“Jobs Saved” Estimates were Pre-Determined

The Congressional Budget Office announced last month that 1.5 million jobs were created or saved by the $862 billion stimulus package, a number many use to claim the stimulus worked, and therefore we need another one.

But the CBO’s numbers are based on an economic model that assumes government spending creates jobs.  Using a predetermined multiplier the model computes GDP growth for every dollar the government spends; this number is then converted into jobs created.

* Every $1 of government spending that directly purchases goods and services ultimately raises the GDP by $1.75;
* Every $1 of government spending sent to state and local governments for infrastructure ultimately raises GDP by $1.75;
* Every $1 of government spending sent to state and local governments for non-infrastructure spending ultimately raises GDP by $1.25; and
* Every $1 of government spending sent to an individual as a transfer payment ultimately raises GDP by $1.45.

Hence, the estimate of jobs created is identical to what the model predicted before the stimulus passed, and bears no connection to what actually happened.