Counting Jobs Created or Saved by the "Stimulus" Bill, Part 3:
Estimation replaced by assumption
23 Jan 2010 in Regulatory Economics
Previously, we have noted that the Recovery Accountability and Transparency Board, which is responsible for ensuring accountability and transparency in the reporting of jobs "created or saved" by the American Recovery and Reinvestment Act (ARRA, or "stimulus" bill), was not actually performing this task. Further, the underlying data were invalid and unreliable because the Office of Management and Budget did not specify a consistent estimation methodology.
Recently, Washington Post staff writer Alec MacGillis reported that White House Council of Economic Advisers chairman Christina Romer now claims ARRA "has created or saved between 1.7 million and 2 million jobs."
Examining these figures closely reveals that they are not estimates at all, but assumptions built into the Administration's estimation model.
Romer says the figure of 640,000 jobs created or saved was valid, but that it underestimated the true number because "recipient reporting data cover only a fraction of the funds expended to date and do not include any multiplier effects."
Her new figures actually discard the 640,000 jobs figure. They are are calculated using the same methodology used in January 2009 to promote ARRA. That methodology consists of multiplying the amount of federal spending by 1.05 to 1.55 for government purchases and the value of tax cuts by 0.00 to 0.98. (The choice of value depends on the number of calendar quarters in the past the expenditure or tax cut occurred.)
In short, these figures are modeling projections based on Romer's January 2009 model. They are not estimates of what has actually happened under ARRA.
"The most important bottom line is to say that close to 2 million jobs have been created or saved by the close of 2009, a truly stunning . . . effect of the act," she said. Still, she added, there is a need for additional spending to spur job creation, as President Obama has called for.
These statements are highly misleading. First, Romer's model is an attempt to predict the employment effects of ARRA, not estimate them after the face. CEA's responsibility is to test such predictions against actual data, but that has not been done.
Second, Romer's predictions for the numbers of jobs saved or created rest entirely on the validity of her multipliers. The new report merely assumes they are.
Third, there is nothing at all "stunning" about her estimates. They are the entirely predictable result of applying her model to the aggregate level of new government spending.
