Brad DeLong on job creation

Brad: The crowding out effect is negligible at 10% unemployment and 0% interest rates.

Russ: What is the evidence for that view Brad, I'd sure like to see it?

Commenters: What evidence would you like to see to falsify your claims?

Russ: *Silence*

Let me state things just a bit differently.

The fear is that the downturn would go on indefinitely without the “gov” stepping in to halt it.

But how could it do so?

Only with money it had taken from that part of the private sector that remained healthy and strong. But why throw its good money after the bad, and sacrifice the stronger for the weaker? Why not just let the stronger displace the weaker? If the aim is to keep the weaker from dragging down the stronger, it makes no sense then to drag them down ourselves. Rather than keeping the system from collapsing, that just keeps the worst people in charge of it, on the backs of everyone else, and is not economics but The Divine Right of Kings.

Russ, great post. BTW I read DeLong's post before yours, and I was already planning on making your point in a Mises Daily article. In case you see it, I don't want to think I stole it! I also am producing a Keynes/Hayek rap video, which I've been working on for years...

Bob, I linked to one of your older posts re: Fed purchases of Treasuries artificially propping up demand in the comments section of DeLong's post, then followed up with some old-school Rothbard quotes and another Mises article on why low interest rates is not evidence of no crowding out.

He deleted them all and sent me a kind of creepy e-mail about how forcing him to "clean up" his comments wastes his time. Let me know if interested and I'll share the originals.

I want so badly to make some memorable comment on this, but I'm too ignorant of the nitty-gritty of the subject to notice much more than that DeLong's argument seems to amount to:

The stimulus worked because it's too small.

Prof. Horwitz wrote,

"To be honest, I will not debate DeLong. He has shown himself incapable of civil dialogue and utterly uninterested in the ideas of those with whom he disagrees. He's a dogmatist in the worst sense."

He can call me any names he wants, so long as he doesn't censor me, as the both of you have done. While his names wouldn't hurt me, and I take your censorship as a compliment, all I want is what I get only here at good old Cafe Hayek, the freedom to give my side of things.

Of course there’s no crowding out. Brad simply deleted it from his comments section! Poof. No more crowding out.

From the post in question he's deleted all the comments by someone called 'James W' - the only one who wasn't simply agreeing with Delong and was actually throwing up polite challenging questions. What a pathetic attitude for an economics professor to have.

And now he's deleted my comment asking why he deleted the others. John's is next, no doubt.

I should not have tried to do economics late at night, for, as I’m sure Daniel would tell you, my mind is fuzzy enough in the daytime.

De Long says that since scientists knew of the neutrino even without having observed it, they could count it without having observed it. But the conclusion doesn’t follow from the premise. Knowing of the neutrino didn’t mean you could count it. And even if you could count the neutrino, or jobs created or not, that was still just history and not economics.

The economics of Mises that I referred to above was not exactly right either. Jobs created by the public sector are not necessarily at the expense of jobs in the private sector. If the private sector, paralyzed by fear, wasn’t creating many jobs, and the public sector took up the slack, the jobs it would create would be in addition to and not at the immediate expense of jobs in the private sector.

But that would still just be an artificial stimulus and actual depressant. The only real jobs are in the private sector, and phony jobs in the public are just more of the poison that made us sick in the first place.

The bust is not what caused unemployment. The cause lay in policies preceding it, such as minimum wage laws. Without them, the bust would simply have resulted in some capitalists losing their investments and their displaced workers moving on to other, lower paying jobs.

While inflation had masked the unemployment effect of the preceding policy, the minimum wage law, deflation would expose it again. But that was not the same as causing it. It was still the preceding policy and not the deflation that was the underlying cause.

What neither De Long nor Horwitz understand is that recession and deflation are the market purging mistakes and laying the groundwork for recovery. Whatever the pain, it is like that of withdrawal from drug addiction, not the sickness but the cure. No withdrawal, no recovery, no pain, no gain.

Prof O'Driscoll asked,

"How do debt deflations end?"

That’s like asking how withdrawal from drug addiction ends.

It ends when it’s been completed, when you've purged the system of all the poison, and all the "remedies" that are just more of it.

The underlying fear expressed by O’Driscoll is that the downturn would go on indefinitely without the “gov” stepping in to halt it.

But how could it do so?

Only with money it had taken from that part of the private sector that remained healthy and strong. But why throw its good money after the bad, sacrificing the stronger for the weaker? Why not just let the stronger displace the weaker?

If the aim was to keep the weaker from dragging down the stronger, it made no sense then to drag them down ourselves, nor, to spare fools their soaking, to drown everyone else.

For my more detailed analysis of this, see

http://econotrashtalk.org/#The_Cause_and_Cure_o...

A Hit n Run post on stimulus jobs.

I love the title of the article:

They're Not Necessarily Jobs, and They Weren't Necessarily Created or Saved, but We Gave These Guys Money, and They Gave Us Some Numbers

Earlier tonight I heard Jennifer Granholm giving her last (thank God) state of the state address on the radio. She started naming companies in Michigan that were creating or saving jobs due to stimulus funds or Michigan Economic Development grants. She named company after company after company with rising excitement like it was such a long long list and waited for the applause to drown her out for dramatic effect as she continued naming companies. I think she said there were 110 companies total.

At the time I was driving down 8 Mile Road (yes, the one in the movie) and I was passing hundreds of businesses on both sides of the street. The collision shops, the hair salons, the plumbing supplier, the kitchen remodeling shop. Yeah, I could go on and on too.

I thought, each of these small business people have had to cough up hard earned money to pay into Granholm's scheme to make herself look good. For what amounts to a few hundred or maybe a few thousand jobs in a state of 10 million people. Jobs for the "new Michigan" she said.

Makes me want to puke.

DeLong claims that "Economics isn't rocket science. Rocket science is harder."

Well, I am a rocket scientist, and I bet Steve could learn my discipline a hell of a lot faster and better than I could learn his.

With logical blunders like this:

""Even though they cannot see jobs that were never created, they nevertheless can count them--and are trying to do so."

Delong should rename his blog Counting on Nothing With Both Hands: The Numbers Get Higher. There is a very distinct difference between objects that are difficult to measure and what simply isn't there, absurd appeals to subatomic particles aside.

I have a problem with attributing education as the engine for employment. Higher wages, perhaps, but is that a reflection of social bias or skills obtained through selected majors in education?

Another point. The benefits of education take time, 12 years at least. Employment might be enhanced if on-the-job training were recognized independent of products of public education. All those immigrants making it in the construction trades, for example, reflect more a will to work rather than formal education.

I am no economist but it seems to me that if a single person is hired as a result of spending with stolen money by some politician or bureaucrat with the express purpose of "stimulating" the economy then it crowds out real purposeful employment. That person is no longer available for hire by people spending their own money voluntarily.

If people valued the things government is spending stimulus money producing then it would not have to be funded with funds procured by force. DeLong is right about one thing, it is not rocket science.

Russ I have a question.

many models of international trade, including ricardo's comparative advantage model take labor and capital as homogeneous and derive the gains from trade from the fact that labor and capital can be reallocated to more productive uses.
Krugman writes, in a piece called 'Ricardo´s difficult idea' that:
"Wages are determined in a national labor market: The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries"

What would austrian theory say about that? is ricardo's aggregation wrong? is his model, therefore, misleading? austrian theory seems to suggest the inability - or some inability- of capital and labor to reallocate

over at the comments section of the delong post someone says: "If anyone wants to argue why capital is best thought of as an aggregate, or why the particular structure of capital over time is irrelevant, then please have at it."

that should be the subject of a podcast. with any keynesian. why is capital best thought of as an aggegate??

Do they argue it is best thought of as an aggregate or that there is good practical reason to think of it as an aggregate in some applications where such an aggregate, despite it's problems, offers useful insights?

I think it's the latter.

You can go back to Keynes's discussion of interest rates - he states very emphatically that the aggregation is a simplification for the handful of equations he tosses out, and shouldn't be mistaken anything other than that - AND that it's the equation that depends on this simplification, not the underlying logic.

So when the underlying simplification falls flat, so do the equations.
What insights does the over simplification of K have?

There is definite crowding out in medical research. I am in research support (computer systems) and am literally receiving 3+ job offer inquiries a day. People say there's a recession - but I don't see it.

DeLong - often wrong, seldom in doubt. Economists who believe in nonsense like "stimulus" are like alchemists. Their hubris is propped up by the crutch of mathematics. Their math is elegant and they think that therefore their theory and reason are also elegant. But not everything material can be measured and it is a fallacy of the highest order to assume that the few things we can measure are the only things that have a causal relationship to observable (and non-observable) events. His bait and switch, rhetorical gambit about neutrinos is an act of desparation, wrapped as arrogant condescension. He is a joke; a true-believer. Blogs have been a mixed blessing for economists and academics in general. Your profiles have been raised and all of the benefits that flow from that help, no doubt. But a lot of you are becoming exposed for the light-weights that you are. Smugness, pedantic prose and an echo-chamber of equally-credentialled academics cannot hide your limitations as well as they were hidden in the pre-blog era.

"DeLong - often wrong, seldom in doubt."

The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people are so full of doubt.

- Bertrand Russell

There are too many counterfactuals in economics discussions.

Can you think of a way to avoid them?

No. But I'm not particularly bright.

I don't think they can be avoided in a post mortem of past decisions because when one outcome is realized, all other possible outcomes become theoretical. Therefore, if one is to discuss the soundness of past decisions, counterfactuals are unavoidable. Of course, there are obvious drawbacks to counterfactuals - for instance, unintended consequences of the alternate path can't be compared to the known unintended consequences of the path taken.

Counterfactuals are deeply flawed, but I don't think there is a better alternative.

Perhaps there isn't an alternative (I certainly wouldn't be able to discover one), but those used in economic matters should at least have stronger premises, and conclusions that follow from those premises more tightly. I should qualify this as a personal opinion. I don't find counterfactuals convincing.

the strength of the premises for counterfactual both varies and is highly subjective. I don't disagree that counterfactuals are very problematic and I agree that conclusions drawn from them are not very useful for that reason.

And why would one avoid them? I don't think decision making or any sort of comparative thinking is possible without counterfactuals. What's wrong with counterfactuals?

Bastiat's whole point is a counterfactual, after all - and he's usually well received (if, in my opinion, often misused) on here.

They should be avoided because they are speculative in nature, and do little or nothing to establish causality, which they, ostensibly seek to establish.

Of course they are speculative. But how is avoiding them adding any logical clarity? People need to accept the inherent uncertainty in our knowledge of the world, not run from it and avoid counterfactual thinking simply because it's speculative.

If it's speculative you qualify and caveat - you don't plug your ears and close your eyes.

I don't seek to add clarity, but rather avoid obfuscation.

I agree that our knowledge of the world is uncertain. This is precisely why counterfactuals should be presented with less certitude, or should avoided entirely.

Ironically, counterfactuals have little to do with facts. They aren't so much arguments as they are a series of premises.

It's fun fiction, but it doesn't seem to be very productive.

What is the difference between adding clarity and avoiding obfuscation? They seem the same to me.

RE: "Ironically, counterfactuals have little to do with facts. They aren't so much arguments as they are a series of premises."

Isn't that what all human knowledge boils down to?

What is the difference between adding clarity and avoiding obfuscation?

I'm not sure I can adequately answer this. A position can either be clarified further, or obfuscated into meaninglessness.

Ummm, imagine a car. You can move forward (clarity), or move backward (obfuscation). I'm just advocating that we don't move backwards.

Does that make sense?

Isn't that what all human knowledge boils down to?

I don't believe so. "Premises" may have been the wrong word (yes, in formal logic an argument is a series of premises and a conclusion). Or perhaps I should have qualified it:

Counterfactuals are a series of premises that aren't verifiable true (or false) and the deduction is of questionable validity.

I don't find them terribly convincing.

*verifiable as

If you just came back from a long trip where you had not access to news for the last year and were told that if action A were to occur unemployment would peak at 9%. You are told that some folks think action A will help unemployment while other folks say it will hurt unemployment. You are then told unemployment has climbed to 10.2% after action A has been in place for almost a year.

Who would you say the evidence showed was correct ?

Enough with the moving goal posts. Obama claimed 9% was the ceiling. His Stimulus has made things worse not better.

To be fair, the people who said A wasn't enough to do the job were precisely the same people who said that the unemployment projections in January 2009 were far too optimistic.

So now we have 3 groups of folks. Group 1 and 2 identified by HG and Group 3 identified by DK.

We know Group 2, the people with the power to make the action were wrong about something.

Sounds like DK's Group 3 would argue that the projections (too optimistic) and action (not enough) were wrong.

I'm guessing Group 1 would argue that the projections were meaningless and no action would have no worse of a result.

So, would Group 3 think the stimulus helped at all or is it step function, i.e. it doesn't help until you hit a certain level?

Why do you say group 3 is wrong?

I think they have argued that the stimulus helps but it's paltry and could have helped a lot more (DeLong's point here - we can go a lot farther before we need to start worrying about crowding out).

I didn't say that (or write it). Though, I believe Group 3 is wrong based on my belief of how incentives work. Wasn't even Krugman disillusioned by how the political process allocated the last stimulus?

Why again is it a bad thing to let individuals decide?

Aha - I see. When you ended that sentence with "were wrong" I thought you were refering to the third group. You were refering to their perspective on the policy.

Anyways - my answer still remains that I think they would say it did help just not as much as it could have.

I don't know why it's a bad thing to let individuals decide. Decide what? I think it's a good thing to let individuals decide things, but I'm not sure what you're refering to.

Decide how to spend their own money rather than let Washington do it for them.

George Washington is dead and Washington D.C. is a city, not a decision making entity.

Are you asking me whether people should be allowed to individually decide on how to dispose of their money OR decide come together in a pre-determined manner and place and decide together what they should do with their money? I think individuals should be able to make decisions about their money, and therefore I think both options are good. I don't see them as inherently contradicting each other.

And people do both in the market.

In the public sector, you get dragged into other people's scheme whether you like it or not.

Conscription.

Is he confusing "creating jobs" w/ "employing people?"

After looking over De Long's piece, have to give Horwitz this much credit. His economics was right on. You can't count what you can't see, and can't see the jobs that were supposedly created by the "stimulus."

De Long responds:

"Even though they cannot see jobs that were never created, they nevertheless can count them--and are trying to do so…scientists…are very good at counting things that cannot be seen. Consider the neutrino, for example: the existence and properties of the neutrino were analyzed and powerfully argued for by Wolfgang Pauli and Enrico Fermi in the early 1930s. But nobody 'saw' a neutrino for twenty-five years after that."

How does it follow from that they could count it?

We can see the Invisible Hand, too, but not measure, count, or calculate it.

Observing its effects is not observing the Hand itself, and is not economics. Observing an economic event doesn’t make you Adam Smith any more than seeing an apple fall from a tree made you Sir Isaac Newton. Economics is not what any man in the street could observe, but the reasoning no one could. Without it, empirical data is a meaningless jumble. There is economics without the jumble, but not without the reasoning, and, without the Chicago School altogether, but not without the Austrian.

http://econotrashtalk.org/#Observing_the_Invisi...

Counterfactuals, DG. The seen and the unseen. That sort of emphasis on only the seen inevitably leads to bad economics.

Bad economics? You mean like the kind of stuff that went into all the bailouts (both Bush and Obama's.)

I just said,

We can see the Invisible Hand, too, but not measure, count, or calculate it.

I meant to say that we cannot see it.

Crowding out is a concern because of "millions" for medical research in a 700 billion dollar package?

That's cute, Russ.

Besides, don't you just need an associates degree to be a lab technician?

Daniel,

Good point. A lot of lab technicians are in that 15.3% unemployment. They were deeply involved in the housing boom. Thank goodness for the stimulus--they finally are back to work.

Housing boom? Are you under the impression that construction workers are the only ones struggling right now? You seem to have rose-tinted windows in that ivory tower of yours.

I reread Brad's post in more detail, and he does seem to acknowledge the exact point your making anyway. Your criticism, in that sense, seems a little misplaced. He does say in his post that there will be crowding out in certain sectors, but that any inefficiencies there are completely swamped by the bulk of the stimulus.

I do think it's very odd that so many economists don't take relatively stagnant wages and interest rates more seriously. You would think that would be the way that you, Russ Roberts, would evaluate the question of the extent of crowding out. Right? Let me ask you this way: How would you propose falsifying your concern about crowding out? What would convince you not to worry? That's very unclear to me. DeLong used this post as an opportunity to admit he was wrong in his assessment. What would you have to see to convince you to do the same?

About half of the lost jobs since December 2007 are in construction and manufacturing.

I'm struggling to identify your point. Yes, job losses were disproportionately concentrated in construction. It doesn't mean this isn't a broad-based downturn.

I'm not sure how you divide "half of the lost jobs", but WSJ suggests that just over a fifth of job losses were in construction (http://online.wsj.com/article/SB126325594634725...) - so I suppose somewhere in the neighborhood of 30% in manufacturing.

I'm confused, Russ. Are you arguing my side of the argument? The point is a housing bust and a financial crisis set recessionary dynamics in motion such that 80% of job losses are outside of construction.

My point is to teach you something, not for you to try to find some way to twist or poke at my argument to make your own point or to take a cheap shot. My point is simple: arguing that because unemployment is 10% means that crowding is plausibly negligible is to misunderstand the nature of unemployment (heavily concentrated in certain industries and educational groups) and the nature of the stimulus (heavily concentrated in different industries and educational groups.). Nothing more. If you don't learn anything from my observation, either I'm a bad writer or you have a different agenda than I have.

Excuse me? This isn't twisting or poking, or a cheap shot Russ. This is serious stuff. My points and questions are very reasonable, and honestly I'm not the only one out there raising them. I do get a lot out of your posts - that's why I read this blog. But don't accuse me of taking cheap shots when I don't find certain things you write very insightful or convincing.

You're not excused.

Pointing out that the people who benefit from medical spending aren't all PhD's and doctors is irrelevant to my point: citing a 10% unemployment rate as if all sectors can be aggregated into one sector is a mistake. Similarly, citing "stagnant wages" as if all wages are stagnant is to make the same mistake.

You said that "you're struggling to understand my point." My point is that spending money on medical research doesn't help construction workers. What part of that don't you understand?

You need to check on your series of "as if's", Russ. Obviously there are as many wage rates to consider as there are workers. And obviously some sectors are going to experience crowding out while others aren't. I've said as much and Brad DeLong said as much, but you keep repeating it as if the point is lost on us.

Since we agree that some sectors may be experiencing more crowding out than others, I tried to advance the discussion by asking you what conditions/data you would look for to assuage your concerns about crowding out. Whenever one makes a claim the first question they should ask themselves is "how would I falsify this claim?". That's all I'm asking. If you don't want to answer that's fine, but don't keep repeating a point you and I already understand and agree on.

As for your point - again, I understand that point. Mine is simply that you can't evaluate what a stimulus package of hundreds of billions of dollars does for construction workers (who, keep in mind, are only 20% of the job losses anyway) on the basis of a fraction of a percent that is spent on medical research.

These are important questions about crowding out. You're always so quick to cite empirical studies coming up with a multiplier of 0 but then dismiss as ex post story telling empirical studies coming up with a higher multiplier. Well it's this crowding out question that is at the heart of these multiplier estimates. You started out talking about it. I don't think it's too crazy of me to want to press the issue of crowding out a little harder, rather than endlessly repeating a point about a couple million going to medical research that you and I are both on the same page on (the same page regarding the effects at least, if not the policy).

De Long and Horwitz are two of a kind, that won't allow any dissent on their own blogs. You may have that kind. I'll stick with Mises.

"Depresion is the aftermath of credit expansion; mass unemployment...of attempts to keep wage rates above the level which the...market would have fixed...If the...government fixes wages rates at the market level it is superfluous. If it fixes...rates at a higher level, it produces mass unemployment...The fashionable panacea suggested, lavish public spending, is no less futile. If the government provides the funds required by taxing...or by borrowing...it abolishes...as many jobs as it creates...If the government spending is financed by borrowing from commercial banks, it means credit expansion and inflation. The the prices of all commodities and services must rise...If...the rise in commodity prices exceeds the rise in nominal wages rates, unemployment will drop. But what make unemployment shrink is precisely the fact that real wage rates are falling."

No "thoughtful examination of the data," no "empirical evidence."

Just plain economics, real economics, pure theory.

The fundamental problem with DeLong's analysis is the use of the aggregate construction 'L' for labor. Under that assumption all unemployment seems like a market failure and the simple solution is to get 'L' a job, any job, like shoveling dirt with spoons. The economist who has not been blinded by this mathematical absurdity understands that these inferences are fallacies that come from the unrealistic assumption of L as homogeneous. In reality, it matters WHAT you do. There is a complex coordination of heterogeneous L's in our economy that social physics fails to capture. It fails to capture this complexity and therefore misses the whole point that no one 'knows' what jobs need to be done. Through the trial and error of the market process, however, we figure out what jobs to do in spite of our ignorance. Economists are a deluded bunch indeed.

This is a great post. I’m glad it was bumped. Otherwise I would’ve missed these very useful information.

Regards.
http://www.servocahealth.com/

Juan Carlos, I couldnt agree more!

Time get some controversey on Econtalk. The most entertaining (and interesting) podcast so far is with Steven Fazzari. You should bring DeLong and Krugman.

And while we're on it, maybe some sort of show concerning Paul Samuelsons leagacy.

I love the show Russ, keep up the good work!

"Of course it could have been even worse without the stimulus."

I'm not convinced of even that. The stimulus just delays necessary correction - and necessary pain. Delaying pain makes sense only within the framework of a "plan", and I reject the legitimacy of the plan.

I work at a ... at a particle accelerator facility not too far from
where Brad dL hangs his hat; I know for a fact that ARRA
has created at least 4 jobs there. There are probably many more,
but I have not given the matter any thought before. Some of them
worked at reasonably important jobs before, that then had to be filled;
I think I am safe in saying that their prior positions didn't just
disappear. You can count on at least 4!

Also, how do we know what jobs weren't funded so that those four people could get hired? On net, was there really an increase of four jobs?

Great! Now we know the lower bound. I assume those four people were all unemployed before they came to work there, right?

get him on EconTalk! better yet, get him and horwitz (o another austrian theorist) to debate each other on EconTalk. That would be the absolute best podcast on macro theory you could do. nothing like debate to really get to the bottom of things and understand them

To be honest, I will not debate DeLong. He has shown himself incapable of civil dialogue and utterly uninterested in the ideas of those with whom he disagrees. He's a dogmatist in the worst sense.

Well will you debate me? I'll be civil.

How do you justify persisting in your concerns about crowding out, given how stagnant wages and interest rates have been?

Granted, I don't have time for a "debate", and I'm sure you don't either - but an answer would be nice. Whatever diatribe DeLong wraps it in, it's still an eminently reasonable question.

There have been a number of cogent comments on these issues over at Coordination Problem: http://www.coordinationproblem.org/2010/02/slap...

Now I'm worried about arguing with an economics professor, and perhaps I have it wrong.

Let me ask it this way: what evidence do you have that they are looking at gross employment effects and not net employment effects? Surely you must have some reason for thinking this is truly the case, or else you wouldn't make such a damning accusation. But you don't mention your reason for thinking that, and I'm left confused. I was always under the impression that these estimates are net employment change estimates that do consider jobs lost. Why are you under a different impression?

"Now I'm worried about arguing with an economics professor, and perhaps I have it wrong."

Maybe you're joking and I've missed the point of that statement, but to my knowledge, you've never worried about this. Take your many posts on this blog as evidence.

I'm not worried about arguing with econ professors in general. I was a little worried because I'm arguing with Horowitz on a very specific point in this case.

He seems to be under the impression that the administration produces gross job estimates. I was always under the impression that these multipliers and job estimates were net job estimates, and that that was very common knowledge. I don't have a great deal of deference to professors simply because they are professors... but sure, I'll hedge when I challenge them on a very specific point like that.

He never cited why he thinks these are gross estimates, though, so I still think it's a good issue to raise with him. Particularly considering it's the entire point of the piece that he wrote.

Oh wow - initially I didn't realize you made that big of a claim! (that Obama's "created or saved" figure doesn't net out jobs lost from the stimulus).

You're quite simply mistaken - the modeling used to produce the "created or saved" number is based on an explicit consideration of net employment change. All multiplier estimates do this too, but for GDP (that's why you can have multiplier estimates of less than one). Are these estimates that can be disputed? Sure. And I've always agreed that any specific number produced while we're still in this should be taken with a grain of salt.

But you are factually in error when you say "What it doesn't consider are the jobs lost due to the very policies that are "saving" jobs". Unless you have a very different understanding of the modeling that goes into these estimates than I do, they absolutely do consider this. The estimates would be pointless if they didn't.

I'm very concerned that you fundamentally don't understand the models that produce these estimates that you're commenting on.

I don't blame you. DeLong tolerates no argument that doesn't mirror his - not even if you challenge his argument that 5+4=42.

"... even if you challenge his argument that 5+4=42"

Silly you. 5+4=54.

Phat chance. DeLong will never go on econtalk. You may as well try and get Krugman too? Russ has a reputation of being a fair and critical interviewer, Krugs and DeLong wouldn't be able to handle the pressure.

"There is no evidence that the hundreds of millions of dollars... has created any jobs at all.'

My understanding of economics is limited, so I ask with sincerity: What type of data would convince you that the stimulus had a positive effect? What type of evidence would exclude the effects of a natural recovery or other variables that might be mistaken as a stimulus benefit?

Thanks.

Kurlos,

That was the problem identified early on here and at other econ blogs -- no matter what happens, stimulus will get the credit for saving X number of jobs. Not provable or disprovable.

That said, assuming that the $847B stimulus did create or save 2M jobs, I think we would've been better off giving each of those 2M people $400,000 each to tide them over until they found a job.

Okay. I assume someone will correct me if I'm wrong, but Russ believes:

There is no way AT ALL to measure the effects of the stimulus. There is no way to deterimine a legitimate (that Russ would aprove of) marker and say, "If this number reaches X, the stimulus was a success"? Russ believes that the effects of the stimulus--good or bad--can not be known.

The problem is that we can't control the variables as in a scientific experiment. A complex dynamic system has multiple constantly and unpredictably changing variables. Impossible to model.

"Impossible to model."
Sam, would you say that most economists would agree with that? I'm a physician and aquatic gardener/aquarist, so I understand the inability to predict complex systems, and how a change in one variable effects dozens (or hundreds) of others.

But would Krugman would say "Impossible to model"? To me, intuitiviely, I agree with you, but I'm still learning the fundamentals of macro.

Truly, I'm stunned, if what you're saying is true--that no one has a way to determine its effects--it it really all politics, ideology, confirmation bias, etc.

I should qualify: Impossible to model with any significant degree of assurance that it represents reality.

The real problem is that unpredictable things happen with great frequency. Crops fail because the jet stream shifted a bit. Someone develops an idea into a significant product. Stuff happens that can't be predicted.

When they make models, they are necessarily simplifications of the real world and they certainly aren't prophetic.

They quite literally don't know what would have happened without the stimulus, except that some large, influential institutions would have gone out of business.

The main purpose of the stimulus is to instill some confidence in people that the government is taking care of the problem and we can all go about our business as usual.

What they are doing is borrowing from the future.

"The main purpose of the stimulus is to instill some confidence in people."

Sure, animal spirits. What I'm asking is: Do they--democrats or Keynesians--believe that is the main purpose? I don't know if they think that. They believe it will help in some tangible way, independent of a type of economic-placebo effect, per se. The notion of a "pretense of knowledge" is what Hayek promoted, but not everyone emphasized this, regardless of its validity.


Do Keyneisans THINK that they have worthy models? I saw a poll that said 90% of economists oppose minimum wage. Is the consesus for the inability to predict the effect of the stimulus as high? Or is Russ's perspective also ideological--whether right or wrong? Is the argument that "no one knows" a perspective, or is it a generally agreed upon idea in economics, like free trade and comparative advantage?

kurlos,

Sullum at Reason has a post today that provides info on how the Administration is playing fast and loose with the numbers. My take from it all is that O and Co. have no idea about jobs saved or created. By their own numbers though it adds up to hundreds of thousands of dollars per job they claim to have created. I can't fathom how that can be a good thing. http://reason.com/blog/2010/02/03/theyre-not-ne...

time to get DeLong on EconTalk

If you put DeLong on Econtalk, I won't download it. He's not an economist anymore... just a partisan mouth. Worse yet, an uncivil partisan mouth.