The Director of the Congressional Budget Office, Douglas Elmendorf,
testified on February 13 before Congress that 750,000 jobs would be lost
in 2013 alone if Congress does not avoid the sequester cuts (source).
To put that estimate in perspective: the economy gained 741,000 jobs
between September and January 1. Per Elmendorf: The sequester cut,
reported to be $85 billion in 2013, will set us back four months of job
growth. I say, using the experience of the 2009 stimulus, that the 2013 sequester cuts will cost us zero jobs.
go to forbes.com
Showing posts with label multipliers. Show all posts
Showing posts with label multipliers. Show all posts
Friday, March 1, 2013
Thursday, February 2, 2012
Are CBO Estimates Really The Gold Standard Of Accuracy?
The pessimistic CBO estimates of growth, deficits, and unemployment for 2012 and 2013 are big news. The Democrats use them to argue for more stimulus. The Republicans cite them as a cautionary tale against government spending. Both sides express reverence for the “non-partisan” CBO, whose calculations are the “gold standard” of accuracy and integrity.
This elevated view of the CBO is wrong, not because the CBO is partisan or not immune to fudging. The CBO studies that I have examined use Keynesian models as the basis for all their calculations. If they are ordered to estimate the effect of the stimulus on GDP and jobs, they attach Keynesian multipliers to different spending categories. The model they use guarantees the finding that the stimulus saved jobs and growth. Similarly, when the CBO looks ahead to 2012 and 2013 and applies similar Keynesian models to projected tax increases and slower government spending, they will automatically conclude that growth will be slow and unemployment high.
The new CBO estimates cover 172 pages of charts, explanations, and footnotes. The draft spends most of its time on the details of government spending and revenues, which they must estimate using the flawed assumptions Congress gives them. The CBO publication does not take the reader into the “kitchen” where they prepare their estimates of GDP, but the source of their pessimism is clear from a short quotation (page 36):
This elevated view of the CBO is wrong, not because the CBO is partisan or not immune to fudging. The CBO studies that I have examined use Keynesian models as the basis for all their calculations. If they are ordered to estimate the effect of the stimulus on GDP and jobs, they attach Keynesian multipliers to different spending categories. The model they use guarantees the finding that the stimulus saved jobs and growth. Similarly, when the CBO looks ahead to 2012 and 2013 and applies similar Keynesian models to projected tax increases and slower government spending, they will automatically conclude that growth will be slow and unemployment high.
The new CBO estimates cover 172 pages of charts, explanations, and footnotes. The draft spends most of its time on the details of government spending and revenues, which they must estimate using the flawed assumptions Congress gives them. The CBO publication does not take the reader into the “kitchen” where they prepare their estimates of GDP, but the source of their pessimism is clear from a short quotation (page 36):
Federal fiscal support for economic growth will weaken this year before turning to significant restraint in 2012 and 2013. Without the 2010 tax act, federal fiscal policy would have been restrictive this year because of the previously scheduled tax increases and the waning of the effects of ARRA (the stimulus).To read the rest
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