

    If running deficits created economic growth, Zimbabwe would be the richest nation on earth.

  • Maxxx||

    This kind of Macro bullshit drives me crazy. It's so fucking retarded that its hard to believe any intelligent person would make the argument, and yet it is an articled of faith amongst progressives generally and their macro economist monkey in particular.

    If you're an inflationist (and that is what the argument is) just admit it. Say the government should print X number of dollars and send it to every citizen equally.

  • Amakudari||

    Yes, and there are also a fuck-ton of countries that control their own currencies and have had currency problems. It's the damn definition of a currency crisis. I'm not just talking about Zimbabwe or Weimar Germany, but Thailand, Korea, Mexico, Russia, Argentina, the UK, etc.

    And even if we fall short of a currency crisis, inflating our way out is little more than taxing savers.

  • Red Rocks Rockin||

    Your statement about it being an "article of faith" is just that--they believe, without any empirical proof, that the growth will go on forever and a there won't be any consequences.

    It's as if they've never heard of the western Roman empire at all.

  • chris||

    nonpartisan CBO figures offer a more nuanced picture of how government spending impacted an economy still coping with unemployment above 9 percent

    In progspeak this means that fiction will be given equal weight to fact in accessing any given situation.

  • The Vault Dweller||

    If it weren't for the government subsidy of Vaultec, I wouldn't have this cool job searching for a water chip.

  • The Chosen One||

    Anyone see a GECK?

    Anyway, if it wasn't for the government subsidy of Poseidon Oil, there would not be this oil rig for me to blow up.

  • The Lone Wanderer||

    Look at all this stuff just lying around for me to collect due to government action. (especially those Enclave idiots, just walking treasure, they are)

  • The Courier||

    A chip made out of water? How does that work?

    Is it as much a pain in the neck as this platinum one?

    You guys are full of it, anyway. The government (NCR) is growing eastward and stultifying our nice exciting wasteland.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement