Friday, January 20, 2012

Alter's myth-making

Jonathan Alter has a column in the Washington Post addressing various alleged myths about President Obama. Among these:
4. Obama’s stimulus package failed. 
This has become a GOP talking point, repeated by everyone from John Boehner to Karl Rove to Romney. It isn’t true. 
Objecting to various provisions of the stimulus or believing that it worsened the deficit isn’t the same as deeming it a failure. When the Obama administration was little more than a year old, three of the best-known economic research firms — IHS Global Insight, Macroeconomic Advisers and Moody’s Economy — all said the American Recovery and Reinvestment Act, which almost every Republican in Congress opposed, would create more than 2.5 million jobs. And last August, the nonpartisan Congressional Budget Office estimated that the stimulus package created between 1.4 and 4 million jobs. Even Mark Zandi, one of McCain’s top economic advisers in 2008, has called the stimulus “a significant benefit to the economy’s performance.” 
Many on the left have complained that the $787 billion stimulus was too small. This may be true as an economic matter, but it is an unfair, ahistorical shot at Obama. Congressional Democrats made it clear that this amount was the most that could win approval.
Let's examine Alter's defense of the stimulus from the conservative critique. First he notes that various economic forecasting firms said that the stimulus would create 2.5 million jobs. Fine, but that's irrelevant. The only thing anyone should be interested in is what actually happened, not what some predicted would happen. 

Next, he states that the CBO estimated the stimulus would create between 1.4 and 4 million jobs. Beyond the amazing fudge factor the CBO gave itself with such a wide range of job creation numbers, what Alter fails to mention is that the CBO did not actually count jobs created by the stimulus, but rather simply ran the numbers through an economic model. As Peter Suderman explains:
...According to the CBO’s top official, [job creation figures resulting from the stimulus cited by the CBO] 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.”
Furthermore, even if we take the CBO job creation numbers at face value, it is still not apparent the stimulus was worthwhile. After all, if the low end figure of 1.4 million jobs is accurate, this means that -- given the stimulus cost of $821 billion -- each job cost taxpayers $586,000. If the 4 million figure is accurate, each job came with a price tag of $205,000. Is this cost-effective? 

Lastly, with regard to Mark Zandi, let us recall that in addition to being an adviser to John McCain that Zandi was an early and staunch supporter of fiscal stimulus as this February 2009 article notes:
A frequent expert witness at congressional hearings and omnipresent in news coverage, Mr. Zandi has become the most vocal economist arguing for a major fiscal stimulus package. The biggest risk today, he says, is “people not having clear sense of the severity of the recession.”
“I feel strongly about stimulus. I feel it’s absolutely vital,” he said. “It’ll make all the difference between recession and depression.” 
Mr. Zandi argued for years the benefits of fiscal stimulus to boost a sagging economy, and his firm’s multipliers — showing the stimulative effect of spending, tax cuts and other measures — are widely cited by lawmakers and outside advocacy groups.
But it probably loses some of the punch if Alter were to instead write that "Even Mark Zandi, a longtime supporter of fiscal stimulus measures, has called the stimulus 'a significant benefit to the economy’s performance.'" 

No comments: