Obama’s Top Economic Adviser Conceded ‘Considerable Uncertainty’ About Stimulus Jobs Claims

February 4, 2009 - 2:56 PM
The largest selling point to President Barack Obama's economic stimulus bill is the claim that it will create or save at least 3 million jobs. But the source for that number is a report produced by Obama's top economic adviser, which stated that the jobs estimate carried "considerable uncertainty."

President Barack Obama (AP Photo)

(CNSNews.com) – The largest selling point to President Barack Obama’s economic stimulus bill is the claim that it will create or save at least 3 million jobs. But the source for that number is a report produced by Obama’s top economic adviser during the transition period in early January, which repeatedly stated that the jobs estimate carried “considerable uncertainty.”
 
The estimate for the number of jobs the stimulus would create, the report said, is based on the “rule of thumb that a 1 percent increase in GDP (gross domestic product) corresponds to an increase in employment of approximately 1 million jobs or about three-quarters of a percent.”
 
The report, published on Jan. 10, was co-authored by Christina Romer, who was then the nominee to become chair of the White House Council of Economic Advisers, and Jared Bernstein, who then worked in the office of the vice president-elect. On Jan. 28, the Senate confirmed Romer as chair of the White House Council of Economic Advisers and Bernstein now serves as an economic adviser to Vice President Joe Biden.
 
The report is entitled “The Job Impact of the American Recovery and Reinvestment Plan.”  It estimated that Obama’s stimulus package would be worth about $775 billion and would have the effect of increasing GDP by 3.7 percent.  As a result, the report said, it would increase jobs by 3,675,000 by the 4th quarter of 2010.
 
But Romer and Bernstein warned that this estimate came with a “significant margin of error.”
 
“It should be understood that all of the estimates presented in this memo are subject to significant margins of error,” they said. “There is the obvious uncertainty that comes from modeling a hypothetical package rather than the final legislation passed by the Congress. But, there is the more fundamental uncertainty that comes with any estimate of the effects of a program. Our estimates of economic relationships and rules of thumb are derived from historical experience and so will not apply exactly in any given episode. Furthermore, the uncertainty is surely higher than normal now because the current recession is unusual both in its fundamental causes and its severity.”
 
The authors repeat later that, “as emphasized above, there is considerable uncertainty in our estimates: both the impact of the package on GDP and the relationship between higher GDP and job creation are hard to estimate precisely.”
 
The report’s conclusion says: “This study has sought to investigate the likely job creation effects of the American Recovery and Reinvestment Plan currently under consideration. As emphasized at many points in the analysis, there is substantial uncertainty around all of our estimates.”
 
Speaking Wednesday, President Obama again repeated the claim that the stimulus bill “can save or create more than 3 million jobs.”
 
“That’s why I feel such a sense of urgency about the Economic Recovery and Reinvestment Plan that is before Congress today,” Obama said. “With it, we can save or create more than 3 million jobs, doing things that will strengthen our country for generations to come.  It is not merely a prescription for short-term spending -- it’s a strategy for long-term economic growth in areas like renewable energy, health care, and education.”
 
The authors were not the only ones who were uncertain about the model being used to determine how many jobs would be created by the stimulus bill. Karen Campbell, macroeconomics policy analyst with the conservative Heritage Foundation, also has questions about it.
 
“Historically, the evidence has not really borne out that this works because there are a wide range of factors in stimulating the economy,” Campbell told CNSNews.com. “These might be worth investments, but should not be debated as stimulus. It might create jobs in the construction industry, but it is reallocating from other resources. Where are those jobs going to one industry going to come from?”
 
While the bill envisioned by Obama’s top economic adviser was valued at $775 billion, the bill that passed the House was valued at $819 billion, and the proposal currently before the Senate has exceeded $900 billion in value.
 
The Romer-Bernstein report estimates that construction would lead the way in gaining 678,000 jobs under Obama’s planned stimulus, since a significant part of the spending would be focused on highway infrastructure. Next came retail with 604,000 jobs, the hospitality industry with 499,000 jobs, manufacturing with 408,000 jobs, professional and business services with 345,000 jobs, financial  activities with 214,000, and education and health services with 240,000 jobs.
 
“The estimates suggest that 30% of the jobs created will be in construction and manufacturing, even though these industries employ only 15% of all workers,” says the report. “Both sectors have been particularly hard hit recently. The other two significant sectors that are disproportionately represented in job creation are retail trade and leisure and hospitality (mining is also represented disproportionately, but employs less than 1% of all workers).”
 
The report also says the stimulus would create 244,000 jobs in government
 
The Senate bill includes $165 billion for infrastructure and science, $153 billion in health care, $138 billion in education and training and $82 billion in spending for energy independence, all of which will go to job creation, according to a joint statement from Senate Finance Chairman Max Baucus (D.-Mont.) and Senate Appropriations Chairman Daniel Inouye (D.-Hawaii).
 
Lawrence Mishel, president of the liberal Economic Policy Institute said in a teleconference Wednesday that spending on infrastructure will work because spending money on a bridge will go not only to the construction itself, but also to the building suppliers. 
 
“More spending, no matter where it comes from, will create more jobs, whether it comes from consumers, the government or foreign countries buying our products,” Princeton Economics Prof. Alan Blinder said on the conference call.
 
But Eli Lehrer, a senior fellow at the Competitive Enterprise Institute, thinks the same number of jobs could be created with far less government spending, although he does not doubt that 3 million jobs can be created by the stimulus.
 
“It is a credible estimate, but for the amount spent, it is a terrible deal,” Lehrer told CNSNews.com.