Assessing the Stimulus

The current administration has unveiled an entirely new metric for measuring the success of stimulus spending. Rather than claim credit for “creating” jobs, they have focused on jobs that were “created or saved” by the stimulus. This, of course, is a preposterous notion. How do we know that a job was saved? The idea of transparent reporting from the government is welcome, but transparent reporting is only part of the problem. What precisely is the definition of a “saved” job? This might seem a bit facetious, but bear with me.

Suppose that a municipality receives money to pave a road. They hire a private firm to do the job. The firm was planning on laying off (we’ll say) 10 workers. However, given the new job, the firm keeps those 10 men on payroll. This seems pretty straightforward. It’s not. These 10 workers might be kept on the payroll until the completion of this job and let go thereafter. Does this still count as a job saved? How long does the person have to remain employed for it to be considered a job “saved”? Near as I can tell, this doesn’t factor in to the decision-making.

Consider another example. Suppose that a state or municipality announces that they are going to lay off teachers or police officers. If stimulus funds keep these individuals employed, this is considered a job that was saved. However, how do we know that state and local governments weren’t, at the very least, exaggerating the number of individuals that were going to lose their jobs in a ploy for more stimulus money?

Of course, all of this ignores the financing. The government doesn’t have money, it must borrow and tax in order to spend money. Thus, any metric of job creation measures gross job creation, but what we are really concerned with is net job creation.

With that being said, the number that has been released regarding the “saved or created” jobs was estimated to be between 640,329 and 1 million jobs. That means that the stimulus has cost between $160,000 and $250,000 per job. (Jared Bernstein calls that “calculator abuse.”)

White House officials have been quick to mention that these numbers do not include jobs that were saved or created through the temporary tax cuts. As I have mentioned numerous times on the blog, temporary tax cuts don’t work. John Taylor has documented this fact for the last two rebate checks. Thus, it would seem that including the cost of these tax cuts would actually inflate the cost per job.

Ultimately, I am not entirely sure what we are to get from the “jobs saved or created” metric. There doesn’t seem to be any true objective way to quantify such a thing. Regardless, based on the data on jobs and growth up to this point, one can hardly conclude that the stimulus has been successful.

UPDATE: John Taylor breaks down the GDP numbers and concludes that the “stimulus did not fuel GDP growth.”

Casey Mulligan writes that he is “still waiting for mistakes that underestimate the potentcy of the stimulus.”

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