How The Stimulus Works On Paper But Nowhere Else

Good two part essay on the non-stimulus.

I keep wondering where these guys get their "multiplier" figures from -- they assume (and claim that this is well-established) that if they spend $1 in government money on stimulus, they will get out of that $1.50 in economic activity. Taken to extremes (as credential cretin Paul Krugman sometimes seems to) this results in the absurd result that we should just spend $10 trillion in stimulus because then we'll wind up with an additional $5 trillion in "extra" money, magically "multiplied" out from the initial investment.

First...

Instead of achieving its stated goal of 90% private-sector job creation, ARRA did the exact opposite. More than 95% of any jobs created have been in the government sector (fully outlined on Recovery.gov and confirmed by the Congressional Budget Office).

The original document outlining job creation estimates is no longer available on whitehouse.gov. It was replaced with an “updated” document three pages shorter and without the industry-specific job targets originally outlined. Christina Romer, the now-departed head of the Council of Economic Advisors, wrote the original report based on the private-market analysis done by Mark Zandi of Moody’s. Like most economists, neither of these two have experience with spending multipliers, unlike Harvard’s Robert Barro, whose research suggests their multipliers are at least 100% too high.

I think it's that Mark Zandi who's now telling Obama he must not permit the Bush tax cuts to expire, by the way.

San Francisco’s “Presidio Parkway” project has been in the planning stages for nearly 15 years, and is a very worthy infrastructure investment. The funding was expected to be largely at the state and local level, with some federal help. The gap was to be filled with additional tolls and local taxes. Once the American Recovery and Reinvestment Act (ARRA) was implemented, $100 million was allocated to help pay for the Presidio Parkway. No change in the project. No change in jobs. Yet that $100 million is still multiplied by a Keynesian multiplier (1.5-2.5 depending on which Keynesian is doing the math), to estimate the boost it gave GDP. From that incremental GDP, a fantasy job “created or saved” is backed out of the figure.

In other words, this project was going ahead anyway as planned, but the government kicked in some extra money, and based on that, they claimed that all these "new jobs" new economic activity were created.

Except... they weren't. None of this was even close to "new." It had been in the works for 15 freakin' years and was going ahead on schedule.

So what the hell is any sort of claim of "saved or created" or any sort of "multiplier" doing in there?

The most direct reason for the failure of the ARRA was the overly optimistic algebra in its predictions. In order to estimate the job impact of proposed fiscal stimulus, economists multiply government spending by a certain number to extrapolate GDP, and then from there attempt to predict jobs. In the original document predicting ARRA jobs, President Obama’s economics advisor Christina Romer used a multiplier of about 1.57. The Congressional Budget Office used a multiplier of about 2 in its estimate of 2 million jobs created in the fourth quarter of 2009. Harvard Professor Robert Barro estimates that the actual multiplier for World War II stimulus spending was .8, so he uses a lower estimate for ARRA spending of .6. Romer assumed that filling state budget gaps in education and transportation would have doubled the stimulus affect of the industrial buildup around World War II!

I think a couple of weeks ago Geoff (was it you, Geoff?) figured out the actual economic output, according to Obama's own figures, of each dollar in spending, and it turned out to be... just around 0.8.

By The Way: Donations to this site have a 2.2 economic multiplier. Every dollar you donate fuels an additional 1.2 dollars of economic activity in the Extreme Hobo Sports, discount vodka, and Thai tranny Chakra Adjustment industries.

It's pretty much like you're making a 20% profit on every dollar donated. That's free money right in your pocket, yo!

Seriously. This is the "accepted" multiplier figure for AoSHQ donations. "All economists" agree.

More: At Hot Air.

Tapper at ABCNews:

Asked to what degree he regrets his administration's decision to call this Recovery Summer, the president stammered then said, “I don't regret the notion that we are moving forward, but because of the steps that we've taken. And I'm going to have a press conference next week, where, after you guys are able to hear where we're at, we'll be able to answer some specific questions.”

At the end of the post, a link to a Time article, spinning "funemployment" once again. The headline -- no, seriously, this is the headline:

What's Good About Rising Unemployment

RNC, I have suggested previously that you take clips of the media calling Americans racists and Islamophobes and then end it with the text, "You know who they're voting for."

As a sequel to the ad you haven't yet created, I suggest you collect up all these media claims about "Funemployment" and "What's Good About Rising Unemployment" and "America is Back!" and end with the same text. There was also a New York Times article noting that for the few Americans who do have jobs, a recession or depression is kind of good, because, hey, everything's on sale, right?

Also at Hot Air: A German economist says Obama's too "European."

His idea is that Europe's homogeneous societies make socialism plausible. It doesn't work, really, but it works better than generally experienced. America, on the other hand, is highly heterogeneous, so it doesn't work.

I was actually thinking about this idea the other day. My idea was that in a homogeneous society, where most families are part of the shared culture, there may be a much higher social imperative to work, beyond mere economics. That is, if everyone's on the same page, pushing the same bourgeois value of labor and effort, it will significantly dampen the morally-corrosive effects of welfare and such (the main morally corrosive effect? You can get paid for not working so why be a chump?).

If you're going to substantially reduce the economic/survival imperative of useful employment, you'd better have some powerful substitute for that imperative. And as that substitute, social or otherwise, dissolves away, bad things happen.

That can really break down fast, though. Even in Europe, it's not working as it once did. It has taken a while, but over the generations each new generation has gotten more comfortable with the idea of being on the dole. Whatever was going on in Europe, they didn't stop the morally corrosive effect of welfare, they merely slowed it to occur over five generations instead of two (as happened in America, more or less).

By the way, no, I'm not just talking about blacks. Take any poor white community and remove both the economic penalty and the social penalty for not working and in a generation or two you're going to have a culture of dependency and sloth. We've got that now. When people mock a certain type of white-trash culture, it's not because they're poor -- it's because they're not respectable. They've begun, or completed, casting off the normal social codes that prevent sloth and entitlement and champion initiative and self-reliance.

I think that's what this Kraut is getting at.

You never want to rely on a Kraut's analysis too much, though. You start to hear the fanfares of Wagner and then, you know, you're goose-stepping your way through the Arc du Triomph.

Seriously, RNC: Do my ad. WaPo jive-turkey Eugene Robinson just slapped this nasty headline on to his stupid burblings:

The spoiled-brat American electorate

Do my ad. Come on. Make them both pay a price for their tawdry affair. Chain the media to the Democrats and the Democrats to the media and let 'em both drown from the other's weight.

posted by Ace at 12:51 PM

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