Making Sense of Stimulus Spending

Summary
With the economy continuing to shed hundreds of thousands of jobs per month, Republicans are stepping up attacks on President Obama. They claim that the massive "stimulus" spending isn't working very well.

A Republican Party Web site classifies as "fiction" the president's repeated claim that the spending already has "saved or created" a total of 150,000 jobs, and accuses him of "fuzzy math."

The GOP has a point here. The fact is the economy has lost more jobs, and the unemployment rate is significantly higher, than the administration originally predicted would be the case if Washington did nothing. In fact, the original projections of Obama's economic aides have turned out to be off by a very wide margin.

The administration counters by saying the economy was worse than it realized at the time it was making its projections, and that the present jobs picture would be darker yet without the stimulus spending. In the analysis that follows, we lay out the facts and figures.

Analysis
President Obama has said that "the American Recovery and Reinvestment Act has saved or created nearly 150,000 jobs." That's always been a soft statistic, as we explained on the FactCheck Wire in May. The President's Council of Economic Advisers hasn't actually counted those 150,000 jobs. It's a rough projection based on calculations made before Obama even took office.

There's a lot of educated guesswork in the original document, dated Jan. 9. It was produced by Christina Romer, who is now chair of Obama's Council of Economic Advisers, and Jared Bernstein, who holds the title of "chief economist" to Vice President Joe Biden. The Romer-Bernstein study assumed (among other things) a "rule of thumb" that a 1 percent increase in economic output (measured by gross domestic product or GDP) roughly equals 1 million jobs. Those are pretty round figures. As the authors stated: "Our estimates of economic relationships and rules of thumb are derived from historical experience and so will not apply exactly in any given episode."

Not "Exactly"
They can say that again. As it has turned out so far, those estimates sure haven't applied "exactly," or even very closely.

The Obama team originally estimated, for example, that unless a stimulus plan was enacted, the unemployment rate would reach nearly 9 percent sometime in the first three months of next year, as shown by this chart, which we copied from the original Romer-Bernstein study:

But as things have turned out, even with the big spending package in place, the jobless rate shot up to 9.4 percent in May, according to the most recent figures from the U.S. Bureau of Labor Statistics. Here's how the real, monthly jobless figures look when plotted on the Obama team's own chart, with the red dots indicating the actual rates:

The second chart was created by "Geoff" at the Web site Innocent Bystanders. We've checked it and can vouch for its accuracy. The Obama team did not give the precise figures that lie behind their chart, and the chart is based on quarterly figures while the BLS figures are monthly. Nevertheless, this chart gives a reasonably good picture of how far off the Obama team's projections have turned out to be, at least so far.

Not surprisingly, Republicans are pouncing on this. Republican Rep. Darrell Issa of California and five other GOP members of the House Committee on Oversight and Government Reform signed a Jan. 11 letter complaining that the administration had used murky methods to support its claims. They accused the Obama team of using "creative models to produce speculative macroeconomic forecasts" and asked for detailed explanations of the "factors and theories" behind the administration's projections.

A  Republican Party Web page calls the 150,000 figure "fiction" and accuses the president of using "fuzzy math." House RepublicanWhip Eric Cantor of Virginia said during an interview on MSNBC Jan. 11: "[W]e were told that unemployment would not exceed 8 percent if we passed the stimulus bill. ... Well, now what we're seeing, obviously, is over 9 percent."

The White House Explanation
White House officials have a simple explanation for all this. They say President George Bush left them a worse mess than they realized when Romer and Bernstein came up with their predictions. White House Press Secretary Robert Gibbs and Bernstein laid this out in a press briefing on June 8. When asked about the discrepancy between his projections and the actual May unemployment figures, Bernstein said: