The “Things Would Have Been Worse” Excuse

The University of Chicago’s Casey Mulligan has a great post and an interesting chart over at the NYT’s Economix blog:

Here is the thrust of his argument:

  • In promoting the Stimulus, the Administration had assumed an employment multiplier such that for every 10 people hired under the Stimulus, another 6 jobs would be created. Thus, they said that if the law passed, the unemployment rate would be down to 7 percent by now.
  • The fact that the unemployment rate is still around 10 percent means one of two things: a) the stimulus didn’t work, or b) the stimulus did work and the recession was simply much worse than the Obama Administration thought.
  • This spring, the Census hired a bunch of new workers, providing a fresh opportunity to test the fiscal stimulus hypothesis. At the same time that the Census went on its hiring binge, non-Census worker employment seems not to have budged much at all.
  • Professor Mulligan then does something very clever: He takes the Administration at its word. He assumes—as they do—that for every 10 government employees hired, another 6 jobs were created. In order to reconcile this assumption with the fact that overall employment didn’t increase much at all, he concludes that the economy must have been hit (once again!) with some extraordinary countervailing contraction right at the very time that this government stimulus was taking place. What terrible luck! 

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