CBO: Obama Stimulus Package Added 3.3 Million Jobs

[Wonkish1]

Sure it did!

[Wonkish1]

Sure it did!

Love that this is the attitude you people have toward the CBO; essentially our real-world version of Atlasia's "Game Moderator." You cannot dismiss reality when it doesn't suit you.

No wonder some of you want to abolish it.

Well first of all since the CBO doesn't acknowledge the existence of the bond market in this analysis than yeah than their number isn't worth the paper its printed on.

[Wonkish1]

After the stimulus the appetite for US government debt increased and our borrowing costs dropped to an all time low.  How would you like the CBO to adjust its numbers?

Of course there is high appetite for treasuries they are seen as not having a default risk. That has no bearing on the criticism I just made.

People that buy treasuries would have bought some other asset if the supply wasn't increased so much. The CBO doesn't acknowledge that this most basic fact is true.

[Wonkish1]

I just don't understand how the current activities in the bond market post stimulus invalidate the CBOs numbers.

Because you like most people(including many people who even work in finance) don't understand how money flows through capital markets and the importance of the marginal dollar in markets. If your genuinely curious I'll explain it to you, but if its just something your not going to take seriously then its probably not worth the time to explain.

And we're talking about immediately prior to stimulus spending, during, and after not just post stimulus.

[Wonkish1]

It has nothing to do with it. Just let him be.

It has everything to do with it. Again I work in Finance I get this stuff much better than other folks on here. So this is quite easy for me to explain. The problem is that most people on here will just have there eyes glaze over and just go on preferring to be ignorant to something like this.

[Wonkish1]

Even taking the CBO numbers as gospel, that's over $240,000 per job!  Not exactly a number to be crowing about.

After the stimulus the appetite for US government debt increased and our borrowing costs dropped to an all time low.  How would you like the CBO to adjust its numbers?

Of course there is high appetite for treasuries they are seen as not having a default risk. That has no bearing on the criticism I just made.

People that buy treasuries would have bought some other asset if the supply wasn't increased so much. The CBO doesn't acknowledge that this most basic fact is true.

I just don't understand how the current activities in the bond market post stimulus invalidate the CBOs numbers.

What he is saying is that if the money used to buy $800 billion of treasuries had been used for other purposes, it would have created jobs as well.  And considering that the CBO numbers have each of those stimulus provided jobs costing so much I find it hard to believe it couldn't have done as good a job at creating jobs elsewhere.

Nailed it. But I'm more than willing to go through this from a capital flow perspective and show indisputably that this has to be the case.

Interest rates aka the price of money has absolutely zero to do with understanding this issue. All the interest rate shows is the risk free rate + duration + default risk. The price of money doesn't change the available capital for particular capital expenditures. It just shows the demand for one fixed income asset class vs. another.

[Wonkish1]

Even taking the CBO numbers as gospel, that's over $240,000 per job!  Not exactly a number to be crowing about.

Why not? That's a lot of money. It's about the amount that I have earned since I started my own job (unrelated to the stimulus, as far as I know), but I hope that my current position will earn me quite a bit deal more, eventually. I'm aware too of course, that the existence of my position has cost my employer a lot more than what I have taken home; as it has to pay for my health insurance, office space, computer, utilities usage, they have bought me a laptop, and have reimbursed other capital expenses. And I'm aware, also that the project that I am on with several other people has required hundreds of thousands of dollars in invested capital in terms of infrastructure, but this cost would be spread across several jobs. In any case, I am aware finally that my employer could have, instead of hiring me to do productive work, thrown much less money and capital at my project, and hired double or triple the number of people to stand around and shovel dirt from one hole to another, then from the destination hole back to the original. Of course, it wouldn't be very productive and would be less desirable than straight out welfare, but it would certainly have padded the dollars-to-jobs figures, were that the main goal.

The problem is that isn't the amount that is actually making its way to the "new hires or saved hires" which is substantially lower.

And if that shoveling dirt from one hole to another came at the expense of another job that increased economic output and GDP to allow for more jobs to be created you still think it would be a productive action?

Maybe the government should then just hire people to dig with spoons, it will get more people hired to do that work if you believe that?

[Wonkish1]

That assumes that it would have been used for other purposes to begin with (and not things like stock buybacks or creating jobs overseas; the entire premise of Keynesian economics is that slack exists.

Yeah and this is why I'm willing to go through capital flow and the concept of the marginal dollar to show you that slack doesn't exist.

[Wonkish1]

I just don't understand how the current activities in the bond market post stimulus invalidate the CBOs numbers.

Because you like most people(including many people who even work in finance) don't understand how money flows through capital markets and the importance of the marginal dollar in markets. If your genuinely curious I'll explain it to you, but if its just something your not going to take seriously then its probably not worth the time to explain.

And we're talking about immediately prior to stimulus spending, during, and after not just post stimulus.

^^^So Link, I'm prepared to spend the time to go through what will probably be the next great subject of economic study, the study of capital flows through an economy for you if you want it. I promise to make it as interesting and informative as I can. But I would actually like to hear that you actually would be interested and inquisitive about it first not just skim it and overtly hostile.

Its up to you. And I'm only asking because it seems me and you are starting to get along a little better these days.

[Wonkish1]

Of course there is high appetite for treasuries they are seen as not having a default risk. That has no bearing on the criticism I just made.

People that buy treasuries would have bought some other asset if the supply wasn't increased so much. The CBO doesn't acknowledge that this most basic fact is true.

You spend so much time moving the goalposts, it's a wonder you ever have time to play!

Moving the goalposts? What are you talking about? I'm very clear here. Capital is limited. Investment assets cost money. Among them are treasuries. Interest rates are a tiny portion of the cost of those assets. Buying investment assets uses up capital. At no point throughout this am I "moving the goalposts". I'm very specific and I know exactly what I'm pointing to. You don't.

[Wonkish1]

Sure it did!

The report doesn't say that it created 3.3 million jobs - but 0.5 million TO 3.3 million full time equivalents, which includes overtime for those already in jobs.  That's actually a downward revision from the CBO's August report.  The actual range of the increase in the number of people employed due to the stimulus is 0.4 million to 2.4 million - again, a pretty broad range that allows partisans to argue whatever suits their agenda.

And the CBO pointed out the same thing you did - over the long term, the stimulus will cause the economy to shrink by up to 0.2% after 2016 due to crowding out.

That is just the acknowledgement of the standard Keynesian position that excess future debt is a negative impact. It doesn't establish where the money comes from today and what would have happened to that money had not as much treasuries been issued. So they look at the future debt service, but they don't look at current capital flows.

You might as well just believe the money comes out of thin air disavow existence of the bond markets because that is the assumption they are using for the analysis today.

[Wonkish1]

Even taking the CBO numbers as gospel, that's over $240,000 per job!  Not exactly a number to be crowing about.

After the stimulus the appetite for US government debt increased and our borrowing costs dropped to an all time low.  How would you like the CBO to adjust its numbers?

Of course there is high appetite for treasuries they are seen as not having a default risk. That has no bearing on the criticism I just made.

People that buy treasuries would have bought some other asset if the supply wasn't increased so much. The CBO doesn't acknowledge that this most basic fact is true.

I just don't understand how the current activities in the bond market post stimulus invalidate the CBOs numbers.

What he is saying is that if the money used to buy $800 billion of treasuries had been used for other purposes, it would have created jobs as well.  And considering that the CBO numbers have each of those stimulus provided jobs costing so much I find it hard to believe it couldn't have done as good a job at creating jobs elsewhere.

Nailed it. But I'm more than willing to go through this from a capital flow perspective and show indisputably that this has to be the case.

Interest rates aka the price of money has absolutely zero to do with understanding this issue. All the interest rate shows is the risk free rate + duration + default risk. The price of money doesn't change the available capital for particular capital expenditures. It just shows the demand for one fixed income asset class vs. another.

Mighty big "if," True Federalist.  Let's see what the stimulatory investments the private sector has been making with the capital it does have...





Maybe they are building up cash positions because they are afraid they may not have access to the capital markets...



nope.  Looks like the quality corporates have access to all the capital any of them would reasonably need.  I am baffled by all the crowing I've been hearing for months about how we need tax breaks for "job creators" and corporates are being "crowded out."  I would say the same thing to corporates and 1%ers that I would say to a three year old with a big slice of cake.  Finish what you have first and then we will see if you need more.  Colgate and P&G have had no problems funding themselves with 3 year bond deals priced at 0.6%.  I keep reading about corporates doing record breaking bond deals and at the same time people are saying they are getting crowded out of the bond market?!    If your business can't turn a profit with financing costs of 0.6%, blame yourself.

Again you don't understand the concept of the marginal dollar or marginal investor. And when I offered to explain it you clearly are passing so what do you expect.

Or do you just prefer to post ignorant posts and hope that I don't actually show why everything you just posted is meaningless.

[Wonkish1]

Again you don't understand the concept of the marginal dollar or marginal investor. And when I offered to explain it you clearly are passing so what do you expect.

Or do you just prefer to post ignorant posts and hope that I don't actually show why everything you just posted is meaningless.

Often on these threads I find that the point in contention is not clearly defined and that all the facts are not presented up front... if at all.  If you think the facts that I have presented are meaningless you are perfectly free to post your facts and attempt to prove your point.  It is a two way street.  Everyone is allowed to argue their point of view.  You may think your point of view is "indisputable" but you certainly haven't proved that to us.  What I posted is my point of view.  I, unlike you, do not think it is "indisputable."  I arrived at my conclusion based on the best evidence I have at the moment.  If some other new information comes along that sheds new light on the situation I am perfectly open to changing my view.  To me it just seems strange that people that are stockpiling record amounts of cash and bidding gold (an almost completely useless asset) into the stratosphere would ask for even more cash before they will invest the cash they already have.

Are you even reading what I said? I asked if you are even remotely curious to actually sit through and read this type of topic in detail. Am I taking this as a yes? But if you are unwilling to participate in a meaningful way and are just going to ignore what ever I post and throw up something that has no impact so that you can try to look like your scoring points than I'm not going to waste my time.

Essentially are you naturally an inquisitive person on something like this or are you just interested in posting cheap drivel for elusive political points?

[Wonkish1]

It has nothing to do with it. Just let him be.

It has everything to do with it. Again I work in Finance I get this stuff much better than other folks on here. So this is quite easy for me to explain. The problem is that most people on here will just have there eyes glaze over and just go on preferring to be ignorant to something like this.

Your point was completely irrelevant, Wonk, because had there not been the extra 800 billion of treasuries (an incredibly insignificant amount btw), the same amount of money would still have gone into treasuries (or quite possibly even more), but the price of treasuries would have simply been minutely higher.  Thus, no jobs created.  Only direct government spending can create jobs in a deflation/depression.

This is just factually incorrect.

[Wonkish1]

Bullmoose,

Let's look at the record.

CBO almost always projects a cost for a program of less than what ends up being the actual cost (check the record).

Now, there are a number of explanations for this phenomena:

First, that that CBO is frequently ordered to make assumptions which are incorrect and invalid.  

Second, frequently CBO's estimates are more accurate than those of the White House, so they look less absurd by comparison.

Third, the methodology used in cost estimates is fundamentally flawed in that if fails to adequately address long term factors for programs with a lifespan of more than a couple of years.

As a good example the CBO absolutely refuses to make any adjustments in that people change behavior to avoid the tax when a tax increase goes through and people change behavior to try to get the benefit when the government creates a program. The CBO instead assumes that everybody will just continue what they have been doing when any of these changes occur.

[Wonkish1]

Wonkish,

You put it very well.

The "static" nature of CBO "analysis" has been under attack by economists for several years.

CBO counters that it is impossible to accurately project such changes.

The bottom line is the CBO is consistently wrong!

Fine its impossible to project such changes, but since its always the *exact* same direction then the least they could do is make some historical adjustment based on some average they've been off in the past.

My problem isn't in that they are consistently wrong(that's expected). Its that they are always way wrong in the same direction every time. And their excuse for that is that they just can't project how much of a behavior change will result so they're more content just being extremely off in the same direction every time. Its just dumb!

[Wonkish1]

Wonkish,

You put it very well.

The "static" nature of CBO "analysis" has been under attack by economists for several years.

CBO counters that it is impossible to accurately project such changes.

The bottom line is the CBO is consistently wrong!

And honestly, I'm not really disputing that the CBO is...well...wrong...frequently...even consistently if you like...and you spelled out pretty decent reasons why it often errs.  If asked why the CBO isn't accurate, I'd rattle off many, but perhaps not all, the aforementioned reasons.  That said, I wouldn't make the leap that what the CBO does (forecasting, whatever) is malicious, or fraudlent.  Just on many occasions wrong, and there is a difference.

I wouldn't say its malicious. But they know their going to be off in the same direction every single time and they don't care. So call what you will, but its not accidental.

[Wonkish1]

It has nothing to do with it. Just let him be.

It has everything to do with it. Again I work in Finance I get this stuff much better than other folks on here. So this is quite easy for me to explain. The problem is that most people on here will just have there eyes glaze over and just go on preferring to be ignorant to something like this.

Your point was completely irrelevant, Wonk, because had there not been the extra 800 billion of treasuries (an incredibly insignificant amount btw), the same amount of money would still have gone into treasuries (or quite possibly even more), but the price of treasuries would have simply been minutely higher.  Thus, no jobs created.  Only direct government spending can create jobs in a deflation/depression.

This is just factually incorrect.

Dude, if you have X amount of something and you increase its supply by, say 0.1%, that should decrease its price (per each unit) by a very tiny amount, no?  That is all the stimulous package did - increased the supply of treasuries by an infinitismal amount.

I'll give you credit for attempting a serious argument. But any reduction in price doesn't make $800 billion new treasuries cost 0 through price reductions which is essentially the argument your making(although you may not realize you are). The price might drop causing total amount of capital directed to them to be less than if you modeled them statically. But there is still serious capital going into them.

[Wonkish1]

Wonkish,

You put it very well.

The "static" nature of CBO "analysis" has been under attack by economists for several years.

CBO counters that it is impossible to accurately project such changes.

The bottom line is the CBO is consistently wrong!

And honestly, I'm not really disputing that the CBO is...well...wrong...frequently...even consistently if you like...and you spelled out pretty decent reasons why it often errs.  If asked why the CBO isn't accurate, I'd rattle off many, but perhaps not all, the aforementioned reasons.  That said, I wouldn't make the leap that what the CBO does (forecasting, whatever) is malicious, or fraudulent.  Just on many occasions wrong, and there is a difference.

I wouldn't say its malicious. But they know their going to be off in the same direction every single time and they don't care. So call what you will, but its not accidental.

If they are consistently wrong in the same direction, then that makes their errors predictable and thus something that can be adjusted for because they are reproducible.  Conversely, if they keep adjusting their methodology in search of being more accurate, their estimates become less useful.

Which would you rather have, a clock that is consistently 15 minutes slow, or a clock that is always within 5 minutes of the correct time, but you can't be sure if it is fast or slow?

More like a clock that is 15 to 25 minutes slow vs. 5 minutes slow or fast would be a better analogy. Since these are estimations of costs then I would definitely rather have the "5 slow or fast". I don't see how you wouldn't.

[Wonkish1]

Just curious wonkish and CARL!: Since over a third of the stimulus involved tax cuts, are you both conceding that tax cuts aren't effective at spurring economic growth? Conversely, doesn't that mean that tax increases to the same degree won't inhibit economic growth?

Please advise <grabs popcorn>.

Well first a lot of those "tax cuts" weren't real tax cuts(more like subsidies within the tax code like tax credits big difference). Second, it wasn't actually a 1/3rd(even though I'm sure you'll be able to produce a false link repeating that fallacious statement). Third, debt has a negative impact on growth so when tax cuts are a fraction of the new debt taken on then the debt will way overpower the "tax cuts". Fourth, temporary tax changes don't have much affect on long term investment(like hiring someone or expanding operations for example).

The package had no rate changes. Not to income, corporate, capital gains, dividends, gas, payroll, etc. Those long term changes have a real and large affect on behavior.

[Wonkish1]

Just curious wonkish and CARL!: Since over a third of the stimulus involved tax cuts, are you both conceding that tax cuts aren't effective at spurring economic growth? Conversely, doesn't that mean that tax increases to the same degree won't inhibit economic growth?

Please advise <grabs popcorn>.

Well first a lot of those "tax cuts" weren't real tax cuts(more like subsidies within the tax code like tax credits big difference). Second, it wasn't actually a 1/3rd(even though I'm sure you'll be able to produce a false link repeating that fallacious statement). Third, debt has a negative impact on growth so when tax cuts are a fraction of the new debt taken on then the debt will way overpower the "tax cuts". Fourth, temporary tax changes don't have much affect on long term investment(like hiring someone or expanding operations for example).

The package had no rate changes. Not to income, corporate, capital gains, dividends, gas, payroll, etc. Those long term changes have a real and large affect on behavior.

As requested, "fake" link from your Bible, that right wing shill for labor, the Wall Street Journal.

http://online.wsj.com/public/resources/documents/STIMULUS_FINAL_0217.html

The $288 Billion in tax breaks, compared to $144 Billion in aid to states (almost all for Medicaid and education funding) and $357 Billion in federal spending, tax cuts constituted about 37% of the stimulus. So you're right, it really wasn't actually a third---it was higher. Thanks Wonky!

And as far as the tax cuts being not "real tax cuts (more like subsidies within the tax code like tax credits" that only is correct at all for about $19.1 Billion in such credits. Less than a 10th of the overall cuts--and what lesser portion of that sliver actually constituted "subsidies" as opposed to actual cuts isn't clear---but it's apparently even less.

Tax cuts that don't contribute to hiring? look at the largest ($117 Billion) tax cut of all. A payroll tax credit for new workers. And.....ugh, why do I even try?

Your point about increased debt ameliorating the effect of tax cuts, you realize, repudiates conservative economics, both gospel and practice, from the last 3 decades?

You claim there was only $19.1 billion in tax credits and then in the very next paragraph you say "look at the largest ($117 billion) tax cut of all. A payroll tax credit for new workers.

[Wonkish1]

Your point about increased debt ameliorating the effect of tax cuts, you realize, repudiates conservative economics, both gospel and practice, from the last 3 decades?

No. I said that increased debt is a substantial mitigating factor and when you have to take on debt for a ton of spending in a package plus a few minor tax cuts then the amount of new debt will be a bigger factor than anything a few small tax cuts can do.

The subject of what degree at which new debt mitigates each dollar of tax cuts is a tough subject but I can guarantee to you it is neither a 0 to 1 nor 1 to 1 ratio so its quite possible that new debt of a large spending package could outstrip any benefits from tax cuts if the ratio of spending to tax cuts is quite high.

[Wonkish1]

I think you misunderstand two points. First, you referred to "subsidies" in the tax code, such as expansion of the EITC and Child Care Credit. You clearly (to me at least) implicated such cases where the Treasury sends someone a "tax refund" when they were too poor to pay income taxes in the first place---i.e. a subsidy. The Payroll Tax Credit was an actual tax cut on taxes that would've actually been otherwise paid--i.e. a genuine tax cut rather than a subsidy disguised as a "tax credit".  Whether it was facilitated by reducing the amount initially paid like the proposed continued payroll tax cut currently before Congress, or by a credit towards payroll taxes already paid, is meaningless. The end result was working taxpayers paid less to the federal government than they would have otherwise, not a camouflaged transfer payment like (part of) the expanded EITC and Child Care Credit were. Your fixation on the term "credit" for the payroll tax "cut" is simply your being misled by semantics.

Secondly, I understood your argument about increased debt mitigating the effect of combined tax cuts and spending increases the first time you posted it. My point here is the fallicy in your blind ironclad assumption that for stimulus purposes "$100 tax cut is worth $100 debt because it creates economic stimulus" but conversely "$100 of increased government spending isn't worth ANYWHERE near $100, or any non-negligible amount, of additional debt because all such spending is wasteful and carries no tangible economic stimulus effect" yadda-yadda-yadda.

What this argument has utterly ignored for 30 years is $100 of tax cuts creates just as much debt as $100 of federal spending (even <gasp> defense spending). Due to conservatives inability to appreciate increased debt ameliorates the benefits of tax cuts just as much as additional spending, we've acquired massive debt from across the board tax cuts with little tangible economic growth to show for it, particularly for the middle class.

My point was to challenge this delusion you, like many right wingers, hold so dearly. So I admit upon your further explanation, you don't repudiate 30 years of trickle down economics, but rather just neatly apply an imaginary and indefensible double standard for the stimulus value of tax cuts vs. an identical amount in government spending. A double standard which holds not merely the free market is generally more efficient than public efforts (as 99% of liberals also believe), but that public spending is always and entirely useless in stimulating the economy compared to an equivalent amount of tax cuts.

All tax credits are subsidies in the tax code because they are direct cash for the full amount of the credit(since most are netted is beside the point).

Tax deductions are different horse altogether. But I explicitly said tax credits so as to not be any ambiguity. As are marginal tax rate reductions.


Well I don't believe the government is an efficient vehicle that's why. Now your welcome to disagree with that, but that is why I can see the debt out mitigate government spending and not out mitigate tax reductions. But the argument we're going to end up in with the course of your argument is whether or not government spending or taxes are more efficient and which ones are being mitigated completely by new debt vs. only partially.


Actually since the CBO has consistently overestimated the 'cost' of tax reductions and underestimated the cost of government spending than I'm quite content saying that tax reductions don't cost the same debt outcomes according to the CBO mistakes that spending increases do. You want to dispute this?


It is you that is holding onto a delusion here my friend. Government spending has never produced the jobs that the CBO(let alone liberal think tanks) have claimed it would. And government spending doesn't equal tax cuts.

[Wonkish1]

You know I realize you thought you were going to be clever when you started this discussion up, but just keep in mind that I actually have spent considerable amount of time looking at these issues so your not going to catch me off guard.

Sorry, for bringing your clever inflated expectations back down to reality.

[Wonkish1]

...if you have X amount of something and you increase its supply by, say 0.1%, that should decrease its price (per each unit) by a very tiny amount, no?  That is all the stimulous package did - increased the supply of treasuries by an infinitismal amount.

...any reduction in price doesn't make $800 billion new treasuries cost 0 through price reductions which is essentially the argument your making(although you may not realize you are). The price might drop causing total amount of capital directed to them to be less than if you modeled them statically. But there is still serious capital going into them.

No, I never said the cost was zero, just that it was less than 800 billion. 

Well in next to zero interest rates its actually pretty damn close. But your right its not exactly 800 billion. If they didn't do it the Federal government's cost of capital in longer duration would be cheaper today. And the difference between those two numbers isn't zero. But even factoring in that difference its still in the high 700s for how much additional capital left the capital markets at the time.