«
»

Assuming Your Conclusion

July 5, 2011, 11:01 am

The latest stimulus analysis out of the Administration is yet another crock.  It claims 2+ million jobs created, but has absolutely no evidence for this.  All it does is take the same hypothetical Keynesian multipliers it used when it proposed the stimulus, and reapply them.  In other words, the models basically say X jobs should have been created per billion dollars spent, so they run the models that then announce that X jobs must have been created per billion dollars spent.  Surely.  Somewhere.  We swear.

This notion of confirming your original predictive model runs with new runs of the same model is the same kind of BS that has become so popular in climate science.  The fact is, the net effect of the stimulus is almost impossible to measure in a complex economy where so much is changing.  It's possible, perhaps  (though this is surprisingly difficult to do right) to measure each person employed in a stimulus project, but this does not answer the question of how many jobs would have been created if the $800 billion had been left in the hands of private actors rather than spent by the government.

 

Tags: , ,
Category: Economics
  • Sean

    At another level, this is committing an error that everyone criticized the banks for, which some claimed was the root of the financial crisis: The model cannot handle a reduction in job numbers. That is, where it should have been ridiculous assertion that housing prices would always have positive price growth, it should also be a ridiculous assertion that all government spending creates jobs on net.

    Personally, I think a lot of neo-Keynesian models have merit to them. As much merit as valuation models have towards valuing a company or MBS. But if the model breaks or cannot predict some feasible outcome, it is not a complete model. Even Tiabbi, the populist ignoramus, made fun of this. Surely there should be more people poing out how ridiculous it is.

    My first modeling job as an intern, I was taught that "If your model doesn't calculate the chance of a meteor falling and destroying your system, it is incomplete and making an assumption you need to explain." Of course, that was in a military real-world engineering project. Clearly in a different universe than the one of spherical cows that permeated my graduate classes.

  • Daublin

    The models should have predictions other than the bottom-line impacts. For example, shouldn't a successful Keynesian stimulus most affect the parts of the economy that are stimulated? It should be possible to test the theory using these more detailed impacts.

    Similarly, it is possible to test climate models based on the *patterns* of change they predict, such as the amount of warming at different layers of the atmosphere.

  • Brian

    Even if the numbers are correct, that's roughly $250,000 per job. Are those created jobs yielding at least $250,000 of value?

  • Yngvar

    But the $800 billion never was in private hands. It's all fiat money.

  • Tom Nally

    From the very beginning, I claimed that the stimulus plan would destroy both wealth and jobs due to a phenomenon that I call "the reduced purchasing power of the federal dollar". Simply stated, that phenomenon is this: it takes the federal government $1.00 to procure the same amount of goods and services that can be procured in the private sector for $0.75. When twenty-five cents of purchasing power is destroyed for ever dollar extracted from the private sector, that represents hundreds of thousands of private sector jobs that would never came into existence.

    Think of it this way. If the federal government could execute business processes more efficiently than the private sector, wouldn't the private sector be outsourcing its business processes to the federal government as a cost-savings measure? But we never see that. We see the opposite: governments outsource tasks to the private sector. This, essentially, is the federal government's admission that they manage resources poorly compared to the private sector. When you devalue resources, you reduce the number of jobs that would have been needed to put those resources to a more efficient use.

    Net, net, net. "Net" is the key word. Sure the stimulus plan could create new jobs. You can always create a job if you take resources from one individual and repurpose them. But the alleged "stimulus plan" never stood a chance of creating "net" new jobs. In the net, it could only destroy jobs.

    ---Tom Nally, New Orleans

  • ettubloge

    While the # of jobs "created" cannot be measured, we do know that government spending crowded out private capital from profit-seeking ventures. The government's stimulus program (picking winners hurts competitors) combined with the increase in regulatory enactments (paper-work, enforcement) and confiscations destroyed or diverted capital. This does not usually create employment.

  • Yngvar

    "Sure the stimulus plan could create new jobs. You can always create a job if you take resources from one individual and repurpose them."

    Sure?
    When Keynesian 'stimulus' was implemented during the Great Depression the industrialized governments involvement in the economy stood at 18% (tops) of GDP in the various countries afflicted. So the cash infusion in the primary and secondary sector worked. Governments place in the economy are a bit bigger today (thanks to Keynes!), so 'stimulus' will never work the same way.

    Anyways (and since Coyote hardly ever read the comments and responds) the 'resources' you mention was not taken from anyone, but created out of thin air by the printing presses of the Federal Reserve Bank.

    You can rob an economy and use the money to employ a gardener, but why take the Chance?