A Quick Look at the CEA’s “Million Jobs Saved” Claim September 11, 2009Posted by geoff in News.
The Council of Economic Advisors told us yesterday that a million jobs had been saved by the stimulus package. Isn’t that great?
Let me start by saying that whatever the stimulus package did, it obviously wasn’t enough. The unemployment situation is awful and has not yet peaked. We always said that the package didn’t act quickly enough, and that’s already been proven by the economy’s loss of over a million jobs since the stimulus was signed.
And let me point out the price: we’ve spent $100 billion to save a million jobs for 6 months. That’s $200,000 per job per year.
Then let’s look at the actual analysis itself. The CEA predicts the “without stimulus” case and compares it to what we’ve experienced. The difference gives them the million jobs saved. But we have no idea how accurate this prediction is, since they never tested it using pre-stimulus data. That is, they should have tried to predict the 4Q08 and 1Q09 data and showed us that their method was reasonable.
Unfortunately I don’t know enough about vector autoregression to be able to duplicate her work quickly, so I can’t do it myself. If anybody has more experience with this method, however…
This chart caught my eye:
They use this chart to claim that the more Medicaid money-per-person a state receives, the better the employment situation. But that conclusion is driven by the solitary outlier on the right (New York). Without that single state, the curve looks like it would be absolutely flat, showing no effect of Medicaid spending on employment.
From that failed argument they move on, trying to show that the influx of Medicaid funds has allowed state governments to avoid staff cuts. To support this argument, they generated this chart:
Which shows that most states did indeed avoid staff cuts. In fact most states increased their staff!! [Just eyeballing it, this correlation is true even without NY] So the CEA has done a great job of proving a fundamental conservative tenet: throwing more money at government increases the size of the bureaucracy.
There’s more to say about this report, but I’ve gotta go earn a living. Hopefully other readers/bloggers can keep nibbling away at this thing.