It looks like the Obama Administration’s brilliant political jujutsu move of using “jobs saved or created” is making its way around some of the economics blogs again. First up is Brad DeLong’s attack on Allan Meltzer. Meltzer wrote the following,
There is no greater recognition of the failure of the stimulus program to create jobs than the efforts to mislead the public into believing the program had saved thousands, or millions, of jobs. One can search economic textbooks forever without finding a concept called “jobs saved.” It doesn’t exist for good reason: how can anyone know that his or her job has been saved? The Administration can make up any number it pleases. The number has no meaning…
Brad points to this partial quote by Milton Friedman,
Suppose the [Federal Reserve] System… had accompanied the measure by purchase of government securities [for cash]… as called for by the “classic” remedy for an internal drain…. [L]et $1 billion be the amount…. What would have been the consequence?… Reserve purchases of $1 billion… would have meant an increase of $1,330 million in high-powered money… would have permitted a multiple expansion of deposits…. Even if… the deposit ratios would have fallen as much as they did–and for the deposit-currency ratio, the fall in so short a time was the largest on record–the result would have been to cut in half the decline in the stock of money…. Only a moderate improvement in the deposit-currency ratio–a decline from 8.95 to 7.10 instead of 6.47–would… have enabled the stock of money to be stable…
You might be wondering, “What the….?” Well, what Friedman is saying is that if the Fed had taken expansionary policy with regards to the money supply it would have stopped the Great Depression, or at least it wouldn’t have been Great, and probably not even a depression. In other words, isn’t Friedman doing the samething that Meltzer is saying is impossible?
Well it depends. The above quote it from The Great Contraction and I haven’t read it and so I don’t know the context in which Friedman couched his argument or what is missing in the ellipses in the quote Prof. DeLong has quoted. But, if Friedman is making an analysis given a specific model, then his argument might be valid…in the context of that model. In fact, Prof. DeLong writes,
You can critique models. You can critique parameters. You can critique parameters. You can critique how the calculations are done, but you cannot deny their existence, for the kind of counterfactualcalculations [sic] that Milton Friedman does are, of course, the steady diet of what economists and other policy analysts do every day.
This leads me to believe that, indeed that Friedman is making his statements within the context of a specific model.
Paul Krugman decides to pile on by making the following comments,
But it’s not just Meltzer — Greg Mankiw has done the same thing.
They should be ashamed of themselves.
The Obama administration’s “jobs created or saved” is just a way of saying “other things equal” in non-economese. Of course it makes sense to ask how many more people are working than would have been the case without a given policy — and every administration makes assertions along those lines. During the 2001 recession and its aftermath, how many times did the Bush administration claim that the recession would have been worse without its tax cuts? And while many of us quarreled with that claim, I don’t think I ever argued that other-things-equal arguments are nonsense on their face.
The willingness of conservative economists to fall in line behind such cheap shots says something sad about them, not about the Obama administration.
Mankiw responds,
Here is what I wrote on the topic last February:
The 4 million job number is a counterfactual policy simulation of what the stimulus will do based on a particular model of the economy. As such, I have no objection to someone citing it in a policy discussion. In fact, macroeconomists use models to generate figures like this all the time. I have even done it myself.
But as an answer to the question “how can the American people gauge whether or not your programs are working?… What metric should they use?”, citing the 4 million job figure is a non sequitur, or more likely a diversion. A metric has to be measurable, and the actual number of jobs “created or saved” by the policy will never be measurable from any data source.
That is, I do not object to claims such as,
A: “Based on our models of the economy, we believe there would be X million fewer jobs today without the stimulus.”
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. Unfortunately, we are hearing statements like B much too often from administration officials. A good example is here, where can you “learn” that 110,185.36 jobs have been created or saved in California alone.
Yes that is right, because of Obama’s brilliant policy there is a 0.36 person employed now that otherwise wouldn’t be employed. Of course, the use of the phrase “jobs saved or created” is baloney. If the President or his spokespeople had said, “Well, according to our analysis we think it is likely that 4 million jobs will be saved or created with this stimulus package…” they’d be home free. But that isn’t what they say. This is what they say,
Question: The American people have seen hundreds of billions of dollars spent already, and still the economy continues to free-fall. Beyond avoiding the national catastrophe that you’ve warned about, once all the legs of your stool are in place, how can the American people gauge whether or not your programs are working? Can they — should they be looking at the metric of the stock market, home foreclosures, unemployment? What metric should they use? When? And how will they know if it’s working, or whether or not we need to go to a plan B?
Answer: I think my initial measure of success is creating or saving 4 million jobs. That’s bottom line No. 1, because if people are working, then they’ve got enough confidence to make purchases, to make investments. Businesses start seeing that consumers are out there with a little more confidence, and they start making investments, which means they start hiring workers. So step No. 1, job creation.–emphasis added
Whoops.
