Tuesday, November 24, 2009

The Inexact Number Of 640,329

Caroline Baum notes that Obama, when asked about the dubious quality of the estimates of the number of jobs created or saved by his plan, replied "this is an inexact science".

For once, I agree with Obama. Estimating the exact number of net job gains or losses caused by a particular science is impossible, and involves a very large margin of error even for more rough estimates. But as Baum also notes, Obama's economists do not agree. They claim that exactly 640,329 jobs have been created or saved by the stimulus plan

This estimate of course comes from the same economists who before the stimulus plan was implemented said that without the stimulus, the unemployment rate would be 9% right now, whereas the actual number with the stimulus is 10.2%.

And the Keynesian models used for such estimates usually do not consider the various factors which reduce the effects of increased government spending, such as higher interest rates, higher prices or a higher trade deficit.