Thursday, May 27, 2010

Did the Stimulus Work? Don't Ask the Government.

I have touched on this before. The supporters of the $800 billion stimulus package claim all these jobs have been created and credit Keynesian theory, but the way that the jobs are being calculated is by using that very same Keynesian theory, in a perfect bit of circular logic.

In response to a new CBO update on the effects of the stimulus, DemWarRoom, the twitter feed for Senate Democrats, has posted a triumphant note about the program's success: "Critics of the stimulus listen up: CBO estimates that it put 2.8 million ppl to work in 1st 3 months of 2010." But it's stimulus boosters who ought to be paying more attention: Douglas Elmendorf, the head of the Congressional Budget Office, has stated plainly that his team's estimates do not measure real-world outputs (just inputs), that they do not serve as an independent check on its success or failure, and that if the stimulus had not created jobs, the CBO's figures would not reflect that fact. So no, sorry, try again: The CBO's updates do not actually confirm whether or not the stimulus is creating jobs.