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.