Wednesday, December 11, 2013

When the CBO lies By Rick Kelo

When the CBO lies
By Rick Kelo

While researching another article I was reminded of something quite concerning that escapes the notice of mainstream news.  First though let me just say that the worst behavior any government bureaucrat can engage in is to mislead the citizenry who employs them.  Despite the special trust & confidence that has been reposed in them that is precisely what the CBO has done.
Imagine for a moment that you hire a personal financial adviser.  You meet and he tells you that in 2 years your $100,000 you've given him to invest will have grown to $150,000 based on the estimation model in front of us.  You meet again 2 years later.  Now he tells you: based on my estimation model from 2 years ago your money is now worth $150,000.  
At this point you would probably ask the question: ok that's how much you said it would be worth, but how much is it actually worth?  
Now let's take this story a step further, to the step the CBO took it.  After 2 years of having your money the investment adviser sends you a written statement declaring that your investments are now $150,000.  Hidden in the statement after that announcement is a carefully crafted sentence by the crooked adviser's lawyer written in the most confusing language possible which you will never understand.  That confusing sentence says "it grew by $50,000 based on what I told you 2 years ago if my model from 2 years ago had turned out to be accurate."

Below is the picture President Obama's economists portrayed of what would happen to unemployment if we did not have the 2009 stimulus.   
Romer, Bernstein, 1/2009.  Source.

The CBO arrived at similar conclusions: 
In the absence of any changes in policy…[t]he unemployment rate is forecast to rise above 9 percent by early next year. ~ CBO, January 2009 (Source) 
Except that we did not get the promised unemployment of 7% WITH stimulus the Obama team promised.  We did not get the 9% unemployment without stimulus the CBO team promised.  America got an unemployment rate of 10% WITH the stimulus.  
Simply put the stimulus produced no effect on employment.  The projected jobs created by the stimulus never appeared.  Just like Bush's stimulus bill.  Just like Bush's first stimulus bill in 2001.  Just like Ford's stimulus bill in 1974.
Perhaps frantic efforts to conceal the truth that we just flushed $1 trillion down the toilet next led to one of the greatest myths of this current economy: the CBO's statement that stimulus worked and created 3 million jobs.  This myth is an accepted fact to most, but it shouldn't be given that many jobs would be something like ~3% of all jobs in America and none of us can identify even a single one of them.  
People came to believe those jobs were created because the CBO made a grand announcement that:
CBO estimates that ARRA’s policies had the following effects in the second quarter of calendar year 2010: Increased the number of people employed by between 1.4 million and 3.3 million
(Source: CBO, August, 2010).
The myth of the CBO's 3 million jobs is propagated by people who scan & grab a headline but do not analyze how that conclusion was reached.  When you actually look at how the CBO reached that conclusion they took the same formula they used in January, 2009 to predict the effect of the stimulus.  They then re-multiplied it with the actual levels of spending.  So, just like my example of the crooked investment adviser, the CBO took a forecast and re-did the forecast, then proclaimed that forecast was what happened.
The forecast was for 3.3 million jobs so they just announce it created 3.3 million jobs.  Totally dishonesty!  There were no jobs created, only a projection that X amount of spending SHOULD result in Y amount of jobs created.  So instead of being honest and admitting this theory doesn't work the CBO decided to instead state the theoretical outcome as a fact & the actual outcome!  Translation: you were lied to America.
The CBO actually believes you are dumb enough you wouldn't notice that about 3% of all the jobs in the economy were supposed to be created by this program in just one quarter when, in reality, there were only 600,000 jobs created that entire quarter and none of them from stimulus.  What's more in the entire 51 months we have final jobs data on since the stimulus was enacted (Feb 2009 - April 2013) there have only been 1.8 million cumulative jobs created TOTAL!  That's over 51 months.... a big difference from 3.3 million jobs created in 3 months isn't it?
Let me break this down & translate it for you.  Here's the full CBO announcement; in plain English it translates to say: 
  • The stimulus created 1.4 million to 3.3 million jobs (the quote above you've already seen)
  • Next paragraph: the stimulus didn't actually create those jobs, but we estimated before the stimulus (in Jan, 09) that it would create them.
  • We've just taken the same multiplier as then, multiplied it by the actual spending and are announcing our year old estimate as fact now because most of you aren't smart enough to translate our gibberish and realize we just pulled a carnival shell game on you.
CBO’s current estimates reflect small revisions to its earlier projections of the timing and magnitude of changes to federal revenues and spending under ARRA. They also reflect, for 2011 and 2012, a small shift in CBO’s assumptions about the future actions of the Federal Reserve.
(Source: CBO, August, 2010). 
READY FOR THE REAL KICKER?  This is the next paragraph.  It translates: we looked at the real data and it didn't show any jobs created so we disregarded it and instead republished our estimates from before the stimulus, but stated them as facts this time even though they're really only estimates:
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.
(Source: CBO, August, 2010).

No comments:

Post a Comment