Pethokoukis, Economics, U.S. Economy

That Bernstein-Romer jobs chart: A final appraisal

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In January 2009, economists with the incoming Obama administration, Jared Bernstein and Christina Romer, devised an economic forecast that gamed out how the US economy would perform through 2013 with and without fiscal stimulus. The above chart is taken from that report. I have added the text in red.

(It is a chart most famous for its prediction that the jobless rate would never hit 8% if Congress passed the stimulus. Eventually, with the stimulus, the jobless rate topped out at 10%.)

On the surface at least, as I see it, the forecast was pretty wide the mark.

Obama White House defenders might point out that (a) the recession was worse than what the real-time data suggested, (b) outside shocks like the Eurzozone crisis slowed growth, (c) fiscal austerity here at home was also a drag, (d) economies tend to recover particularly slowly after financial crises.

I would counter thusly: (a) Team Obama almost certainly didn’t expect the labor force collapse so the forecast was even more bullish than it appears, (b) the aftermath of the financial crisis should have been no surprise, (c) the economy even had the added boost from historic monetary stimulus.

So what is the bottom line on the impact of the Obama stimulus on employment? Well, I think it is pretty tough to tease out the specific impact given everything else that was happening simultaneously from policy to macro forces that predated the downturn. Countless papers will be written and studies performed. But I sure would have preferred the fiscal stimulus been built around a big, fat investment tax credit with the Fed far more aggressive early on. I am even more sure that Bernstein and Romer wish they had never made that chart.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas

12 thoughts on “That Bernstein-Romer jobs chart: A final appraisal

  1. You should at least get your background facts correct. Romer’s predictions were based on her proposed substantially larger stimulus than what Obama & Summers ultimately agreed to.

    • Naturally.

      Since neither Ms Roemer’s dress size nor Paul Krughole’s ego were large enough to salvage this catastrophe, I’m certain you get a hall pass.

    • Incorrect. According to Section A (page 3) of the original report …

      “We have assumed a
      package just slightly over the $775 billion currently under discussion.”

  2. Or we could call ARRA the failure of the largest tax cut in history, $300 billion over two years vs .$174 billion and $234 billion in Dubyas ! and !!. In fact, look at the top 10 expenditures in the stimulus package. http://projects.nytimes.com/44th_president/stimulus

    Exactly one is infrastructure — $27B for roads and bridges. The other 9 are tax cuts or direct aid to states and individuals. Direct aid was another big piece of ARRA: extended UI and food stamps; cash payments to seniors; support for states in education and Medicaid and on and on. Putting money in the pockets of people who can spend it wisely? Been there; tried that. Didn’t work in 2009.

    The government spending part was a disaster, but it was far from a $787 billion disaster. We know that government shouldn’t do things quickly. Not the same as government shouldn’t do anything at all.,

    • Or we could call ARRA the failure of the largest tax cut in history,

      You could, but you’d be incorrect. Tax gimmicks that redistribute income are different from tax cuts that stimulate. Much of those so-called “tax cuts” went to people who don’t pay any income taxes in the first place.

      In short, it was the first of many Obama policies designed to take money from groups outside his coalition and hand it out to the mouths to feed within his coalition.

      • And naturally you are wrong. The biggest single piece, the $116B Making Work Pay tax credit wasn’t overly helpful to people who didn’t owe taxes, being a tax credit. Ditto for the $70 billion extension of the AMT, credits for buying cars and houses and paying college tuition. Toss in $30 billion in breaks for corporation and we are up to about $250B of the $300B in taxes. By contrast, the bill added $4.7B to EITC and waived $4.7B in taxes on UI benefits.
        The Making Work Pay credit by itself was bigger than direct federal spending. So, I guess we can say that only thing shovel ready about the tax cuts was the race to bury the money in the backyard.

  3. I love leftist porn star economics.

    The right creams even better. The CBO estimates that the little dick (“The Shrub”) Tax Cuts cost 4 times more than the big prick (“The Black Guy”) ARRA.

    • Marmico,

      The CBO estimates that the little dick (“The Shrub”) Tax Cuts cost 4 times more than the big prick (“The Black Guy”) ARRA.

      I do think Bush was wrong to take millions of people completely off the income tax rolls, leaving them with no skin in the game. And those tax cuts were surely revenue losers, no doubt about it.

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