Wednesday, August 19, 2009

The saved-created ratio 

Casey Mulligan writes that for all the stimulus we've done, we're currently spending about $600,000 per job.

For now, let's take the Administration's estimates literally:

  • More than $100 billion worth of stimulus spent in 2009 Q2 (p. 5)
  • 597,000 jobs would have been lost in Q2 -- that's the purported "momentum" from the last quarter (pp. 8, 11)
  • In fact, 436,000 jobs were lost (p. 9), so we have to thank the White House for the 161,000 that were not lost
  • The same logic for real GDP: it would have fallen at a -3.3 percent annual rate (p. 12), but in fact it fell at a -1 percent (p. 12) annual rate, so we have to thank the WH for the -2.3 percent further negative annualized growth rate that would have occured without them.
  • Recall that a 2.3 percent annual growth rate actually refers to about 0.6% growth rate from one quarter to the next. So what the WH is saying is that we owe 0.6 percent of 2009 Q2 GDP to their policy, which is about 20.3 billion dollars

So, from the jobs perspective, we just spent $100 billion of taxpayer money (not counting the economic damage done to raise this money) to supposedly create 161,000 jobs: that's $621,000 per supposed job!! Can we agree that creating a job is wonderful, but not worth $621,000?!

Contrast this with my post in May, where I suggested the Administration, through its Council of Economic Advisers and that body's chair Christina Romer, had made a causative claim that a job was "saved or created" by the fact of spending $93,333. It's her analysis of what I call second derivative effects that give Prof. Mulligan his results. So, has the White House now changed its tune?

It's worth noting the difference between gross and net jobs again. The number Prof. Mulligan and Dr. Romer are using here are net jobs. Looking at business employment dynamics tells you more, but that data is only available with an eight-month lag. Today's release says that 6.7 million jobs were created in the private sector in the fourth quarter of 2008, but that 8.5 million jobs were lost. The JOLTS survey is more current, and there you see that the rate of job hires is still falling through June 2009 while the layoff and discharge rate, while still elevated, is down off its highs in January to April. If the administration hangs its hat on anything, it is to take credit for that decline. 0.2% of 140 million is 280,000. There's a lot of churn in that number, so some of those hired one month may be back out of a job the next. What the government claims to do, by "saving jobs", is to slow that churn.

So if you use my number of $93,333, you would have to credit the administration for saving (via less turnover) 6.6 jobs for every one that has been created. Does that seem reasonable, or is that fluff? We calculate, you decide.