Menzie Chinn of Econbrowser took issue with an argument I made in Saturday's Politico, and his remarks were parroted by Brad Delong. I had written that the administration's claim that the incoming data shows that the stimulus is on track to "create or save" one million jobs by the year's end is meaningless. I noted that, using the administration's logic, one could just as easily assert that the stimulus has "destroyed or prevented" one million jobs.
Dr. Chinn starts out by ridiculing my article: "Be afraid. Be very afraid." He quotes me:
There's a problem, though: the "created or saved" numbers are meaningless. The administration purposefully devised the metric to be nebulous. Without a counterfactual, showing the trend of unemployment in the absence of the stimulus, it is impossible to know how many jobs the stimulus saved.
Chinn responds with an argument from authority:
But this is completely counter to what I learned in economics, and how, for instance, the CBO conducts analysis. I assume Mr. Lawler doesn't dispute the impartiality of the CBO (but who knows?). Here's the way real macroeconomists conduct analysis:
And Chinn continues on to quote from an analyis by Harvard professor Greg Mankiw from when he was a policy adviser to George W. Bush, in which he claims that "[s]imulations of a conventional macroeconomic model show that, without the  tax cuts, the level of real GDP would have been about 2 percent lower in the middle of 2003. About 1.5 million fewer people would have jobs today ."
If Chinn wants to use Greg Mankiw as an example of a "real macroeconomist," he should be aware that Mankiw recently made the same argument that I did regarding jobs "created or saved":
But it is absurd to suggest that you can say,B: "We have measured how many jobs the stimulus has saved or created, and the number is X."
Economists are capable of making statements such as A, but it is beyond our ken to make statements such as B. Statement B is, of course, much stronger than statement A, as it purports to be based on data rather than on models.
So a real macroeconomist thinks that the administration's claim is "absurd."
Chinn then explains the model that the CBO used to estimate the baseline scenario and the effects of the stimulus in February. He claims that, using the CBO's model, one can put a middle-of-the-road guess of the marginal number of people employed due to the stimulus at 1.26 million. Fair enough -- I do not dispute that those numbers are what the standard Keynesian models predict, I acknowledge that I could not replicate those results or any differing results, and obviously I defer to Chinn on interpreting those models.
An aside: Chinn remarks, in passing, that "I assume Mr. Lawler doesn't dispute the impartiality of the CBO (but who knows?)." I do not dispute the impartiality of the CBO, and there is nothing in my article to suggest that I do or that the impartiality of the CBO has any bearing on my argument one way or another. In fact in my article I don't talk about the CBO --I referred to the CEA estimates instead. I wonder why Chinn raises this possibility.)
But when I wrote that "the 'created or saved' numbers are meaningless," I was referring not to the implications of standard Keynesian models, but to the jobs "created or saved" the administration has been reporting recently, and specifically, in the article, to the numbers Joe Biden and Jared Bernstein touted on Friday, October 30th. That was when Biden pronounced that "the Recover Act is operating as advertised." He was referring to the results of a new report on the stimulus based on jobs claimed to have been created or saved by stimulus recipients.
If Joe Biden wants present this report as conclusively and unquestionably proving that the stimulus is "operating as advertised," he must acknowledge that the stimulus was "advertised" with a baseline Q4 2009 employment of 141.6 (CBO), and account for the missing 3.4 million jobs (The latest BLS report shows that October employment was 138.2 million.) The standard Keynesian models, arguably, can account for those missing jobs. The data that Biden is referring to cannot: they only show the (extremely unreliable) positive gains from the stimulus reported by recipients, and none of the potential harmful effects or useless measures.
The distinction that Mankiw suggested, and the one that I made in my Politico piece, is that there is a difference between announcing the effects of the stimulus estimated by a standard model and claiming to have examined the data and actually found those effects in the numbers. The second, which is the precise claim that Biden made, is a much stronger claim.
It is also a claim with far greater political resonance than Chinn's claim or Mankiw's 2007 claim, as the jobs outlook is probably the most important public issue right now. That is why the administration is willing to claim grand achievements for their favored policies even when it's not quite legitimate to do so.
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