Lower the River!

I suppose this is one way of creating new jobs:

An inconvenient truth, at least for the Obama Administration, is that once upon a time, in their January 2009 Romer/Bernstein Report they told America that without their stimulus there would be 133.9 million jobs. That’s right, in order to make it look like their stimulus has “created or saved” 2.8 million jobs, the Obama Administration first had to whack 7 million jobs from their previous estimates.

If that analysis is right, it certainly looks as though it’s throwing the narrative on economic stimulus into a cocked hat.

This is what gripes me about the ivory tower theoreticians. There are real people in real distress because the economy has shed millions upon millions of jobs. Tinkering with the numbers on paper may get you the number you’re looking for but it does nothing whatever for the real people.

9 comments… add one
  • They aren’t ivory tower theoreticians. Your barking at the wrong group of economists. The ivory tower thoeretician sits around working on theorems, lemmas, and game theory, and various abstract mathematical models.

    None of that went into the Romer/Bernstein Report. I’m quite certain that if I took that report and searched for the following terms:

    sub-game perfect equilibria,
    upper-hemi continuous,
    contraction mapping,
    normed vector space,
    measure space,
    lebesgue dominated convergence theorem,
    reaction functions

    I’d find none of those items anywere in the report (and no I haven’t seen the report).

    Now, some of the above terms are related to the tools used to produce the report, but that is an entirely different thing. Your gripe isn’t about ivory tower economic theorticians anymore than it is about ivory tower theoretical physicists. Your gripe is about a politically manipulated report that ultimately is produced by politicians. Going with the original report was problematic for the Obama Administration so they told Romer, et. al. to change it so it is more palatable and would hope nobody would look back. Whoops they did. Now if it becomes a big enough issue Romer will be “asked” to fall on her sword.

  • You may be right, Steve. I may have been too harsh. However, I strongly suspect that very, very few of President Obama’s economic advisors have ever started a business, made a payroll, or run a business except, possibly, in the hothouse environment of bureaucratland. That may have been the word I was looking for rather than “ivory tower”: hothouse.

    BTW, this is my complaint about Congress and government, generally, these days. Very little real life experience, other than a few years a generation ago working as an associate in a politically-connected law firm.

    This also might be a good time to make a disclosure: the Federal Reserve is an old client of mine. I don’t know the people there now firsthand but I knew some of their predecessors.

  • Oh no, you are correct about never starting, running, or administering a private enterprise. But at the end of the day intellectual honesty is going to lose out to political reality. Its nice to think that the ivory tower types would have the guts to say Bravo Sierra and quit, but they rarely do.

    They might even address the issue by saying:

    1. Well our jobs forecast was too optimistic (or alternatively wasn’t pessimistic enough).
    2. We know the stimulus did some good.
    3. Thus, we don’t feel too bad about this kind of questionable arithmetic legerdemain.

    Of course the problem is that while there may be some truth to #2 we don’t necessarily know to what extent. So in the end, the number is pretty much made up and in a way to make the Obama administration look good.

    Now, before people get on their partisan ponies and start trying to tilt at my windmill here, this is going to be the case for all presidential administrations irrespective of party, IMO. I am in no way shape or form suggesting that Republicans have not or would not do this as well.

    So I agree with our conclusion.

  • steve Link

    The problem was in the initial forecast. They were too optimistic. All three of the big macro forecasters also think that the stimulus worked. Here is a cogent explanation from one of them. (While you like to blame them for inaccuracy in some areas, you and others seem to assume that their first prediction must have been 100% accurate. Be consistent at least.)



  • Right, they used what? The same model that produced the first set of forecasts? We’ve been over this before I believe. Comparing forecast results with forecast results really aren’t that impressive a validation method.

  • Drew Link

    I don’t know who MA is, their reputation, or if they have any biases. But I didn’t find their explanation compelling for the reasons that Steve V. cited. Rather, it just sounded like a do over.

    I wish I got do overs in my business after a bad investment decision had been made. And that’s really the problem with this debate over the stimulus. The stimulus comes with costs, higher taxes and greater debt to name two. The conclusion that the stimulus “worked” can lead to bad public policy decisions as people ignore the costs while just assuming – mostly for political reasons – that it worked.

    Isn’t there an admonition in medicine: first, do no harm?

  • steve Link

    “Frequently, partisan commentators — and even some economists — exclaim that the stimulus has failed because the unemployment rate now exceeds the peak shown in projections prepared before ARRA was implemented.4 This argument, which clearly — and perhaps intentionally — confuses the pre-stimulus baseline with the incremental effects of the stimulus, would be laughable if it was not taken so seriously in some quarters. For the record, last spring, as the financial crisis that engulfed the economy worsened unexpectedly — but before the stimulus could possibly have had any real effect on the economy — the unemployment rate already had moved above the Administration’s (and many others’) last pre-stimulus projection. So, this is simple: the baseline forecasts were optimistic, but unemployment would be even higher now without the benefit of the stimulus package.”

    The point is that the unemployment rate had already worsened before the stimulus started. This is a do over? I find it hard to believe that in business you never readjust your decisions as new data is acquired. We certainly change in medicine as we get new facts.

    As to bias, would have to find the references, but this was one of the three big forecasters that was lambasted by Dems when they said that the Bush tax cuts had helped increase GDP growth.


  • This is a do over?


    I find it hard to believe that in business you never readjust your decisions as new data is acquired. We certainly change in medicine as we get new facts.

    Absolutely. But lets be clear they didn’t just get new facts, they also updated two forecasts. One without stimulus one with. They subtract the unemployment without from the one with and shazam, there’s your “proof” that the stimulus worked. How do we know this? From your link,

    In February of 2009 we published a MACRO FOCUS entitled “Fiscal Stimulus to the Rescue — Final Answer” in which we estimated, relative to a “pre-stimulus baseline,” the macroeconomic effects of the legislation.

    They don’t have facts, they have educated guesses. Guesses that are probably based on historical data. Now that isn’t in and of itself bad, but I’ve also noted that the previous 2 recessions had longer than usual lag times in terms of unemployment rebounding compared to previous recessions. Now if we find that this is true here, then that effect is going to be hard to capture with just historical data. Why? Because we don’t have lots of recession events in the historical data, and few with this magnitude.

    Again we can go to your link for this “proof” and see problematic words,

    As just argued, the timing and the composition of the stimulus have been close enough to our previous assumptions that we remain comfortable with our earlier findings. Hence, we still estimate that the peak effect of the stimulus on employment will reach about 2.5 million by the end of this year before then fading gradually.

    Assumptions? Estimate? I thought this was proof? Whiskey Tango Foxtrot?

    From a modeler’s perspective, however, the most useful figures are those reported by the Bureau of Economic Analysis (BEA), which publishes estimates of the impact of ARRA on federal receipts and expenditures in the National Income and Product Accounts.

    Oh….they are using the governments estimates in their estimates and to test their estimates. Well okay then.

    See its all Bravo Sierra with lots and lots and lots of words…truely a “wall of text” to basically look like they did something to come up with proof. They haven’t. Now at least these Macroeconomic Advisors are honest in that they do use words like “estimate”. What you don’t see by the partisans on the Left (and where Macroeconomic Advisors go off the rails) is that they DON’T use the words like “estimate”, “forecast”, etc. No, they delete those words and make it sound more like fact.

    And I’d caution anyone from using Macroeconomic Advisors by themselves. They clearly have a partisan tone to that blog post and they should have noted that this kind of Bravo Sierra on the part of the Left. They only took on one side of the partisan clash. A fail on their part.

    No I’m annoyed that I’ve had to write my own wall of text to rebut their wall of text.

  • Whoops….

    <blockquote.They subtract the unemployment without from the one with and shazam, there’s your “proof” that the stimulus worked.

    change unemployment to employment.

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