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New CBO Reports Show Stimulus Even Less Effective Than Previously Believed
Townhall.com ^ | December 14, 2011 | Kevin Class

Posted on 12/14/2011 8:40:17 AM PST by Kaslin

Buried within the Congressional Budget Office's most recent report on the progress of President Obama's American Recovery and Reinvestment Act was a surprising admission: the CBO now estimates the stimulus might have been only half as effective as previously thought.

You wouldn't know it from the headlines. "Stimulus added up to 3.3M jobs," reads a representative piece from Politico reporting on the November CBO report. This headline is accurate for the high-end estimate. That estimate, however, is essentially unchanged from previous reports. In the past, the CBO's low estimate for jobs "created or saved" was 1.2 million which, in this report, has dropped to only 600,000.

A particularly unusual requirement in the stimulus was that the CBO issue regular reports on its estimates of the legislation's economic effectiveness. Standard neo-Keynesian macroeconomics, to which the CBO has long seemed to subscribe in its economic modeling, posits that government spending creates a "multiplier effect" that ripples throughout the economy and creates more growth than it would normally appear to. The CBO's newest report cuts one of their estimates in half, validating conservative criticism that they've been overestimating the effect of the stimulus.

If the debate about the law was shaped by the possibility that a $825 billion spending law would yield only six hundred thousand jobs, the debate may have been a lot different. Over $1.3 million dollars per job "created or saved?" That's not a number that Democrats are eager to be touting on Capitol Hill.

The Center on Budget and Policy Priorities put together a chart representing the CBO's revised estimates:

It might be difficult to find those who would argue that the stimulus was worth it if the CBO's new low-end estimate of jobs "created or saved" is accurate. The left will always have Paul Krugman and similar ideologically-aligned colleagues arguing that the CBO is wrong, that the economic multipliers are higher, and that the CBO is actually underestimating the growth that comes from a massive injection of government money into the economy. The problem for Krugman et. al is that the economics on such undertakings are far from settled.

Studies attempting to estimate the effects of countercyclical fiscal policy have found an incredibly wide range of possibilities. While the CBO estimates a multiplier effect between 0.5 and 2.5, academic literature is even further apart. IMF economists writing about recent studies found estimates that government spending could be either significantly harmful or even more effective than the most optimistic CBO scenario. In summing up the state of macroeconomics, they found this to be an "embarrassingly wide range of estimated multipliers."

"Usually, the CBO is very careful when they apply the range of jobs created because they don't really know for sure," said Douglas Holtz-Eakin, former CBO director and president of the American Action Forum. "I think it says a lot about the confidence of the profession in their ability to provide these estimates. There's simply no consensus about the size of multiplier effects in the best of circumstances, and for those that were introduced in the midst of a large financial crisis-induced recession, it's even more uncertain."

The CBO's modeling represents the wide range and uncertainty surrounding the economic community. It's also not simply a matter of splitting the difference between the best-case and worst-case scenario being represented. The range presented is so wide precisely because economists are genuinely unsure of their methods and projections. New York Times economics reporter Ed Glaeser discussed this in writing,

The fundamental problem with acquiring certainty about Keynesian intervention is that anti-recessionary spending is just not very amenable to clean, compelling empirical evaluation… And so we are left wading in ignorance. It is a great tragedy that the most important area of economic decision-making is also the area where we will always know the least.

Economics was famously coined as "the dismal science" – and while the CBO is a nonpartisan, trustworthy institution, its estimates nonetheless represent value judgments and certain assumptions. Their willingness to revisit those assumptions in the wake of a stimulus that has not followed the models for what was promised by the Obama Administration is admirable. "They should be applauded for going back and reviewing on the basis of new research and new evidence," Holtz-Eakin said.

Neither party has a monopoly on economics, despite what Obama's economists may have claimed during the stimulus debate, and what the president himself regularly implies. Republicans who argue that the stimulus had no effect at all on employment are likely just as wrong as the news media that takes the CBO's high-end estimates as fact. It's difficult to spend that much money and have absolutely no effect on employment, no matter how strong a crowd-out effect might occur. The important thing is that the CBO effectively admitted their critics were correct that they have been overly optimistic in their economic estimates of the stimulus. Conservatives should applaud.


TOPICS: Business/Economy; Culture/Society; Front Page News; Government
KEYWORDS: cbo; jobsandeconomy; stimulus

1 posted on 12/14/2011 8:40:25 AM PST by Kaslin
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To: Kaslin

The ‘stimulus’ was nothing but a giant fraud on the public and a swindle.

Throwing good money after bad made everything worse.


2 posted on 12/14/2011 8:44:22 AM PST by SMARTY ("The man who has no inner-life is a slave to his surroundings. "Henri Frederic Amiel)
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To: Kaslin

“... than believed” by who, exactly?


3 posted on 12/14/2011 8:46:25 AM PST by william clark (Ecclesiastes 10:2)
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To: Kaslin

“... than believed” by who, exactly?


4 posted on 12/14/2011 8:46:53 AM PST by william clark (Ecclesiastes 10:2)
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To: Kaslin

Put this together with the revelation that the housing market is MUCH worse than previously reported, now we are rocking!


5 posted on 12/14/2011 8:50:30 AM PST by jessduntno (The Republican elite hates him, Rove hates him, Boehner hates him, liberals hate him. It's Newt!)
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To: Kaslin

http://www.freerepublic.com/focus/f-news/2819330/posts


6 posted on 12/14/2011 8:52:27 AM PST by djf (http://www.freerepublic.com/focus/f-chat/2801220/posts)
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To: Kaslin
Weren't the majority of the stimulus funds to be spent in '12?

If so, then Obama may still benefit hugely in an election year from the jobs that are about to be created next year.

7 posted on 12/14/2011 8:54:21 AM PST by Siena Dreaming
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To: Kaslin

The “Stimilus” rape of the treasury destroyed Millions of jobs in the private sector and created a massive debt that will destroy Millions of jobs for decades as we struggle to pay this off.

If there was justice in America, half of Congress would be behind bars right now.


8 posted on 12/14/2011 8:54:33 AM PST by American in Israel (A wise man's heart directs him to the right, but the foolish mans heart directs him toward the left.)
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To: Kaslin
It MAY have had a small positive effect somewhere for a little while, but it IS having a huge negative effect now, that will last for decades.

9 posted on 12/14/2011 8:54:53 AM PST by BitWielder1 (Corporate Profits are better than Government Waste)
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To: Kaslin

1.3 million per job? I gotta get a new vocation.


10 posted on 12/14/2011 8:58:33 AM PST by wbill
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To: Kaslin

any link to the new CBO report or stories on it??


11 posted on 12/14/2011 9:02:53 AM PST by God luvs America (63.5million pay no federal income tax then vote demoKrat)
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To: william clark

The left of course, who else


12 posted on 12/14/2011 9:05:24 AM PST by Kaslin (Acronym for OBAMA: One Big Ass Mistake America)
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To: Kaslin
In summing up the state of macroeconomics, they found this to be an "embarrassingly wide range of estimated multipliers."

As an economics major (though I never worked a day in any field even remotely related to economics after graduation), I would say the entire field of economics itself is what is embarrassing. A mostly useless pile of theory that in a few instances can sometimes come close to agreeing with reality, but which for the most part, is little more than an academic exercise with no real practical use or value.

13 posted on 12/14/2011 9:06:38 AM PST by Sicon ("All animals are equal, but some animals are more equal than others." - G. Orwell)
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To: Kaslin
In summing up the state of macroeconomics, they found this to be an "embarrassingly wide range of estimated multipliers."

As an economics major (though I never worked a day in any field even remotely related to economics after graduation), I would say the entire field of economics itself is what is embarrassing. A mostly useless pile of theory that in a few instances can sometimes come close to agreeing with reality, but which for the most part, is little more than an academic exercise with no real practical use or value.

14 posted on 12/14/2011 9:06:38 AM PST by Sicon ("All animals are equal, but some animals are more equal than others." - G. Orwell)
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To: Kaslin

Depression for little people, “liquidity” by the trainload for the money changers.


15 posted on 12/14/2011 9:13:31 AM PST by junta ("Peace is a racket", testimony from crime boss Barrack Hussein Obama.)
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To: Kaslin; ding_dong_daddy_from_dumas; stephenjohnbanker; DoughtyOne; calcowgirl; Gilbo_3; NFHale; ...
RE:”You wouldn't know it from the headlines. “Stimulus added up to 3.3M jobs,” reads a representative piece from Politico reporting on the November CBO report. This headline is accurate for the high-end estimate. That estimate, however, is essentially unchanged from previous reports. In the past, the CBO’s low estimate for jobs “created or saved” was 1.2 million which, in this report, has dropped to only 600,000.........
If the debate about the law was shaped by the possibility that a $825 billion spending law would yield only six hundred thousand jobs, the debate may have been a lot different. Over $1.3 million dollars per job “created or saved?” That's not a number that Democrats are eager to be touting on Capitol Hill.

Key numbers are in the above excerpt, 600K jobs at 1.3M $ per job..

The stimulus/recovery act was never really a jobs bill (some Dems have been forced to admit this since) but Obama and Pelosi sold it as a emergency jobs bill to get it rammed through in a hurry. They cant back off from that now.

A poll question you will never see: “What is a reasonable cost for a government created temporary job funded by taxpayers or deficits?

Select one :

a) I dont want one penny spent on that
b) 20K $
c) 100K
d) 500K
e) 1M
f) It doesn't matter how much it ‘costs’ because the rich have too much money they don't deserve.

16 posted on 12/14/2011 9:20:10 AM PST by sickoflibs (Man we are screwed!)
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To: Kaslin

Key to destroying America is to wreck her economy, industry, and military standing.

This is Obama’s prime objective.


17 posted on 12/14/2011 9:21:25 AM PST by G Larry ("I dream of a day when a man is judged by the content of his Character.")
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To: Kaslin

From Zero Hedge.

Here is someone’s House Oversight Committee testimony for tomorrow on the futility of trying to bail out the Eurozone Titanic. Look at the chart of Federal debt to GDP growth. Additional debt does NOTHING and actually hurts (of course).

My House Oversight Testimony on The Eurocrisis, The Fed And Implications for Taxpayers

http://confoundedinterest.wordpress.com


18 posted on 12/14/2011 9:26:32 AM PST by whitedog57
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To: Kaslin

the ‘stimulus’ was very effective!!

... at filling the bank accounts of selected Obama supporters.


19 posted on 12/14/2011 9:28:47 AM PST by Enchante
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To: jessduntno
Yeah I heard the report on Fox News this morning and here is the report from Fox Business

Bad Housing Numbers Should Have Been Worse, NAR Says

No mention from ABC, CBS and CNN. Only MSNBC has an article about it.

US existing home sales to be revised down from 2007

20 posted on 12/14/2011 9:31:11 AM PST by Kaslin (Acronym for OBAMA: One Big Ass Mistake America)
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To: Kaslin

"In the past, the CBO's low estimate for jobs "created or saved" was 1.2 million which, in this report, has dropped to only 600,000."

Meaning that, at best, the failed stimulus "saved or created" 400,000 private sector jobs (which I have serious doubts about). To put this into perspective, IIRC, we need something like 125,000 jobs created per month just to keep up with population growth...

21 posted on 12/14/2011 9:37:13 AM PST by Qbert ("The best defense against usurpatory government is an assertive citizenry" - William F. Buckley, Jr.)
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To: sickoflibs

I’m thinking “A” looks pretty good right about now.

Just think, if they had given each person $500k, they would have saved $800,000.00 per person.

Obama sure is a masterful economist.


22 posted on 12/14/2011 9:40:11 AM PST by DoughtyOne (Why back in '88, Conservatives backed Gore in Texas. What Reagan revolution? What laegacy?)
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To: Kaslin

Su-PRISE, su-PRISE, su . . . . . no, it really isn’t. We already knew this!!


23 posted on 12/14/2011 9:43:47 AM PST by DustyMoment (Congress - Another name for white collar criminals!!)
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To: American in Israel
If there was justice in America, half of Congress would be behind bars right now.

For the past couple of decades or so I have been saying that if we put bars on Congress we would have half of America's criminal element locked up!!

24 posted on 12/14/2011 9:46:01 AM PST by DustyMoment (Congress - Another name for white collar criminals!!)
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To: American in Israel

Half ??!!??!!!


25 posted on 12/14/2011 9:51:14 AM PST by Sir Napsalot (Pravda + Useful Idiots = CCCP; JournOList + Useful Idiots = DopeyChangey!)
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To: sickoflibs

And by ‘the rich’, they mean you and me, buddy.

There are always ‘more deserving’ people they can find.


26 posted on 12/14/2011 9:54:51 AM PST by Sir Napsalot (Pravda + Useful Idiots = CCCP; JournOList + Useful Idiots = DopeyChangey!)
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To: DustyMoment

Of course


27 posted on 12/14/2011 9:57:06 AM PST by Kaslin (Acronym for OBAMA: One Big Ass Mistake America)
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To: Sir Napsalot

They never count themselves as rich


28 posted on 12/14/2011 10:00:00 AM PST by Kaslin (Acronym for OBAMA: One Big Ass Mistake America)
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To: Kaslin
Chart from the article:


29 posted on 12/14/2011 10:13:59 AM PST by upchuck (Let's have the Revolution NOW before we get dumbed down to the point that we can't.)
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To: upchuck

We know what color curve is the correct one, don’t we?


30 posted on 12/14/2011 10:23:11 AM PST by Kaslin (Acronym for OBAMA: One Big Ass Mistake America)
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To: Siena Dreaming
Statement from Walz’s(D-Mn) Congressional Office

This legislation will create and save 3 to 4 million jobs, rebuilding America, making us more globally competitive and energy independent, and transforming our economy for long-term growth; give 95% of American workers an immediate tax cut; and invest quickly in the economy – with 75% spent in the first 18 months.

What’s exciting is that southern Minnesotans can benefit greatly from this strategy. Experts say more than 90 percent of the jobs created will be in the private sector.” added Walz.


31 posted on 12/14/2011 11:10:31 AM PST by Son House (The Economic Boom Heard Around The World => TEA Party 2012)
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To: Son House

let me guess, they’re all building windmills, right?


32 posted on 12/14/2011 11:18:29 AM PST by WOBBLY BOB (Congress: Looting the future to bribe the present.)
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To: sickoflibs; stephenjohnbanker; DoughtyOne; calcowgirl; Gilbo_3; NFHale
Select one :
a) I dont want one penny spent on that
b) 20K $
c) 100K
d) 500K
e) 1M
f) It doesn't matter how much it ‘costs’ because the rich have too much money they don't deserve.

Again, Elmendorf admits: 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.”

33 posted on 12/14/2011 9:16:18 PM PST by ding_dong_daddy_from_dumas (Budget sins can be fixed. Amnesty is irreversible.)
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To: ding_dong_daddy_from_dumas; stephenjohnbanker; DoughtyOne; calcowgirl; Gilbo_3; NFHale
I tried to track down the source of 600,000 jobs number cited above and had no luck. The link in the post text and at Townhall goes to politico which states :” The CBO report provided a broad range of the estimated number of full-time jobs created because of the stimulus — from a low of 500,000 to a high of 3.3 million jobs”.

The chart at Townhall is labelled Center on Budget and Policy Priorities and if go to that site it says the same thing.

But Townhall which cites politico says : “In the past, the CBO’s low estimate for jobs “created or saved” was 1.2 million which, in this report, has dropped to only 600,000.

Townhall is taking the CBO’s low end figure of jobs “created or saved” which I assume they take as the # jobs actually counted, not estimated.

34 posted on 12/15/2011 5:15:35 AM PST by sickoflibs (Man we are screwed!)
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To: sickoflibs; stephenjohnbanker; DoughtyOne; calcowgirl; Gilbo_3; NFHale
Townhall is taking the CBO’s low end figure of jobs “created or saved” which I assume they take as the # jobs actually counted, not estimated.

If the number was "zctually counted," it would be a completely different category than a range having a possible high and low. Sounds like they are using numbers inappropriately, to state it gently.

But maybe they know that the method of "counting" is so dishonest that they know it is not accurate, so they still have to estimate the real numbers?

35 posted on 12/15/2011 1:23:38 PM PST by ding_dong_daddy_from_dumas (Budget sins can be fixed. Amnesty is irreversible.)
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