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Few jobs at a high cost

Posted by Richard on July 6, 2011

The President's Council of Economic Advisors released a jobs report on Friday, right before the holiday weekend, so you know they hoped no one would pay attention to it. And with good reason. According to Jeffrey H. Anderson, it shows that the jobs "created or saved" by the almost $900 billion in "stimulus" spending cost nearly $300,000 each (emphasis added):

The report was written by the White House’s Council of Economic Advisors, a group of three economists who were all handpicked by Obama, and it chronicles the alleged success of the “stimulus” in adding or saving jobs. The council reports that, using “mainstream estimates of economic multipliers for the effects of fiscal stimulus” (which it describes as a “natural way to estimate the effects of” the legislation), the “stimulus” has added or saved just under 2.4 million jobs — whether private or public — at a cost (to date) of $666 billion. That’s a cost to taxpayers of $278,000 per job.   

In other words, the government could simply have cut a $100,000 check to everyone whose employment was allegedly made possible by the “stimulus,” and taxpayers would have come out $427 billion ahead. 

Furthermore, the council reports that, as of two quarters ago, the “stimulus” had added or saved just under 2.7 million jobs — or 288,000 more than it has now.  In other words, over the past six months, the economy would have added or saved more jobs without the “stimulus” than it has with it. In comparison to how things would otherwise have been, the “stimulus” has been working in reverse over the past six months, causing the economy to shed jobs.

That's the good news! The bad news is that the economy lost many more jobs than originally reported

From 2007 to 2010, initial reports from the Bureau of Labor Statistics (BLS) told us that the economy lost 4.201 million jobs. BLS revisions have thus far ramped up the number of jobs lost by 2.43 million. The four-year total is now 6.631 million — a stunning 58% increase. As seen above, the bureau’s revisions to the 12 months of the real recession (July 2008 through June 2009) have shot reported job losses up by almost 1.9 million, a jaw-dropping average of 158,000 per month.

They’re not done yet. Every February, BLS performs a comprehensive “benchmark revision.” The next one will affect the period from March 2010 through December 2011. Considering the results of the past four years showing average additional job losses of 415,000, the next benchmark revision seems destined to push the figures even higher.

Is this sort of depressing jobs data revision typical? Well, no, not during the Bush administration:

By contrast, from 2003 to 2006, initial BLS reports told us that the economy added 5.103 million jobs. After all revisions, the four-year total rose by 1.605 million to 6.708 million — a 31% increase. The sum of all benchmark revisions during that time was a positive 675,000.

The observant reader might conclude that if the government's statistics are off by 58% in one case and 31% (in the other direction) in another, maybe they're just not very good at this econometrics crap. And the observant reader would be correct. 

Be that as it may, there's a more fundamental problem with the administration's claims regarding jobs "created or saved." It's the "broken window fallacy" identified by Frédéric Bastiat in his 1850 essay "That Which is Seen, and That Which is Not Seen." Newsmax quoted a nice modern formulation from the Richmond Times-Dispatch (emphasis added): 

The effects of the stimulus have long been argued. Writing in the Richmond Times-Dispatch, A. Barton Hinkle reported that nobody could seriously argue that it had had no effect on the economy.

However, he likened it to a purse snatcher who took a handbag containing $500 and spent the money on a new television.

“It is categorically undeniable that the theft has created a sale for the TV store. Conservatives who pretend the stimulus has not created any jobs whatsoever stand in the position of an observer trying to deny the TV has been sold,” Hinkle wrote.

“Yet the liberal analysis lacks any recognition that the purse owner now has $500 less to spend on the laptop computer she was going to buy. The theft has generated one sale only by destroying another.

“The first effect is easily seen. The second is not,” Hinkle added. “But only the economically illiterate would conclude that just the first effect occurred, and that therefore the way to increase consumption is to encourage more purse-stealing.”

Exactly right. The Obama administration's strategy for improving the economy amounts to promoting purse-stealing. 

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