Tuesday, August 24, 2010

Two Interesting Reports

The CBO released an update on its estimates on how well the Stimulus did in stimulating the economy. Needless to say the results have been lowered. That is less of the story than is the approach used. They employed multiples. We show the range below:

These are the range of values used by the CBO. They vary to a substantial degree from low to high. This is also a reflection of the tremendous lack of understanding of macro economics. You could not design a bridge this way.

CBO States:

A key advantage of the model-based approach used in this analysis is the ability to provide estimates of the total effects throughout the economy of the government spending, transfer payments, and tax cuts resulting from ARRA. By focusing on the net change in employment, that approach captures both the jobs created and the jobs retained as a result of ARRA. A key disadvantage of the model-based approach is the considerable uncertainty about many of the economic relationships that are important in the modeling.

Because economists differ on which analytical approaches provide the most convincing evidence about such relationships, they can reach different conclusions about those relationships. In addition, each study involves uncertainty about the extent to which the results reflect the true effects of a given policy or the effects of other factors.

This just emphasizes the continuing lack of certainty of any type in these numbers.

At the other extreme is a report by the Kauffman Foundation explaining the importance of startups in job creation. They show a chart as follows:

New businesses, the entrepreneur creates more jobs than any other type of company. And there was not a word about this in either the Administration's approach or the CBO report. These two reports are issued within hours of each other. It is as if you are from different universes. Nothing this Administration has done even recognizes the facts of the start up. No wonder, you have no people who have ever done this. No one has most likely even run a lemon aide stand!

Perhaps as the Hill reports:

Boehner wants President Obama to ask for and accept the resignations of Treasury Secretary Timothy Geithner and Larry Summers, head of the National Economic Council. Firing his economic team is one of five actions Boehner argues the president should take to right the economy...In his speech, Boehner criticized the administration's economic team for lacking private sector experience, saying employers and small businesses are "rightly frustrated" by the administration. "The lack of real-world, hands-on experience shows in the policies of this administration," Boehner said.

It is that very real world knowledge which is showing in their inability to deal with this issue. The classic example was that of Ms. Romer who when she was outside of the Government apparently had one set of multipliers and then when inside changed them to meet the needs of the Administration.