Measuring Jobs Created or Saved

The stimulus bill Congress passed a few months ago apparently requires the Council of Economic Advisers to report quarterly on the employment effects of the act. That job is, essentially, impossible. Because we have only one economy, there is no way to know for sure what would have happened without the stimulus bill. It is like asking a doctor, "How much sicker would this particular patient have been if you had not given him treatment up to now?" You can get, as an answer, the doctor's subjective professional judgment, but you cannot expect objective measurement.

Click here to read the CEA document describing how they will respond. Click here to read a press briefing on the matter with a senior administration official (who might that be?). The best question and the official's answer follows:

Q: A lot of this report is based off estimates about what the multipliers of GDP from government spending and from tax cuts, what those multipliers are. When you do the reevaluations, are you going to be retesting whether or not those assumptions about the multipliers were reasonable? Will that be part of the --

SENIOR ADMINISTRATION OFFICIAL: That would certainly be one of the things that we'll be looking at. The other thing we'll definitely be checking are the spend-out assumptions, because certainly our estimates have been based on what we -- how we thought the program was going to spend out. That's something we'll need to check.

The other thing that's going to be so nice about getting the direct reporting, right, so we can try to say, here's what we thought we were going to get, and when we get the numbers back, how do they compare? It will inherently be at -- you know, it'll be a two-way test. There are issues involved in how good the numbers we get back are going to be, and it will also be a test of what we were assuming about multipliers. And so, absolutely.

One of the things that I try to emphasize in the reports -- because we haven't yet even had to face a report to Congress -- is, we're going to do it lots of ways but I think -- to make sure that we've covered all our bases, we're going to try estimating it one way, we'll look at the direct numbers, we'll try some different multipliers, we'll be looking at other studies, we'll be doing some microeconomic analysis to see if, you know, a county had a whole lot of government spending; does it show up in the county employment data?

We're just planning to very much go on all fronts to get as complete a picture of what this Act is doing as we possibly can.

Here is the question I would have asked: "Going forward, what macroeconomic data would you have to observe before you concluded that the stimulus bill has been a failure? Or will you conclude, no matter how bad things get, that the economy would have been in even worse shape without the stimulus? And if the latter is the case, aren't these quarterly reports just a bit surreal?"