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Employment Outlook Still Dim Despite CBO Report

  • By: FW Staff
  • 02/26/2010

The Congressional Budget Office (CBO) released a report claiming that the “stimulus” was responsible for adding between 1 million to 2.1 million workers by the end of 2009. In addition, the CBO predicts that the “stimulus” will have an even greater impact in 2010 by

lowering the unemployment rate by 0.7 to 1.8 percentage points.

The millions of Americans currently out of work are likely to look at the CBO “stimulus” report in disbelief. According to Heritage Foundation fellow, Brian Riedl, the CBO report was merely manipulated in order to give the illusion that the “stimulus” has been a success:

The CBO’s calculations are not based on actually observing the economy’s recent performance. Rather, they used an economic model that was programmed to assume that stimulus spending automatically creates jobs — thus guaranteeing their result.

Logicians call this the begging-the-question fallacy. Mathematicians call it assuming what you are trying to prove.

The CBO model started by automatically assuming that government spending increases GDP by pre-set multipliers, such as:
 
•       Every $1 of government spending that directly purchases goods and services ultimately raises the GDP by $1.75;
•       Every $1 of government spending sent to state and local governments for infrastructure ultimately raises GDP by $1.75;

 •       Every $1 of government spending sent to state and local governments for non-infrastructure spending ultimately raises GDP by $1.25; and

•       Every $1 of government spending sent to an individual as a transfer payment ultimately raises GDP by $1.45.
 
(Note that all CBO figures in this post represent the midpoint between their high and low estimates.)

Then CBO plugged the stimulus provisions into the multipliers above, came up with a total increase in gross domestic product (GDP) of 2.6 percent, and then converted that added GDP into 1.5 million jobs.

The problem here is obvious. Once CBO decided to assume that every dollar of government spending increased GDP by the multipliers above, its conclusion that the stimulus saved jobs was pre-ordained. The economy could have lost 10 million jobs and the model still would have said that without the stimulus it would have lost 11.5 million jobs.

As Brian Riedl concludes, no matter how many job losses occurred or what actually happened in the economy, the CBO calculations were predetermined to declare that the “stimulus” had worked. The economy, unlike the CBO reports suggests, shows no signs of recovery from the “stimulus” package. The Labor Department claims that:

Separately, initial claims for unemployment benefits rose 22,000 to 496,000 last week.

In addition, the Labor Department also adds that the jobless claims have consistently risen since the beginning of the year:

Jobless claims have risen in six of the first eight weeks of this year.

Economist Anna Piretti explains that the employment outlook looks dim for those currently out of work:

net hiring has yet to resume and the pool of unemployed workers receiving continuing benefits remains close to historical highs.

While some may attempt to manipulate the data for their own interests, the facts are clear—jobs have not been created due to the “stimulus.” Unfortunately, as recent Labor Department reports show, the job outlook looks even worse as jobless claims continue to rise.

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