Thursday, November 12, 2009

You're missing the point 

I know counterfactuals and math are hard to fit on a bumper sticker. But one would hope that in an 800-plus word essay on economics (even if in Politico), some economic content could be included.
Thus Menzie Chinn concludes a defense of the "jobs saved or created" story complete with regression analysis (and not just ANY regression, mind you, but one with "error correcting mechanisms". Prof. Chinn is right that the proper measure is some ceteris paribus calculation. He quotes Greg Mankiw's analysis during the Bush Administration as some kind of shield. But Mankiw says "The job market is not what we would like it to be right now, but it would have been worse without the Administration's actions." Were those the words to come from Christina Romer's or Jared Bernstein's mouth, I'd have no debate. But I think it is more than semantics to go from "Simulations of a conventional macroeconomic model show that, without the tax cuts, the level of real GDP" would be x% lower and unemployment y% higher, than to say you've created or saved 640,329 jobs.

Official data here, where it helpfully adds "as reported by recipients", perhaps to shift the guilt.

The problem is the administration has oversold its control of the economy, and used statements of certainty with numbers -- six significant digits on that page, why? what is the basis of that level of precision if not hubris? -- where one reasonably should have reached for uncertainty. Bernstein, who originated the report that said with stimulus the unemployment rate would not be 8% with the stimulus bill, now says that without the stimulus the unemployment rate would be �at least 11 percent and going higher�. Hey, we all miss a forecast now and then, but if you miss one by 3% by your own admission, don't you have to be a little more modest about your predictions going forward?

Prof. Chinn's estimate includes a guess that Q4 output rises at the same rate as Q3. That's without cash-for-clunkers, and with data showing federal tax receipts 18% below year-ago levels. GDP growth of 3.5% for Q4 is not what the WSJ panel expects -- they forecast 2.1% 2.9% growth for Q4 and nearer 3% for 2010. UPDATE (11/13): Prof. Chinn writes that to correct that number. I did this off the rollover on the forecasts front page, but if you drill down to the individual forecasts you indeed get 2.9%. I regret not double-checking the Journal on this.

Their average for payroll employment is a gain of about 565,000 jobs between now and November 2010. The low-end estimate of the original package estimated by the CBO and the Obama economic team was for a gain of 2.1 million jobs from 2009 to 2010. You can say all you wish that you've "created or saved" 1.2 million jobs next year, but you're missing the point.