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Bold claims of stimulus jobs can't be measured

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CALVIN WOODWARD
March 26, 2009
— If space exploration were conducted like the job forecasts under the government's new stimulus law, man surely would have missed the moon. But this isn't rocket science.

No promise from President Barack Obama is more important to the wounded economy than his vow to save or create some 3.5 million jobs in two years. In support of that bottom line, the government even tells states how many jobs they can expect to see from the spending and tax cuts.


But precise trajectories are impossible to plot and even approximations can be wildly off, as the authors of these forecasts acknowledge, usually more readily than the policymakers who use them to promote the plan.


Flip through the stacks of economic analyses underpinning the stimulus plan and you find a lot of throat-clearing qualifications and angst:


—"Very uncertain."


—"Difficult to distinguish among alternative estimates."


—"We confess to considerable uncertainty."


—"Subject to substantial margins of error."


In other words, who really knows?


Economic modeling may prove to be a haywire navigational device in this crisis.


"Large fiscal stimulus is rarely attempted," Douglas Elmendorf, director of the nonpartisan Congressional Budget Office, told lawmakers. "For those reasons, some economists remain skeptical that there will be any significant effects, while others expect very large ones."


Zero to nirvana? Even for economists, who routinely differ among themselves, that's a range beyond the norm.


The disconnect between theory and real life became evident when Obama pitched his plan at a Caterpillar factory before its passage and held out hope the federal stimulus money would let the heavy equipment maker rehire some of the thousands being let go.


Although that might be the eventual result when money courses through the pipeline, Caterpillar last week announced 2,400 more layoffs.


By necessity, stimulus projections were put together in ways that bear little resemblance to a family's budget.


Assumptions are piled atop assumptions, rules of thumb, historical experience, theory and more than a little hope.


A family budget is a set of building blocks of income and expenses, simple addition from the bottom up.


The stimulus projections are top down, a matter of economic multipliers and complex division infused with things that may or may not happen.


The government estimated how much the spending and tax cuts might grow the economy. Then that effect was translated into projected job growth overall. Then that theoretical pie was divided into chunks to show what each state and sector of the economy might get out of it.


All of this without knowing, for example, how exactly states will spend money they get from Washington. Or how money going directly to a bridge or manufacturer will support other jobs in the communities.


Among the assumptions used in White House and congressional forecasting:


—Every one-point gain in the gross domestic product will translate into 1 million jobs.


—For every two jobs directly created by the stimulus spending, a third job will be indirectly created. The 2-to-1 ratio is rough and varies considerably by sector.


—For each dollar states receive from Washington, they will decide to use 60 cents to avoid spending cuts, 30 cents to avoid tax increases and 10 cents to reduce drawdowns of their rainy day funds.


—A tax cut has only one-quarter of the value of a spending increase of the same size, in terms of expanding the economy.


—Every dollar spent on unemployment benefits is worth $1.63 of quick economic expansion. Food stamps boost the economy even more.


The overarching goal — and promise — of saving or creating 3.5 million jobs is built on vagaries such as these.


Job creation is counted in different ways, but none that can isolate the stimulus package from the multitude of forces shaping the economy.


And there's no reliable way to measure how many jobs the stimulus will stop from disappearing. Companies don't report layoffs avoided by federal aid.


Instead, forecasters estimated how low the economy might have sunk without the stimulus, and how high that would drive unemployment up. The idea is to have about 3.5 million more people working than might have been the case if the government had done nothing.


Economists on Obama's team projected that the stimulus will mean an unemployment rate nearly two points lower at the end of next year than it would have been absent the plan.


Far below the theoretical, in the grounded world of road repairs, health technology projects and all the other contracts made possible by the federal spending, actual jobs will be created. Those building blocks of employment will be tracked. But under White House guidance to federal departments, they are not to be reported. The reasoning: They are "likely to be inconsistent with macroeconomic estimates."


"Uniform reporting requirements for estimates of job creation will be specified at a later time," said a February memo from the White House Office Management and Budget.


By the end of Obama's term, the true effects of the stimulus might best be measured family by family, in the way famously posed by Ronald Reagan days before the election that brought him to office:


"It might be well if you ask yourself: Are you better off than you were four years ago?"



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