All you need to know about CBO estimates of stimulus effects

The Congressional Budget Office says the $862 billion stimulus package already has “increased the number of people employed by between 1.2 million and 2.8 million,” among other things.

Hurray! Right?

The CBO’s director, Douglas Elmendorf, explained this back in March, but it’s worth revisiting now. When the CBO says the stimulus did this or that, it presents as “evidence” the very same economic models that were used to predict the effects of the stimulus before it was even passed. Put another way, here is all the CBO is saying:

  1. The models say that spending X amount of money will create Y number of jobs.
  2. We’ve spent X amount of money.
  3. Therefore, we must have created Y number of jobs.

In other words, the models haven’t changed, so we will assume that the stimulus worked as intended.

The CBO is not measuring outputs. The feds’ accountability website for the stimulus,, attempts to do that and finds fewer than 700,000 jobs created, as reported by fund recipients themselves (for almost $400 billion spent so far). Remember, too, that some of these numbers are considered sketchy, to say the least.

As the authors of the latest CBO report point out, measuring outputs is difficult to do because, well, the stimulus might be stimulating people to create jobs without their realizing it was the stimulus that stimulated them. The reported figure of fewer than 700,000, they observe, could be significantly lower than or significantly higher than what’s happened in the real world.

So, they try to estimate outputs (jobs created) by measuring inputs (money spent). If the models had it right before, then they probably still have it right. If they didn’t, then as Elmendorf acknowledged in March, the CBO wouldn’t know it.

It comes down, then, to whether you trust the models. It would be interesting to know how similar the models that CBO uses are to the ones that White House economics adviser Christina Romer used in creating this now-infamous graph in support of the stimulus:


Not exactly how things turned out.

If you want to hear Elmendorf explain this himself, click here and fast-forward to the 38:24 mark to hear the relevant exchange (it lasts about 2.5 minutes). But, being the swell guy that I am, I’ve listened to it for you and transcribed it below (with emphases added):

QUESTIONER: I’ll be brief. You mentioned that with the ARRA [American Recovery and Reinvestment Act, or stimulus bill] as it was moving through Congress, you provided projections based on a set of multipliers and econometric models — and then later, when evaluating the effects, you also used multipliers and econometric models. And that gives the impression of assuming what one’s trying to prove in terms of measuring the effects. And so as a two-part question, first, is that treatment required by the rules Congress sets for CBO? And second, how would that be different if you compared the initial projections, both baseline and with the stimulus bill, to the actual experience?

ELMENDORF: So our method of analysis of that is not required by the Congress. We try to be very clear in our reports on ARRA that we don’t think one can learn much by watching the evolution of particular components of GDP over the last few quarters about the effects of the stimulus. We think the best evidence about the effects of past policies comes from more detailed studies done often several years later about the behavior of particular households that got tax rebates sooner or later or what have you. So we don’t think you can learn much from that, and therefore we fall back on repeating the sort of analysis we did before. And we’ve tried to be very explicit about that, that is essentially repeating the same exercise we did rather than as an independent check on it. The part that’s a check is that we watch how the money’s flowed out of the government budget; we can update that. We’re reading new evidence, and if we thought we saw evidence that substantially shifted the body of work in this area, then we would shift our views. We haven’t seen that at this point.

QUESTIONER: If the stimulus bill did not do what it was originally forecast to do, that would not have been detected, by the subsequent analysis? Is that correct?

ELMENDORF: That’s right. That’s right. And, in terms of what we would have found otherwise, I mean, I don’t remember each of our forecasts. Certainly, by last March, our economic forecast took on board a very large decline in employment, a run-up in the unemployment rate, weak GDP growth with a recovery in the second half of last year. Our January forecast, last January’s forecast, did not have that. We marked down the forecast considerably from January to March. Our first estimates of the effects of the stimulus package I think were coming out n between those benchmarks. So it’s hard for me to go back and disentangle those pieces entirely.

What we’re left with in the way of evidence, then, is more like faith-based accountability. Do you believe?

On a related topic, some Harvard professors — doing the kind of after-the-fact, real-world analysis Elmendorf mentioned favorably above — found that powerful members of Congress may bring home the bacon to their districts, but it doesn’t lead to a boom among private business and can even lead to lower private-sector employment.

(H/t: Hot Air and Reason)

30 comments Add your comment


May 27th, 2010
1:53 pm

Do you feel lucky to have a job, or just think you would work somewhere else if not here?


May 27th, 2010
1:54 pm

Funny how some people seem to alway bounce and land on their feet while others always struggle. Wonder why? Age,gender,color, height ? What could it be?


May 27th, 2010
1:57 pm

Guess your collegue Jay missed all that with his blog yesterday….


May 27th, 2010
2:04 pm

So basically, it’s the “this is what would have happened when we did what we did if it had worked like we thought it would” deception.


May 27th, 2010
2:37 pm

I think I’ll try this at work with next year’s budget. We spent $X this year, but I can’t measure what we got for it, so next year lets spend 2 x $X and we should get twice as much of what we can’t measure.

Works for me… I’m sure I’ll get a raise and be appointed Vice President.

Mr. Holmes

May 27th, 2010
2:45 pm

Well Obama did it, so of course it didn’t work.

Moses could magically appear on the Capitol steps with a third tablet signed by Yahweh himself certifying that ARRA kept us from 10 years of depression, and the GOP would have him arrested for trespassing. It simply doesn’t matter what the man does. The other side will always, always, always attack, because that’s what they do.

That’s ALL they do.

Ragnar Danneskjöld

May 27th, 2010
3:07 pm

We will have to credit Mr. Elmendorf for his honesty, answered the question that was asked, rather than evading the truth. The best research I have seen on the Keynesian multiplier – and indeed the only real research that has been conducted – shows it is less than 1.0, thus a diminished return on all “stimulus” outlays (for every dollar spent, sixty cents returned, and forty cents was waste.). Faith-based economics indeed; that was the real meaning of hope and change. The Keynesians hoped it would work, in the face of multiple multiplier failures in the past, and the public got a return of only small change

Ragnar Danneskjöld

May 27th, 2010
3:09 pm

Dear Mr. Homes @ 2:45, Canute could reappear to disprove Keynesian theories, and the leftists would swear he is Moses and able to turn back the tides.

Helmut Tudor XIV

May 27th, 2010
3:46 pm

Ragnar, you appear correct in your logic and reasoning of Keynesian economic effects. In simple terms, progressive liberals do not understand the law of diminishing returns particularly when it comes to infusing an a$$ load of money into the economy via bureaucrats.

The stimulus is akin to BP’s attempt at the “junk shot” to plug the well. Just pump all kinds of worthless programs into the gushing hole that is the economy and and hope for the best. When it fails, pass the buck.


May 27th, 2010
3:52 pm

Saying the stimulus created jobs is like saying a $10,000 cash advance on my Visa card raised my income.

John Birch

May 27th, 2010
4:00 pm

Estimates are facts when they support your bias and propagandist lies of the other side when they don’t. I know one real fact. A road construction project in Charlotte that was already underway suddenly got big signs touting jobs saved by the gov once they got ARRA money. I also think that employers wanted to pad the jobs created/added numbers they reported as much as possible in the hopes that would result in even more handout money. Lastly, I suspect about 600,000 of the 700,000 reported were of the jobs saved category, not new jobs. Jobs like those teachers saved by stimulus money that are now being lost, so it’s really more like 700,000 jobs temporarily saved by paying their salaries with record federal deficits if the turth be told.


May 27th, 2010
4:22 pm

Grumpy, Point taken, but the bank advancing the $10,000 makes that call. The Obama administration was more interested in stablizing an unstable situation, as opposed to teaching U.S. consumers and the Congress a lesson about thrift. Our present addiction to “cheap money” and deficit spending is years in the making. Personally, I would have preferred a wholesale collapses of the U.S. and subsequently World finanicial markets, followed by riots/civil unrest, and most likely a world war, which would lead to 30-50% reduction in the world’s population population, but my ideas of a solution to our problems and Obama’s are not the same, and I am OK with that.


May 27th, 2010
4:42 pm

The Republican answer would be to have a prayer meeting……. OPS that is for Rain…….

Or maybe another WAR ! Yes the Republican answer to all.

Road Scholar

May 27th, 2010
5:38 pm

Kyle, how many jobs that would have been lost were saved by ARRA? While not created, they were maintained! Should we have waited until those people lost their jobs before implementing ARRA?

Kyle Wingfield

May 27th, 2010
6:33 pm

Road Scholar: I think the figures cited above included created or “saved.” And I think the same accounting problems exist for the latter group.


May 27th, 2010
6:34 pm

CBO reminds me of the Climate commission. Assuming all our models are right, and no unknown factors affect the weather, we can tell you with a great deal of certainty what the climate will be in 100 years.


May 27th, 2010
6:40 pm

“Jobs maintained” just means layoffs that should have happened in 2009 will now happen in 2010 or 2011. Yippee!

It just means that states will be forced to deal with their gluttony in 2010 and 2011, not 2009. Double yippee! It changes nothing. It just kicked the can down the road a year or two.

Michael H. Smith

May 27th, 2010
6:49 pm

Ah c’mon Kyle, where is your faith in good old Enron accounting?


May 27th, 2010
11:55 pm

Peter @5:38 you need to crack open a history book and see which party started wars since the 1900’s OOPS guess your talking points once again don’t hold up under the facts


May 28th, 2010
4:09 am

It’s very interesting, Reagan gets credited with somehow enacting economic policies that were good for the country, despite hard evidence to the contrary. Now we see Obama prescribing this stimulus, (which many economics were worried wasn’t big enough), and despite empirical evidence that many jobs were saved, and (obviously) an indeterminable (for the reasons stated) number of new ones arose, & the economy stopped hemorrhaging jobs monthly, and is making definite forward progress those on the right would rather use their sour grapes to “whine” on about diddly mathematics, in a pathetic attempt to find something, anything, to complain about or blame on the president…

I’m not a Democrat, but I’m certainly no Republican, & I allowed our previous president to lead, actually thought he might come into his own, immediately after 9/11, but then saw him squander trillions in both worldwide solidarity & political/diplomatic capital, as well as literally, in terms of lives lost & maimed, materiel, and cold hard cash. Even when the candidate I didn’t vote for wins, he’s still my president, & as a good citizen, I will only judge him on actions & conditions he’s actually accountable for, not pile on the accumulated problems of our nation & the world, blaming them all on him, vilifying & obstructing him at every turn, in the pitiful, pathetic, and so very un-American manner those on the right have been acting…


May 28th, 2010
6:45 am

Peter, Back in the eighties when Georgia was in another bad drought, do you know what the dems did ? They held a prayer vigil on the statehouse steps. And lets not forget that if you want to find a dem candidate close to election day, one only needs to head to the nearest black church.


May 28th, 2010
8:10 am

It’s the “saved jobs” part of this stimulus effect that makes it unscientific and total nonsense.

Obama is a president, not a magician. The economy is going to have to recover on it’s own. Our growth in the past ten years was financed with easy credit which has dried up. People’s spending habits wont change, and if credit gets easy again then we’ll return to stellar growth. Another cycle of boom and bust complete. But the credit bonanza days are over as the banks themselves owe billions. Citi owes Uncle Sam 48 billion. Citi earned 4 billion last quarter. At that rate it will take years to pay off that debt. New regulations will require Citi to be more cautious when lending money. That will stifle growth.

Throw in Europe, and jobs growth looks poor. How long can Europe stitch together a fix for their productivity-challenged spending habits? How long will China back the Eurozone? (this economic assessment is dumbed down so that even a caveman can understand it, also, I made the whole thing up after watching CNBC for ten hours straight. BUY! )

Obama is not a magician.


May 28th, 2010
9:29 am

So I guess that the turnaround in jobs losses – from over 750,000 per month to an increase of 250,000 in the most recent – and the increases in the GDP, for example, are due to Sun spots, or spontaneous combustion, or natural selection, or God’s will, or something? You’re just like friends of mine that when confronted with the truth about anything remotely positive about things that Democrats and/or Obama try to do for the country, will say – Well you believe what you want to and I’ll believe what I want to…after all it’s just more Liberal lies.’ I mean if Obama were to announce that his administration had developed a way to turn horse-s**t into gold, Mitch McConnell would say, ‘well, we’ve already got plenty of gold in Kentucky, plus we need all the horse-s**t to keep the grass blue.’

Just understand, come November the vast majority of this country will have come to, finally, appreciate that all Republicans – and their drum-beaters – are trying to do is to keep a Democratic Administration and/or Congress from accomplishing anything, regardless if it’s in the best interests of the Country…and they’re gonna pay the price at the polls…maybe even in this bass-ackward state.

Kyle Wingfield

May 28th, 2010
10:21 am

Dirty, if you believe that the stimulus deserves credit for the very modest recovery that’s under way, based on the kind of estimates described above and despite the lack of any real evidence, then I would say you are just “believing what you want to.”


May 28th, 2010
11:18 am

I’m with Dirty. Can anybody prove the stimulus is the cause of the turnaround? No. Can anybody prove it isn’t? No. But look at the downward momentum the economy had before the stimulus was implemented, and the change that has happened since. True, this is only correlation, not proof of cause and effect, but what other major economic occurrence has taken place in this time frame which COULD REASONABLY explain the turn around? What else has changed? What is the more likely explanation? This is more than “believing what I want to”. Thinking the recovery is being fueled by optimism about a Republican resurgence in November 2010 would be a much better example of baseless wishful thinking.

As Dirty mentioned, there has been a net 1,000,000 job creation turnaround ( He didn’t give a source, so these numbers are likely ballpark).If this had been a “normal” recession instead of the deepest since the Great Depression (thanks again Republicans), a turnaround of that magnitude would have us in a booming job market right now. The “modest recovery” as you call it, is only modest in terms of where we are now in relation to a “normal” economy. Unfortunately, we didn’t start with a normal economy, or even a mildly recessed economy. There was a deep, deep hole to climb out of first. Even a 10 foot tall man looks short standing in a 9 foot deep hole.


May 28th, 2010
12:49 pm

saywhat? – if that’s the only correlating factor that explains the recovery, and nothing else has changed, what happens when Uncle Sam takes the punchbowl away? Or are you suggesting we just keep printing money forever?


May 28th, 2010
2:53 pm

Grumpy, I believe the theory is that the “punchbowl” has been spiked with grain alcohol (to use your analogy). It gets the party going, and once the fun has started, the liquid refreshment is no longer needed to sustain the mood.

I would be happy to hear what others seriously consider to be the motivating force(s) behind the current economic turnaround. I have heard some suggest that doing nothing would have had the same effect. This could be true, but wasn’t it that same “nothing” which got us into this mess in the first place? Why would one continue down that path and expect things to change for the better? It does not seem to be a reasonable suggestion.


May 28th, 2010
5:08 pm

It may not be needed to sustain the mood, but the next day the hangover is a killer. Are you ready for that hangover?


May 28th, 2010
5:27 pm

HA! I knew the hangover reference was coming, but I pushed on with the analogy anyway. However, we already suffered the hangover. This bowl of punch is just the hair of the dog that bit you.

Over at Jay’s is the graph from the Bush Whitehouse showing national debt as percentage of GDP. We are no where near as bad off as we were in the 1940’s, and we recovered from that. What makes you think we can’t do it again?

Lil' Barry Bailout

June 6th, 2010
3:28 pm

OK, so the $800+ billion stimulus didn’t create (or “save”) any jobs, but at least the Idiot Messiah got to pay back his political allies with all manner of taxpayer-funded handouts, freebies, and pork.

$800 billion wasted.

Heckuva job, Idiot Messiah!