Oversight Report Doubles Down On Stimulus Inaccuracy

September 08, 2011 6:00 pm ET

Rep. Issa's (R-CA) House Oversight Committee has issued a extensively titled report, Doubling Down on Failure: Before Asking for a New Stimulus Package, Will the Obama Administration Admit that the First One Failed?, which cites a debunked study from Ohio State University to make the claim that the American Recovery and Reinvestment Act of 2009 "destroyed" one million private-sector jobs.

Oversight Claim: Stimulus Destroyed One Million Private-Sector Jobs, "'Protected' Government Jobs

Oversight Committee Cites An Ohio State University Study Claiming The Stimulus "Destroyed/Forestalled One Million Private Sector Jobs." From the report:

A study from Ohio State University in May 2011 found that instead of creating jobs, the Stimulus "destroyed/forestalled one million private sector jobs" but did, however, protect 450,000 jobs in the government sector. At the state level, instead of boosting private sector employment, the program supported paying off state revenue shortfalls and Medicaid increases. [House Oversight Committee, Doubling Down On Failure, 9/08/11]

The Ohio State Study Has Been Thoroughly Dismantled By Economists

Nobel Laureate Krugman Dismisses "Stupid Stimulus Tricks." In a post titled "Stupid Stimulus Tricks," Nobel Prize-winning economist Paul Krugman addressed shortfalls in the Ohio State report, writing that it was "being seized on by people who have no idea what the issues are with this kind of estimation." Krugman addressed the report's effort to "estimate the effect of the stimulus by looking at cross-state comparisons," and explained:

To tease any effect of the stimulus out of these interstate differences, if it's possible at all, would require very careful and scrupulous statistical work -- and we'd like to see some elaborate robustness checks before buying into any results thereby found.

The latest anti-stimulus paper shows no sign of that kind of care. It makes no effort to control for the differential effects of bubble and bust. It uses odd variables on both the left and the right side of its equations. The instruments -- variables used to correct for possible two-way causation -- are weak and dubious. Dean Baker suspects data-mining, with reason; the best interpretation is that the authors tried something that happened to give the results they wanted, then stopped looking.

Really, this isn't the sort of thing worth wasting time over. [The New York Times, 5/18/11]

Economist Dean Baker: "With An Exercise Like This, You Always Have To Worry About The Problem Of Cherry Picking." Dean Baker, an economist and the co-director of the Center for Economic and Policy Research wrote:

With an exercise like this, you always have to worry about the problem of cherry picking. It is very easy to run 1000 regressions in an hour. Inevitably, you find 4 or 5 of these 1000 that show you almost anything. (Our standard of significance is a result that you would not get by random chance more than 10 times in a hundred. This means that if you ran 1000 regressions of things that had nothing to do with each other, you would expect 100 of them to have statistically significant results.)

For this reason, you usually want to run your regressions a variety of different ways to show that the results do not depend on some arbitrary specification. It doesn't look like they have done this, or at least they did not show much evidence of such robustness tests in their paper.

Their results depend on pulling out four private sector industry groups (lumped together) and measuring the stimulus against trend job growth in these industries. Even for these four industry groups , most of the results are only marginally significant. It is clear from their tables that if they took all private sector jobs, their results would be insignificant. So, how did they decide on lumping these four industry groups together? It certainly is not a standard break out. It does raise a suspicion that they ran many different regressions and then discovered that they got the results they wanted with these four industries lumped together.

There are many other peculiar items here. [Center for Economic and Policy Research, 5/17/11, emphasis added]

Experts Agree That The Recovery Act Saved Jobs

Since June 2009, The Private Sector Has Gained Over One Million Net Jobs. According to Bureau of Labor Statistics data, there were 107,936,000 private-sector jobs in June 2009. As of August 2011, the most recent report available, the data show that total is up to 109,170,000 — a net gain of 1,234,000 jobs in the private sector. [BLS.gov, accessed 9/8/11]

CBO: The Recovery Act Increased Employment By Over 1 Million Jobs. An August 2011 report by the nonpartisan Congressional Budget Office (CBO) estimated that the American Recovery and Reinvestment Act "[l]owered the unemployment rate by between 0.5 percentage points and 1.6 percentage points" and that the recovery bill "[i]ncreased the number of people employed by between 1.0 million and 2.9 million" during the second quarter. [Congressional Budget Office, August 2011]

CBO: The Recovery Act Raised GDP. The same CBO report estimated that the recovery act "raised real (inflation-adjusted) gross domestic product (GDP) by between 0.8 percent and 2.5 percent." [Congressional Budget Office, August 2011]

As Recovery Act Took Effect In Summer 2009, Economy Shifted From Job Losses To Job Gains

The Economy Shed Almost 8 Million Jobs Under Republican Policies Before The Recovery Act Could Affect The Economy. According to economist Robert J. Shapiro:

From December 2007 to July 2009 - the last year of the Bush second term and the first six months of the Obama presidency, before his policies could affect the economy - private sector employment crashed from 115,574,000 jobs to 107,778,000 jobs. Employment continued to fall, however, for the next six months, reaching a low of 107,107,000 jobs in December of 2009. So, out of 8,467,000 private sector jobs lost in this dismal cycle, 7,796,000 of those jobs or 92 percent were lost on the Republicans' watch or under the sway of their policies. Some 671,000 additional jobs were lost as the stimulus and other moves by the administration kicked in, but 630,000 jobs then came back in the following six months. The tally, to date: Mr. Obama can be held accountable for the net loss of 41,000 jobs (671,000 - 630,000), while the Republicans should be held responsible for the net losses of 7,796,000 jobs. [Sonecon.com, 8/10/10, emphasis added]

Private Sector Has Added Jobs For 18 Consecutive Months. Steve Benen of the Washington Monthly prepared a chart showing monthly private-sector job growth since December 2007:

[Washington Monthly, 9/2/11]

Since Summer 2009, The Private Sector Has Added 1.2 Million Jobs While The Public Sector Has Shrunk. Political Correction prepared a chart based on Bureau of Labor Statistics data showing cumulative job gains and losses in the public and private sectors since summer 2009 (click to enlarge):

click to enlarge

[BLS.gov, accessed 8/14/11; BLS.gov, accessed 8/14/11]