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Sunday, November 28, 2010

The Stimulus Worked! Trust Us!

The Congressional Budget Office has its report on the effects of the stimulus out now, and both the report and the coverage of the report seems to boil down to: "See? It worked!"

But, if you dig into the report, it raises a number of questions. For instance, let's look at the report's statement about the job creation:
"During the third quarter of 2010, recipients reported, ARRA funded more than 670,000 full-time-equivalent (FTE) jobs.2 Those reports, however, do not provide a comprehensive estimate of the law’s impact on U.S. employment, which could be higher or lower than the number of FTE jobs reported, for several reasons (in addition to any issues concerning the quality of the reports’ data). First, some of the jobs included in the reports might have existed even without the stimulus package, with employees working on the same activities or other activities. Second, the reports cover employers that received ARRA funding directly and those employers’ immediate subcontractors (the so-called primary and secondary recipients of ARRA funding) but not lower level subcontractors. Third, the reports do not attempt to measure the number of jobs that were created or retained indirectly as a result of recipients’ increased income, and the increased income of their employees, which could boost demand for other products and services as they spent their paychecks. Fourth, the recipients’ reports cover only certain ARRA appropriations, which encompass about one-fifth of the total either spent by the government or conveyed through tax reductions in ARRA; the reports do not measure the effects of other provisions of the stimulus package, such as tax cuts and transfer payments (including unemployment insurance payments) to individual people."
In other words: "We don't actually have a way to prove that the stimulus created any of these jobs, nor can we actually track what the impact of the money was if it did create jobs. We're just taking credit, without presenting proof that we actually did anything."

Also, FTEs are not full-time employees. Ten people working four hours a week are 1 FTE. There's also nothing indicating that they looked to see if the FTEs did/will remain employed once the stimulus money ends.
"Estimating the law’s overall effects on employment requires a more comprehensive analysis than can be achieved by using the recipients’ reports. Therefore, looking at recorded spending to date along with estimates of the other effects of ARRA on spending and revenues, CBO has estimated the law’s impact on employment and economic output using evidence about the effects of previous similar policies and drawing on various mathematical models that represent the workings of the economy."
Again: "We can't actually verify anything based on the reports we required. So we guessed. But we used mathematical models for our guesses."

Now, in fairness, guess may be a cheap shot there. But let's be honest here. They admit in their own report that they can't actually estimate the effects of the law by using the reports the law required from the entities that accepted the money. So they just skipped out on using their data, and instead just looked at how much was spent compared to estimates about the effect of the law.
Although CBO has examined data on output and employment during the period since ARRA’s enactment, those data are not as helpful in determining ARRA’s economic effects as might be supposed because isolating the effects would require knowing what path the economy would have taken in the absence of the law. Because that path cannot be observed, the new data add only limited information about ARRA’s impact.
This is a textbook post hoc ergo propter hoc fallacy. ARRA money was spent. Then jobs were created. Therefore, the jobs were the result of ARRA. If the CBO could prove that the job creation resulted from the money ARRA spent, then this (obviously) wouldn't be a fallacy. But, they admit in their own document that they can't prove causation. Therefore, causation cannot be assumed.

The only thing ARRA can take credit for, by the report's own admission is: "According to those reports, 671,607 full-time-equivalent jobs were funded by ARRA during the third quarter."

That's it. That is all the report can really tell us. 671,607 FTE jobs for three months. Everything else is conjecture and estimates and, when you get right down to it, make-believe. There is no data to support the report's claims that they impacted real GDP or that they had any meaningful impact on unemployment. There is not enough data to prove that ARRA had any real or meaningful impact.

Try again, CBO. Bring us actual evidence next time. A report telling us that you can't actually demonstrate any causal link between ARRA and anything meaningful in the economy is not good enough.

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