CBO releases report on Stimulus.

[SirNitram]

Link

The stimulus bill enacted this year has resulted in as many as 1.6 million jobs saved or created this fall, the Congressional Budget Office (CBO) said Monday evening.

The nonpartisan CBO said in a legally mandated report that the American Recovery and Reinvestment Act (ARRA) had resulted in between 600,000 and 1.6 million jobs for the U.S. economy that wouldn't have existed in the absence of the stimulus.

Additionally, the CBO said, gross domestic product (GDP) was as much as 3.2 percent higher than it would have been in the absence of the stimulus.

CBO Director Douglas Elmondorf wrote on his official blog:

Looking at the actual amounts spent so far (where identifiable) and 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 how previous similar policies have affected the economy and various mathematical models that represent the workings of the economy. On that basis, CBO estimates that in the third quarter of calendar year 2009, an additional 600,000 to 1.6 million people were employed in the United States, and real (inflation-adjusted) gross domestic product (GDP) was 1.2 percent to 3.2 percent higher, than would have been the case in the absence of ARRA.


The White House had claimed in its own estimate of the recovery act's impact that the stimulus bill had saved or created roughly 640,000 jobs since going into effect earlier this year.

Republicans had attacked the White House jobs figures as "trying to cover up economic reality by manufacturing job numbers out of thin air" when the Obama administration released those data. Republicans in Congress meanwhile point to testimony earlier this year from a Bureau of Labor Statistics (BLS) official maintaining it's virtually impossible to glean such an estimate of the true impact of the stimulus.

The CBO said that the White House's model for analyzing the stimulus were not comprehensive, and that its own analysis provided the best look at the impact of the stimulus so far.

Not that this will stop the naysayers.

[KrauserKrauser]

Sweet! They are accurate within the entire population of Hawaii! Man I feel all warm and fuzzy now. So if their range is 1 million, the worst case is it actualy cost us 400k jobs or is the mean between their two posted numbers?

Factor in J's linkage of some of the jobs "saved" by receiving pay raises and my fears are assuaged.

Definitely need to put the absolute highest numbers earlier in the article, could be 1.2%, nope let's report 3.2%! Genius!

Do we have an estimate on how much of the stimulus was spent in this time period so we can get a cost/job saved estimate, both best and worst case using these numbers?

[Sea Skimmer]

The US GDP is about 14 trillion, 1.2% of which would be 168 billion, 3.2% 448 billion. Sounds like the stimulus created GDP purely as a result of money printing to me. It'd be kind of absurd if it did not.

[Serafine666]

LinkNot that this will stop the naysayers.

Of course it won't stop the naysayers. The government was already forced to admit that, either by deliberate fraud or bizarre paperwork errors, they spent $3.2 billion helping congressional districts that do not exist. Yes, this is a small part of the total but seriously... they blew 3.2 billion dollars creating imaginary jobs in imaginary places! Their critics would have to be complete morons not to exploit the administration's own admission of spending money on a figment of their imaginations... and frankly, the screw-up with the fake congressional districts is just the botch that has been widely publicized.

[J]

The US GDP is about 14 trillion, 1.2% of which would be 168 billion, 3.2% 448 billion. Sounds like the stimulus created GDP purely as a result of money printing to me. It'd be kind of absurd if it did not.

That's exactly the problem, with the way GDP is currently calculated the US could claim a doubling in GDP if it borrows $14 trillion, prints up the dollar bills and sets it all on fire. Am I suddenly richer if I draw my entire line of credit from the bank? No. The goods & services produced from borrowing the money must be weighed against the debt incurred with the loan, if I take out a $10k business loan and create $20k of goods & services I've added to my wealth, whereas if I spend it on a warehouse full of depreciating goods I've lost money. The same is true of nations.

One thing that's particularly troubling is the amount of money which is being blown on things which have a less than unity multiplier, meaning the return on the money spent is less than breakeven. I count about $116 billion which is definitely underwater and a further $385 billion which is potentially underwater if the multiplier is towards the lower end of the range. This is a really poor way of spending a stimulus to jumpstart the economy. We should be looking for ways to get a large multiplier effect with the stimulus dollars, that is each dollar of stimulus creating many dollars of growth, such as the first two item in Table 2 of the CBO's ARRA report. Instead, most of the money was blown on spending with potentially less than breakeven returns.

I've said many times that the bulk of the spending must go towards infrastructure, energy, and research programs, with the rest in social welfare to keep people from starving and so forth. The CBO's report supports this. The government still doesn't have a clue.

[Terralthra]

Please do not repeat already debunked bullshit, Serafina. As covered in this thread (which references this interview), the money was not spent on "imaginary jobs," rather, it was spent on jobs where the person responsible for reporting how the stimulus dollars were spent had a poor grasp of their own congressional district. If you think that's the government's fault, I'm not sure what to tell you. Should the government demand the money be returned for a paperwork error?

[Serafine666]

Please do not repeat already debunked bullshit, Serafina. As covered in this thread (which references this interview), the money was not spent on "imaginary jobs," rather, it was spent on jobs where the person responsible for reporting how the stimulus dollars were spent had a poor grasp of their own congressional district. If you think that's the government's fault, I'm not sure what to tell you. Should the government demand the money be returned for a paperwork error?

I'm assuming you made a typo and are referring to me as opposed to Serafina. Anyway, if you bothered to read the post you're criticizing, you'll note that I already knew it was either a paperwork error or an instance of fraud. Moreover, your thread does not actually refute what I said: the government claims that the jobs are real but admits that the paperwork was erroneous in all three relevant aspects: money spent, jobs created, and congressional district. So essentially, the government says it didn't screw up despite the fact that its data is obviously bad (because of the paperwork problems it admitted to) and we are to take this on faith. Of course, I also found it mildly interesting that no one tried to refute J's citation of an article showing that the way they counted jobs was also dodgy.

[SirNitram]

Sweet! They are accurate within the entire population of Hawaii! Man I feel all warm and fuzzy now. So if their range is 1 million, the worst case is it actualy cost us 400k jobs or is the mean between their two posted numbers?

You really don't know shit about statistics, do you? It means that there's a hefty, sizable margin of error, with their original number being between 1.6M and 600k, at 1.1M. That's a range of 500,000, not 1,000,000. A big range, but then again, determining jobs 'saved' is pretty much the epitome of tricky.

EDIT: Yea, my math on the percent margin of error was wrong. Removed it.

[KrauserKrauser]

Especially since you can count jobs as "saved" when there is no evidence that they were in jeopardy in the first place!

Government addition at its finest.

There has been shown evidence that the claims of jobs saved have included pay raises as saved jobs which is retarded in whatever justification they want to throw out there. I didn't get a pay raise this year, was my job saved? Does my Christmas bonus count as my job being saved?

Why you are willing to put any faith in the government's claims on the benefits of this stimulus is mind boggling.

As far as the 500k figure. Ok, it was reaching a bit. They are ONLY off by the population of Washington DC/Wyoming/Vermont (Pick one). Highly accurate, definitely needs positive recognition!

[SirNitram]

Especially since you can count jobs as "saved" when there is no evidence that they were in jeopardy in the first place!

Government addition at its finest.

There has been shown evidence that the claims of jobs saved have included pay raises as saved jobs which is retarded in whatever justification they want to throw out there. I didn't get a pay raise this year, was my job saved? Does my Christmas bonus count as my job being saved?

Why you are willing to put any faith in the government's claims on the benefits of this stimulus is mind boggling.

As far as the 500k figure. Ok, it was reaching a bit. They are ONLY off by the population of Washington DC/Wyoming/Vermont (Pick one). Highly accurate, definitely needs positive recognition!

Man, this is amazing. The article specifically mentions the Obama Admin's methods weren't up to snuff and the CBO's used their own. But all these silly objections were from stories about the administration's methods. Oh, right: Don't dare admit that you might've made a mistake.

As for your second paragraph: The CBO report actually looks at such things. It discards one-time payments as they don't retain shit. It accepts longer pay increases to the lower classes above those or higher class pay increases because lower classes tend to spend alot more of their money(See the irresponsible lending to a hint on how much this is so.). And what does more purchasing do? More money paying wages for the places they shop at. Wowee.

The CBO Report if anyone's interested in more than coming up with a new way to phrase 'I don't trust Obama's numbers, so I'll never beleive a completely seperate group.'.

[Serafine666]

The CBO Report if anyone's interested in more than coming up with a new way to phrase 'I don't trust Obama's numbers, so I'll never beleive a completely seperate group.'.

Admittedly, SirNitram, I think distrust of the "government" in general comes out of the fact that people are used to hearing claims from the politicians who have a built-in incentive to be less that totally honest--and the existence of that incentive is well-known. They rarely, if ever, have some representative of the CBO (or another responsible organization) getting up in front of a press conference and running through the numbers that came out of a disinterested analysis. Without question, the CBO is scientific and responsible whereas politicians usually aren't.

[Sea Skimmer]

I've said many times that the bulk of the spending must go towards infrastructure, energy, and research programs, with the rest in social welfare to keep people from starving and so forth. The CBO's report supports this. The government still doesn't have a clue.

It needs to be useful crap under those subjects too. But that damn 'shovel ready' bullshit ensured that the money would be wasted, even though per the plan much if it wasn't going to be spent immediately anyway. You know what the stimulus was used for in my town? Curb cuts for people in wheelchairs. Thing is we already HAD curb cuts on absolutely every single corner, even our few corners which did not even have adjoining sidewalks! But those cuts, done less then ten years ago apparently no longer met Federal standards and thus were completely ripped out and rebuilt with a marginally shallower slope all for about 45,000 dollars IIRC. My town had no say in how this money was allotted, and had already paid for the original cuts out of pocket too. Fucking insane waste.

[xammer99]

Well, lets look at the average dollar costs of those jobs.

If 1.6 million were saved/created:

$787,000,000,000 / 1,600,000 = $491,875 per job.

If 600,000 were saved/created:

$787,000,000,000 / 600,000 = $1,311,666.67 per job.

And if we split the difference at 1.1 million saved/created:

$787,000,000,000 / 1,100,000 = $715,454.55 per job.

Even if they get it down to the hoped for 6 million jobs, that'll still be $131,166.67 per job.

The average national income in 2008 was $47,500. source

So, how can you possibly count it as a "success" to spent between 10 and 27 times the average annual income to MAY BE create 1 job? If that was 1.6 million new jobs guaranteed created, it'd STILL be a bad deal.

I can think of a few better ways to get $787b into the economy... like may be cut a $30K check to 26 million lucky Americans or a $2600 check to every man, woman, and child in the country. Least then we could all go out and buy a shitload of beer and hookers!

[Sea Skimmer]

Those calculations aren’t completely valid xammer, because the full value of the stimulus package wont be spent until six years after the bill passed. Certainly a large chunk is already spent though. But yeah, I agree it would have made just as much or more sense to just give Americans 2,600 bucks apeice. To an extent that is what will happen too, as a fair portion of the stimulus was in tax cuts, not actual spending. Of course tax cuts = deficit spending = absurdly massive long term interest payments all the same.

[D.Turtle]

You also miss the fact that this was a STIMULUS bill, not a JOBS bill.

So ignoring everything else and just focusing on the jobs created/saved numbers is incredibly misleading.

Note, though, that progressives/liberals wanted a jobs bill (and less going into tax cuts), but were ignored in favor of the "moderate" corporatist "democrats".

[KrauserKrauser]

Going to show any proof on that statement? Last I checked they were more concerned with their "shovel ready" projects and chose that as their catch word to sell the bill.

I don't recall Reid or Pelosi making calls for some actual worthwhile jobs, just simple cries that we need to put America back to work.

[D.Turtle]

I said progressive/liberals.

Reid DEFINITELY does not fit that description, Pelosi fits it somewhat more.

Now as for what liberals/progressives said:

Here is what Paul Krugman said in February:

What the centrists have wrought

I’m still working on the numbers, but I’ve gotten a fair number of requests for comment on the Senate version of the stimulus.

The short answer: to appease the centrists, a plan that was already too small and too focused on ineffective tax cuts has been made significantly smaller, and even more focused on tax cuts.

According to the CBO’s estimates, we’re facing an output shortfall of almost 14% of GDP over the next two years, or around $2 trillion. Others, such as Goldman Sachs, are even more pessimistic. So the original $800 billion plan was too small, especially because a substantial share consisted of tax cuts that probably would have added little to demand. The plan should have been at least 50% larger.

Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.

My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed over the next two years.

The real question now is whether Obama will be able to come back for more once it’s clear that the plan is way inadequate. My guess is no. This is really, really bad.

Or quoting from DailyKos:

Not enough to get the job done
by Jed Lewison

Some simple math:

$780 billion (the size of "moderate" stimulus plan that may soon reach the senate floor for a vote) divided by $42 trillion (the current GDP * 3 years) = 1.9%.

If senators think that a stimulus package totaling less than 2% of GDP will be enough to turn this economy around, they are demented and sad clowns.

We need a better deal, not just in the senate, but also in conference. This is not the time to be thinking small.

Update (4:30PM): Chris Matthews and Andrea Mitchell are reporting that 42% of the Senate proposal consists of tax cuts. That's roughly $330 billion. Tax cuts, of course, are the absolutely least effective way to stimulate a boost GDP (and therefore employment) according to virtually every economist. So not only is this not enough, too much of it is on the wrong stuff. If this indeed the deal, Speaker Pelosi is going to need to fight hard in conference to get a bill done that works.

Or quoting Huffington Post:

"I support the stimulus package," Van Jones, author of The Green Economy, told me. "But when I look at it in its entirety, I fear that we may soon look back and say that we missed a huge chance to go bigger and bolder. After all, there were three flaws with the old economy that has crashed: it favored consumption over production; debt over smart savings; and environmental damage over environmental renewal. Some parts of the stimulus package seem to be more of the same -- trying to prop up the old, failed economy. That strategy simply won't work -- but we could waste a lot of money and time trying. Instead, we need a new direction for our economy. You can't jump halfway across a chasm -- you just end up falling into the abyss."

Rick Levin, president of Yale and an economics professor, echoed Van Jones' call for "bigger and bolder": "First of all, there's a question of magnitude. The overall stimulus is about 6 percent of GDP. We did not exit the Great Depression without a stimulus that amounted to about 25 percent of GDP -- we called that World War II... The second problem is with the mix... Only $335 billion worth goes to job creation -- that's about 3.5 million jobs, about $100,000 a job. Three-and-a-half million jobs is only two percentage points on the unemployment rate. That's not enough. I would get rid of the tax cuts and use the entire package for job creation... There are lots of great public works projects that would be well worth supporting. And, in the near term, what about CCC-type activities that put people to work right away, cleaning up public parks, weather-stripping homes, offices, schools, government buildings?"

[J]

It needs to be useful crap under those subjects too. But that damn 'shovel ready' bullshit ensured that the money would be wasted, even though per the plan much if it wasn't going to be spent immediately anyway. You know what the stimulus was used for in my town? Curb cuts for people in wheelchairs. Thing is we already HAD curb cuts on absolutely every single corner, even our few corners which did not even have adjoining sidewalks! But those cuts, done less then ten years ago apparently no longer met Federal standards and thus were completely ripped out and rebuilt with a marginally shallower slope all for about 45,000 dollars IIRC. My town had no say in how this money was allotted, and had already paid for the original cuts out of pocket too. Fucking insane waste.

Of course. I wanted nuclear power for everyone which would create many high-skilled and well paying manufacturing, research, and construction jobs. That of course didn't happen, and yeah, I remember seeing the list of "shovel ready" projects soon after the stimulus bill was announced, I don't think any of them created permanent jobs. I'm not surprised at all with what your town's experience with the stimulus, that's what happened in far too many places.

You also miss the fact that this was a STIMULUS bill, not a JOBS bill.

This leads back to another problem, that being what is the point of a stimulus plan? For a stimulus to work it assumes the groundwork or fundamentals for a recovery are in place or in sight, the plan kicks the pieces into place and pushes things along so the recovery can get started. To use an analogy, you've accidentally left the lights on in your car and the battery died so you now need to push-start the car. That push is the equivalent of a stimulus. Everything the car needs to start is there, it just needs a good push to get going. But what if the someone also cut the gas lines in your car ? The car isn't going to start no matter how long or how hard you push it. You need to patch the lines and refill the tank before the car can be push-started.

And that's the problem with our economy as it stands. We have many fundamental problems which need to be addressed before a stimulus plan can actually create an actual recovery. Those problems haven't been touched. At all. In fact they're all worse now than they were a year ago. All stimulus packages will fail unless they fix those fundamental problems.

[TheKwas]

What fundamentals are needed before a stimulus would work? All you need is to increase aggregate demand, which is pretty much possible with any sudden increase in government spending.

[Sea Skimmer]

Except the only real demand created was for construction materials, of which most were already in over abundance due to overproduction to feed to housing bubble.

[J]

The increased demand must be sustainable. Since we are a consumer economy, it means we need to find a way for the consumer to increase his spending on a sustained long-term basis. It follows that debt loads must come down along with the costs of debt service while income and employment have to go up. In addition the fraud and embezzlement must be forced out of the system and our banking & financial system returned to sound lending & business principles. People will not invest and do business in an obviously rigged casino.

[TheKwas]

Are you suggesting that American growth is unsustainable? Is there any evidence that we're currently floating on top of another bubble (or that we will immediately create another bubble once we get out of this recession)?

[J]

Yes. Does this debt to GDP ratio look sustainable, and what would happen with debt service costs once interest rates aren't near zero?




If interest rates were to go up just a few percent it would literally suck trillions out of the economy every year just to service those debts.

Or you could just ask the auto industry how they're doing now that zero down loans, roll-over loans, and all that fancy financing and cheap credit is no longer widely available.

[TheKwas]

As fancy as that graph is, nothing strikes me as evidence that a stimulus can't work. That debt-to-GDP ratio growth is certainly unsustainable in the long run, but unless you think that the whole thing is going to come crashing down within the next 5 years it has no impact on the effectiveness of a short-run stimulus for recession-countering purposes.

Putting that Debt-to-GDP ratio in perspective:

America's debt-to-gdp ratio isn't anything special on the international scene. Japan has a much higher ratio and yet, although the economy isn't performing great, Japan is by no means on the verge of a total breakdown or showing any signs of collapse. Germany is pretty much in the same position as America, as is Canada and France (not shown). Current levels of debt, while high, are not crippling nor do they have any impact on stimulus effectiveness.

Also, America was once in a much worse position in terms of debt during world war two, and yet the war still managed to act as a Keyensian stimulus.

(second image)

Debt isn't a great thing, but it doesn't mean much in terms of whether a stimulus will work or not. Furthermore, although a stimulus may be bad for the debt in the short-run, it is better for it in the long-run due to higher future growth and a higher GDP level.

[J]

Putting that Debt-to-GDP ratio in perspective:

America's debt-to-gdp ratio isn't anything special on the international scene. Japan has a much higher ratio and yet, although the economy isn't performing great, Japan is by no means on the verge of a total breakdown or showing any signs of collapse. Germany is pretty much in the same position as America, as is Canada and France (not shown). Current levels of debt, while high, are not crippling nor do they have any impact on stimulus effectiveness.

The graph I presented is of total debt whereas yours only covers public debt. This is the total debt to GDP graph for Japan, taken from Prof. Steve Keen's website.



I eyeball that at about 260-270% at its peak, compared with roughly 380% for the US.

Also, America was once in a much worse position in terms of debt during world war two, and yet the war still managed to act as a Keyensian stimulus.

Take a more careful look at the graph I presented in my previous post along with the following one, also from Prof. Keen's site.



Worse in WWII? Not when total debt is counted instead of public debt alone.

Debt isn't a great thing, but it doesn't mean much in terms of whether a stimulus will work or not. Furthermore, although a stimulus may be bad for the debt in the short-run, it is better for it in the long-run due to higher future growth and a higher GDP level.

This presumes two conditions; 1) the growth created by the stimulus is larger than the debt it creates, and 2) the long-run GDP growth is greater than the growth of debt and debt service costs.

The former looks to be true so far if not by much, the latter, whoops. The long-run debt growth going back over 50 years for the US is around 8.5% or so on an annual compounded basis, GDP growth over the same period has been around 5.5-6%. This leaves a spread of about 2.5-3% between GDP growth and debt growth, compounded over 50 years and you have a bit of a problem. In the long run the debt will completely strangle the economy as the service costs on the debt will eat a larger slice of the pie with each passing year until it consumes everything. It's simple math.

The current spread is about 10%. It will not take very long for this to kill any stimulated growth.