The credibility of the Congressional Budget Office suffered a grievous blow during the health care debate when the CBO was forced by Harry Reid to “score” Obamacare using preposterous and plainly contrived assumptions in order to keep the cost estimates below a trillion dollars.

Now, the CBO is damaging itself some more with wildly speculative estimates as to how many jobs, and how much economic growth, have been created by the Stimulus Plan.  This headline at The Washington Post about the latest CBO report say it all:  CBO says stimulus may have added 3.3 million jobs.

Notice the “may have” language.  That is because the CBO is not calculating actual jobs created.  Rather, it simply uses economic models which purport to predict how many jobs are created, and how much economic growth is generated, for each dollar of government spending.

Hence, the CBO gives extremely wide ranges to its estimates of how the economy was affected by the Stimulus Plan:

  • “Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.5 percent”
  • “Lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points”
  • “Increased the number of people employed by between 1.4 million and 3.3 million,”
  • “Increased the number of full-time-equivalent (FTE) jobs by 2.0 million to 4.8 million compared with what those amounts would have been otherwise. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)”

These are not real numbers, but you would not know it from the headlines. 

The CBO does not even attempt, in its full report, to compare how the economy would have performed in the absence of the Stimulus Plan:

Although CBO has examined data on output and employment during the period since ARRA’s enactment, those data are not as helpful in determining ARRA’s economic effects as might be supposed because isolating the effects would require knowing what path the economy would have taken in the absence of the law.

The Heritage Foundation, in connection with an earlier CBO Stimulus report, noted the flawed methodology of the CBO:

The CBO’s conclusion that the stimulus created jobs is based on an economic model that began with the premise that all stimulus bills create jobs. In other words, the conclusion is already assumed as a premise. Logicians call this the fallacy of begging the question. Mathematicians call it assuming what you are trying to prove….

The problem here is obvious. Once the 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 30 million jobs, and the model would have said that the economy would otherwise have lost 31.5 million jobs without the stimulus. An asteroid could have hit the United States, wiping out everyone outside of Washington, D.C., and (as long as Washington still spent the stimulus money) the CBO’s economic model would have produced the same stimulus jobs data. There is no adjustment made to reflect what actually happened in the economy after the stimulus was enacted.

The American people “may have” won 3.3 million jobs.  This is what it has come to:

[youtube=http://www.youtube.com/watch?v=Fa94vf_xlvA?fs=1]

Question:  I wonder if any of these economic models take into consideration the economic harm from the resources allocated to repaying the debt needed to create these temporary “full time job equivalents”?
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Related Posts:
CBO Credibility The First Victim Of Obamacare
Baucus: ObamaCare Creates “Near Chaos” Without More Spending
Stimulus Plan Already Creates Jobs – For Get Rich Quick Artists

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