CBO reports stimulus worked…maybe?
According to ABC’s Z. Byron Wolf, the CBO just totally put the smack down on all those stupid Republicans who have been whining about the stimulus being too expensive and not working. In support of this assertion, Mr. Wolf proves he can read the CBO “Director’s Blog,” which provides a nice summary of the CBO report, sort of. Would it have been too much to ask of Mr. Wolf to actually read the CBO report before reporting on it? It’s only 19 pages (well, about 10 of those pages don’t contain anything of substance…so like 9 pages), and it’s linked right there in the Director’s blog.
Because the left is going to run with this story until I’m too old to care, and because they’ll run with it without going beyond the Director’s blog, we’ll focus on the actual Report. The first page of the Report offers this nugget:
Recipients reported that ARRA funded almost 700,000 full-time-equivalent (FTE) jobs during the first quarter of 2010.
The citation for this factual assertion points us to the Obama Administration’s “transparency” website Recovery.gov (for simplicity, hereinafter referred to as “B.O.’s site”). The actual, up to date number of jobs saved/created in the first quarter of 2010 is 682,226. As the CBO report and B.O.’s site have indicated, this number reflects the number of “full time equivalent jobs” funded by the stimulus. B.O.’s site defines a “full time job” as this:
For example, if three employees worked on a Recovery-funded project for a total of 1,300 hours in a given quarter, and the recipient defines a full-time schedule as 520 hours per quarter (40 hours per week, for 13 weeks), the recipient would report 2.5 jobs (1,300/520 = 2.5) as funded by Recovery.
So far, so good. Now, Mr. Wolf’s post, and Director’s blog, attempt to make two points. First, that the stimulus funded almost 700,000 jobs. That one’s pretty easy. The second point is that the stimulus caused the following first quarter results:
- Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.2 percent,
- Lowered the unemployment rate by between 0.7 percentage points and 1.5 percentage points,
- Increased the number of people employed by between 1.2 million and 2.8 million, and
- Increased the number of full-time-equivalent (FTE) jobs by 1.8 million to 4.1 million compared with what those amounts would have been otherwise. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.
We’ll look at the jobs funded issue first. I guess the point of this number is to say “look at all of the jobs the government is funding!” When one looks at the CBO report, and B.O.’s site, one realizes that over 2/3 of the jobs funded were in education. That’s right…the stimulus money largely went to pay for government jobs. Specifically, 469,432.28 of the 628,226 jobs funded were in the Department of Education. That’s not economic stimulus. That’s moving money from column A to column B. The overwhelming majority of the remaining funds were given to either federal government programs or to state governments. In fact, as best I can tell, roughly .06% of the funds went to private contractors. So, while the government can argue it created/saved jobs, it really just funded itself.
The second point, that the CBO estimates the stimulus raised the GDP while decreasing unemployment is, by its own admission, a self-fulfilling prophesy, and largely a guess. First, the CBO admits the foregoing job figures are worth about as much as the paper their written on:
However, adding up the reported numbers of jobs created or retained is not a comprehensive measure of ARRA’s effect on overall employment, or even of the effect of those provisions of ARRA for which recipients’ reports are required. The actual impact of those provisions could, in principle, be significantly larger or smaller than the total reported number of jobs.
Ok. So we don’t care about numbers. Well, what do we care about? That’s right…economic theory! The theory adopted by the CBO, and “heavily relied upon” by it, is based on commercial forecasting models of two economic consulting firms, Macroeconomic Advisors and Global Insight, as well as the FRB-US model only recently adopted by the Federal Reserve. When one understands what the selected models “support,” one will then realize that the CBO’s results were predetermined. All of the models selected support the propriety of federal stimulus spending.
After going through the economic models to produce pre-ordained stimulus success, the CBO backs off considerably in its conclusion. The reason: models are about as accurate as a chimp delivering the weather report.
A key disadvantage of the model-based approach is that considerable uncertainty exists about many of the economic relationships that are important in the modeling. Economists differ on which analytical approaches provide the most convincing evidence about such relationships, and therefore they reach different conclusions about those relationships.
The “considerable uncertainty” is in the accuracy of the economic models selected. Why, for example, did the CBO select the current Fed’s economic model, instead of the one that had been used since the 1970’s? I don’t know. There are lots of models.
The bottom line is simple though: unemployment remains as high after the stimulus as the Obama Administration projected it would be without it. Virtually all of the federal stimulus funding reflected in the Report went to other government agencies. That’s not stimulus: that’s moving monopoly money from here to there. At some point, that monopoly money has become real money, and there’s only one source of it: us.