Economists Dismantle Conservative Media's Latest "Stupid" Attack On Stimulus
Research ››› ››› LESLIE ROSENBERG
The right-wing media is hyping a study that attempted to measure the state-by-state unemployment effects of the stimulus, to claim that the bill actually destroyed jobs. But economists, including Nobel laureate Paul Krugman, have raised questions of "cherry picking" and dismissed the study's findings.
Right-Wing Media Cite Study To Claim Stimulus Destroyed 1 Million Jobs
RedState: Study Shows "Stimulus Destroyed/Forestalled 1 Million Private-Sector Jobs." A May 16 post on the blog RedState promoted a paper written by Timothy Conley of the University of Western Ontario and Bill Dupor of The Ohio State University. The post claimed Conley and Dupor's paper demonstrated that the American Recovery and Reinvestment Act "actually destroyed/forestalled 1 million private sector jobs." [Red State, 5/16/11]
Fox's MacCallum Says "Exhaustive Study" Proves That "The Trillion Dollar Stimulus" "Cost More Jobs ... Than It Created." Fox News' Martha MacCallum claimed, "There's a brand new verdict when you take a look at the research that has been done by a university study that is just out on President Obama's stimulus plan and what it really did for jobs in the United States." MacCallum continued:
This is an exhaustive study done by two economists, and it says basically that the plan saved -- you remember the, you know, sort of "saved or created" moniker there -- that it saved 450,000-government sector jobs. But this study says that it actually destroyed or delayed 1 million private-sector jobs. Meaning that at the end of the day, this effort cost more jobs -- the trillion dollar stimulus -- than it created. This is a hugely controversial study that is out there, and it has some incredible implications. [Fox News, America Live, 5/18/11]
Fox: "New Report Reveals Stimulus Destroyed Private Sector Jobs." During the America Live segment, the following on-screen graphic aired:
[Fox News, America Live, 5/18/11]
But Economists Have Raised Questions Of "Cherry Picking" And Dismissed The Study's Findings
Nobel Laureate Krugman Dismisses "Stupid Stimulus Tricks." In a post titled "Stupid Stimulus Tricks," Nobel Prize winning economist Paul Krugman addressed shortfalls in Conley and Dupor's paper, 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 paper'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]
Noah Smith: "Given The Lack Of Any Statistically Significant Findings, This Paper Does Not Deliver The Results That It Advertised." Noah Smith, a University of Michigan graduate student in economics, wrote in a blog post:
But, given the lack of any statistically significant findings, this paper does not deliver the results that it advertised. Conley and Dupor's abstract should read "We find no evidence for a significant effect of the ARRA on job creation." That would be scientifically honest, but would not turn a lot of heads. Instead, the abstract makes the more politically incendiary claim that the ARRA destroyed jobs, which the authors actually did not find." [Noahopinion, 5/14/11]
Non-Partisan Studies Have Repeatedly Demonstrated The Stimulus Saved Jobs
CBO: Stimulus Has Raised Employment By 1.4-3.6 Million. A November 2010 report by the nonpartisan Congressional Budget Office (CBO) estimated that as of the third quarter of 2010, the stimulus lowered the unemployment rate "by between 0.8 percentage points and 2.0 percentage points," and "[i]ncreased the number of people employed by between 1.4 million and 3.6 million.[Congressional Budget Office, 11/2010]
Private Analysts Estimate That Stimulus Increased Employment By 2.1 To 2.5 Million. In its fifth quarterly report on the Recovery Act, the White House Council of Economic Advisors provided the following chart showing that private forecasters estimate that as of the third quarter of 2010, the stimulus increased employment by between 2.1 and 2.5 million:
[Council of Economic Advisors, 11/18/10]