March 26, 2009
Thursday

It's a statistic President Barack Obama and his administration cite often to make the case for their economic recovery package: The plan, they argue, will create or save 3 million jobs.

But economists say jobs forecasting is a tricky exercise that is sometimes just a sophisticated guessing game. And some believe the Obama administration's numbers are overly optimistic, if not flat-out wrong.

"I don't disagree that jobs will be preserved and created in the Obama plan," said Bill Beach, an economist at The Heritage Foundation, a conservative think tank in Washington.

But, "I don't think they used the right approach," Beach said. "I think it's sloppy work. It will serve them badly."

California economist Mark Schniepp said the White House's job projections appear to be "politically motivated" and show "much greater success and results than what we believe is actually feasible or practical."

"These numbers just seem too big," said Schniepp, who heads the California Economic Forecast, a private research firm near Santa Barbara.

The jobs predictions cited by the administration are based on an analysis by Christina Romer, chairwoman of the White House Council of Economic Advisers, and Jared Bernstein, the top economic adviser to Vice President Joe Biden.

Romer and Bernstein looked at how government spending and tax cuts would impact the economy. The economic model they used indicated that every dollar of government spending would increase the gross domestic product by $1.50. They then projected that would trickle down and cause businesses to hire more workers.

Based on their research, Romer and Bernstein predicted that 1.5 million jobs would be created directly over the next two years and another 2.2 million would be created as an indirect result of the economic recovery package or stimulus plan, as it is commonly known.

The jobs would be spread across the construction, manufacturing, retail trade, leisure and hospitality sectors, which employ large numbers of low- and middle-income workers who have suffered greatly in the current recession, Romer and Bernstein said.

But even they conceded that the projections come with a caveat.

"It should be understood that all of the estimates presented in this memo are subject to significant margins of error," they wrote in a report released in January.

Other economists have cast doubt on the numbers, in part because economic models used to project job creation don't take into account the cause and the severity of the current recession.

"This recession has at its heart a financial collapse, and models are based on historical data," Beach said. "None of the models go back more than 1960, and we've only had one financial collapse in that period. That was in 1987. These models are not well informed by the kind of recession we are in right now, so they are not going to have a high level of accuracy.''

Beach used a different economic model and concluded that the Obama recovery package would create or save 1.2 million jobs, roughly half of what the administration projected.

Regardless, "I'm not going to hold the Obama administration to their estimate," Beach said. "I think if they get 2 million jobs, they are doing really well. That's a good result."

To get another picture of the recovery package's impact, White House economists broke down their projections by industry and relied on Census figures, such as working-age population and the industrial makeup of a particular area, to come up with jobs-creation estimates for each state and congressional district.

But other economists warn that jobs projections are far less reliable when broken down by sector or region because frequently there is little data on which to base such estimates and the data that is available can be sketchy or inaccurate.

"When you get into the nitty-gritty detail of these programs and try to trace the effects by industry or by state or by substate region, that is where the modeling is fraught with huge error," said Matt Murray, an economist at the University of Tennessee in Knoxville.

Schniepp, of the California Economic Forecast, puts it more bluntly.

"To project job gains by congressional district is absurd," he said. "That's just a political way to state it so that the (congressional) representatives can take credit. It really doesn't mean anything from an economic standpoint."

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