During the Republican debate Monday night in Tampa, Florida, Governor Rick Perry (R–TX) said that President Obama’s $800 billion stimulus created zero jobs. CNN “fact-checked” this statement and determined it was false.
To review, in 2009 just before the stimulus was enacted, the unemployment rate stood at 7.5 percent. Today—two years after the unprecedented spending experiment—the unemployment rate is 9.1 percent. In fact, 1.7 million fewer Americans are working today than were employed when the stimulus was enacted.
Nevertheless, CNN decided that because the Congressional Budget Office (CBO) and other private forecasters claim that the stimulus created millions of jobs, it must be fact. According to CNN’s Tom Foreman:
So, in a nutshell, what the governor is saying is that the stimulus created zero jobs. But the Congressional Budget Office, which is very trusted here, says that’s just not the case. They say it’s between 1.4 and 3.3 million jobs were either created or saved by the stimulus program.
I realize that sounds squishy, because it’s a very broad range. But many independent economists also say there’s no question that jobs were created or protected by the stimulus spending. So as much as the governor would like to say his statement is true, when we look at it, we have to say, no, that is flat-out false. The stimulus did create some jobs, maybe not as many as they wanted, but it did create jobs.
CNN completely ignores, however, that the CBO arrives at its conclusion because of the opinions it inputs into its model. For example, rather than observing the actual economy, its economic models assume their own conclusion: The model simply inputs predetermined numbers into a formula and spits out a number of jobs that the stimulus (the American Recovery and Reinvestment Act, or ARRA) created. That’s the only way the evaluation can be done. As the CBO explains:
Although CBO has examined data on output and employment during the period since ARRA’s enactment, those data are not as helpful in determining ARRA’s economic effects as might be supposed because isolating the effects would require knowing what path the economy would have taken in the absence of the law. Because that path cannot be observed, the new data add only limited information about ARRA’s impact.
Thus, the very question of whether or not the stimulus created jobs depends upon one’s assumptions about the economy. And economists disagree on those assumptions.
For instance, Heritage economists as well as others (John Cochrane and Eugene Fama of the University of Chicago, for example) disagree with the CBO’s assumption that a dollar of government spending creates more than a dollar of total national income (the “multiplier effect”). That notion assumes that the government can inject new dollars — or unutilized dollars — into the economy, ignoring that government must first remove those dollars from the economy. Unless the government prints stimulus dollars (which it didn’t under the 2009 stimulus), the money has to come from somewhere.
Rather than declaring the CBO’s position as fact and accusing Perry of making false claims, it would have been appropriate for CNN to state that though the CBO and many private forecasters say the stimulus created jobs, some economists disagree and insist that Perry is in fact correct that it did create zero net jobs.