Job Creation and the CBO

Over at National Journal, Ronald Brownstein says stimulus critics must contend with the CBO's job-creation estimates:

Republicans who say that President Obama's stimulus plan hasn't created any jobs must ignore not only the Congressional Budget Office (whose latest estimate put the total as high as 2.1 million) but also the more immediate examples of Marco Rubio and Pat Toomey. [bold added]

Brownstein's comment is just an aside, but it's an important one to correct. The estimates he references aren't useful guides to the actual effects of the stimulus, because what the CBO does is measure inputs, not outputs. It then assumes, based on the input, that certain outputs result. By CBO director Doug Elmendorf's own admission, the office is "repeating the same exercises we [already] did rather than an independent check on it." As Elmendorf has confirmed, if the stimulus had not created the expected amount of jobs, the CBO's subsequent analysis would not have reflected the actual outcome.

Elsewhere in Reason, Veronique de Rugy wrote about the myth of the multiplier.

Comments

[engineer]

But the magic multiplier does exist! Keynes was a prophet and the state loves us and wants us to be happy!

[engineer]

Not to mention, most of the jobs are in service sectors, which are propped up, directly or indirectly, by either government spending, or our trade deficit.

[John Thacker]

Yeah, this kind of aside keeps bugging me. The CBO begs the question of the stimulus. It builds a model that says that stimulus works, then plugs in the stimulus inputs and gets the result that it works.

There is literally nothing that would ever cause the CBO to change its opinion of the stimulus. All it would do is say that the underlying situation must have been worse than it thought.

[alphonse]

As an aside, John Thacker, let me present you herewith with one (1) minor accolade for the more-or-less correct use of "begging the question".

I observe that about 99% of the people who use it these days first completely "loose" any inclination they might have had to only use terms they understand.

[MatTrue]

What's the "saved or created" number?

[Tman]

It's the biggest sham in employment terminology ever.

Unemployment either goes up or down. You don't get points because someone didn't lose their job.

[Barack Obama]

It's called Affirmative Attrition.

[Gilbert Martin]

"The estimates he references aren't useful guides to the actual effects of the stimulus, because what the CBO does is measure inputs, not outputs. It then assumes, based on the input, that certain outputs result."

Wonderfull.

Keynesian economics works becasue we assume that it does!!

Proof?

We don't need no stinking proof!

[BeavisAndButthead]

No, they have proof. They have this nice excel spreadsheet see... and when they type in $1 trillion up here, 2 million jobs comes out over there. See, proof! Didn't you read the article? All is well with the five year plan, comrade.

[Attorney]

Link to de Rugy's piece doesn't seem to be working.

[P Brooks]

what the CBO does is measure inputs, not outputs. It then assumes, based on the input, that certain outputs result.

1) Spend a shitload of money on pet projects

2) arbitrarily divide that spending number by a "theoretical annual wage"

3) success!

[ohkay3]

Why use a vulgarity in an otherwise intelligent comment? I'm sure you have better command of the English language.

[Shelby]

P Brooks is obviously a student of the esteemed Senator Levin.

[Enyap]

Shut the fuck up you speech nannying fuckwad. That's why.

[Stimulus Plan]

1. Spend lots of money on projects of questionable value.
2.?
3. Economic growth!

[bikerider]

I like this approach. If I put $10,000 in the bank and assume a 10% interest rate then in a year I can say that I have $11,000. I doesn't matter what the bank statement actually says because my input assumption guarantees an $11,000 balance.

Then I can use the $1000 earnings I assumed as leverage for a loan. I'll assume that I have to pay 4% on the loan and assume that I can reinvest the money at 10%.

Pretty soon I'll be rich and if my balance sheet doesn't match my assumptions it must be the fault of evil capitalist bankers who have somehow taken advantage of me.

[Aelhues]

Brilliantly put!

[Ghost of FDR]

Congratulations!

You have just demonstrated that you are qualifed to manage the Califorina Public Employees Retirement System.

[Dello]

Isn't this sorta how the whole housing-bubble thing went?

[DanD]

US Gobermint:
"Our ideas to grow the economy by conjuring wealth out of nothing are working marvelously!"

Skeptical concerned citizen:
"Please show your work."

US Gobermint:
"Nah"

[Cunctator]

Rather like the "Underpants Gnomes" from early South Park.

Step 1: Get underpants
Step 2: ???
Step 3: Huge profits

[Doctor Kilpatient]

While it may appear that the patient is exhibiting neither respiration nor movement, and is not generating any heat, those who assert that the patient is dead must ignore the fact that the nurse has provided the patient with all the pills I prescribed.

[Jack]

Shouldn't [bold added] also be bolded?

[russ]

Well doesn't the CBO have to work with the numbers their given either by Congress or the administration?

Consider all the hot air being pushed over green jobs...

Consider Spain today: Solar bubble bursts in Spain amid subsidy cuts, fraud allegations

[John Thacker]

They do have to work with the stimulus input numbers, yes. What this is talking about is how the model works.

The CBO starts with an assumption (a model) that if the government spends $X the multiplier will produce Y jobs. The Congress then passes a stimulus with $X. No matter what happens in reality, the CBO will continue to predict that Y jobs were created compared to the no stimulus scenario. It's all baked into the model.

[mtl]

I've seen estimates that ronald reagan created 19-25 million jobs...

I wonder if the cbo would be willing to go back and add to this number, based on their current methodology.

I imagine that the increase in military spending would provide a bevy of jobs 'saved'.

reality?
even with the data, looking retrospectively in this manner is impossible.

but if the cbo can do it for obama, surely they wouldn't mind using their same formula to estimate reagan's real worth.

[Tcobb]

And the Obama-Messiah said--suffer the idiots to come to me. And they did.

[richard40]

The biggest problem that is ignored in these stimulus jobs created calculations is that there is no consideration of jobs lost by the stimulus because that money being spent by the government is money that is not spent by the private sector.

The money spent for the stimulus came from government borrowing, ie government bonds. Whoever used money to buy those gov bonds, if they had not been offered, because there was no stimulus plan, would have had to either invest or spend that money elsewhere, and that money, not spent privately, costs jobs. Because of this, I would maintain the stimulus created ZERO net jobs, and in fact may have resulted in a net LOSS of jobs.

Government spending NEVER creates jobs. It merely shifts jobs from the private sector to government, or from an unsubsidized area of the private sector to a subsidized area, usually at a net loss, because of lesser effeciency of government vs private sector.

[ic]

"It then assumes, based on the input, that certain outputs result."

Let's see: $100,000 annual pay per person, $1 trillion budget. Don't know exactly how many jobs were created. But absolutely sure we have more than full employment. Ergo, it's a right winger's vicious lie that we have a 9.9 unemployment rate.