Once again, conservatives are using today’s jobs number as a jumping-off point to slam Obama.
Our pal Jim Pethokoukis at AEI takes the opportunity to remind everyone that the unemployment rate — of 8.3 per cent — remains well above where The White House predicted it would be with the stimulus, back in 2009.
Now, just to understand what’s going on here, the light blue line represents what The White House thought the arc of job creation would look like without the stimulus. The Dark Blue Line represents what the White House predicted the jobs trajectory would look like WITH the stimulus.
The latest jobs report from this morning is identified with the red dot showing current 8.3 per cent unemployment, which is far worse than where the Administration predicted it would be.
So: Have The White House’s Keynesian stimulus ideas been debunked?
Here’s what you need to realise. The original chart above comes from a document (.pdf) that was put out by White House economic advisors Christina Romer and Jared Bernstein on January 10, 2009.
It’s important to recall that his was right in the throes of the recession. At the time, things were weakening much faster than anyone could possibly realise in real time.
And this is crucial.
Read this from the BEA:
In the fourth quarter of 2008, which immediately followed the 2008 financial crisis, economic activity fell sharply. BEA’s initial, or “advance” estimate of GDP for the quarter, which was released on January 30, 2009, showed a decrease of 3.8 per cent at an annual rate. In the second estimate, which was released on February 27, 2009, the revised estimate showed a decrease of 6.2 per cent. Since then, the estimate has been revised several more times (in March 2009, July 2009, July 2010, and July 2011), and the latest estimate shows a decrease of 8.9 per cent.
Get that? Even after Romer’s chart, it only looked like GDP had contracted by 3.8 per cent in the previous quarter.
It turns out, GDP was contracting at 8.9 per cent — massively more than anyone realised at the time.
Romer was working off very imperfect data. If even the BEA didn’t realise how bad the economy was until July 2011 — over two years after the original stimulus — then Romer could have had no clue.
And this matters a lot. If stimulus works by filling the demand “hole,” then it’s a really big deal that the hole was nearly three times as big as anyone thought at the time.
So this endlessly hammering Romer and The White House over this chart makes for good politics, but it is misleading. It doesn’t show that the stimulus failed, it shows that nobody realised how bad things were at the time, and perhaps it even unwittingly makes the case that the problem was that the stimulus wasn’t nearly big enough.
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