Green Room

You’re missing the point

posted at 6:14 pm on November 12, 2009 by

I know counterfactuals and math are hard to fit on a bumper sticker. But one would hope that in an 800-plus word essay on economics (even if in Politico), some economic content could be included.

Thus Menzie Chinn concludes a defense of the “jobs saved or created” story complete with regression analysis (and not just ANY regression, mind you, but one with “error correcting mechanisms”. Prof. Chinn is right that the proper measure is some ceteris paribus calculation. He quotes Greg Mankiw’s analysis during the Bush Administration as some kind of shield. But Mankiw says “The job market is not what we would like it to be right now, but it would have been worse without the Administration’s actions.” Were those the words to come from Christina Romer’s or Jared Bernstein’s mouth, I’d have no debate. But I think it is more than semantics to go from “Simulations of a conventional macroeconomic model show that, without the tax cuts, the level of real GDP” would be x% lower and unemployment y% higher, than to say you’ve created or saved 640,329 jobs.

Official data here, where it helpfully adds “as reported by recipients”, perhaps to shift the guilt.

The problem is the administration has oversold its control of the economy, and used statements of certainty with numbers — six significant digits on that page, why? what is the basis of that level of precision if not hubris? — where one reasonably should have reached for uncertainty. Bernstein, who originated the report that said with stimulus the unemployment rate would not be 8% with the stimulus bill, now says that without the stimulus the unemployment rate would be “at least 11 percent and going higher”. Hey, we all miss a forecast now and then, but if you miss one by 3% by your own admission, don’t you have to be a little more modest about your predictions going forward?

Prof. Chinn’s estimate includes a guess that Q4 output rises at the same rate as Q3. That’s without cash-for-clunkers, and with data showing federal tax receipts 18% below year-ago levels. GDP growth of 3.5% for Q4 is not what the WSJ panel expects — they forecast 2.1% growth for Q4 and nearer 3% for 2010.

Their average for payroll employment is a gain of about 565,000 jobs between now and November 2010. The low-end estimate of the original package estimated by the CBO and the Obama economic team was for a gain of 2.1 million jobs from 2009 to 2010. You can say all you wish that you’ve “created or saved” 1.2 million jobs next year, but you’re missing the point.

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Everything good that happens is thanks to Obama, so any time someone is hired to mow someone’s yard or fix their leaky faucet, those are jobs saved by Obama.

Everything bad that happens is Bush’s fault– even the things that didn’t spring up until well after he left office or that are a direct result of the current administration’s policies.

Sounds like typical liberalogic to me.

RachDubya on November 12, 2009 at 7:11 PM

How’s that hope ‘n change working out for the good ole USA about now?

Cinday Blackburn on November 12, 2009 at 7:42 PM

Lets go right to the source. . . .

Fewer people drawing a paycheck, more people unemployed, more people giving up, and more people no longer eligible for unemployment compensation.

Skandia Recluse on November 12, 2009 at 10:19 PM

Yeah, former economics grad student here, calling some major BS on this one.

1) Regression analysis can be a powerful tool, but it can be awfully prone to abuse. You can fit a line through just about any data.

2) Most economic analysis is of the “comparative static” variety. I.e., run the analysis with assumption A, then substitute assumption B, and see what the difference is. Dynamic models take into account how the change from A to B would alter the model itself. Dynamic analyses are much harder to do, and depend on a lot of assumptions which make them ripe for criticism.

3) Any analysis is only as good as the data that’s being analyzed. If people are lying about where the stimulus funds are going, then the analysis is going to be worthless.

Farmer_Joe on November 13, 2009 at 9:18 AM

I bought lunch and gas today, spent about $100 … who knows, I probably saved or created 3,500 jobs.

Dukehoopsfan on November 13, 2009 at 4:47 PM

It’s much simpler than anyone dares discuss. Nobody asked me.

Any ECON-101er can explain the efficiency of a business closing in redistributing the workforce and, in turn, redistributing wealth in a very capitalistic manner. The volume of a commodity is relatively constant at a given price, the workforce required for that commodity at that price/volume will respond in kind. For example, AIG disappearing would not change the volume of the commodity, but would redistribute the workforce involved with the commodity accordingly. Some AIG people will rehire at the hiring entity and some at the hiring entity will lose their jobs and many will suffer from changes in their income while others will benefit. Bailing out floundering business in the spirit of saving jobs is a true waste of money and a perfect model to provoke acceptance of socialism. The floundering business can now only pay substandard wages resulting in increasing numbers of lower working class individuals that cannot afford the commodity causing the GNP to shrink. Recursive destruction.

ericdijon on November 14, 2009 at 9:01 AM