Can we ever know how many jobs the Obama Administration has saved?

Can we ever know how many jobs the Obama Administration has saved?

Almost two months ago, President Obama set a specific employment goal for his Administration:

I think my initial measure of success is creating or saving 4 million jobs.

It is clear that this “create or save” phrase is now a standard and important part of the Administration’s economic message.

Greg Mankiw quickly identified both the quantitative ambiguity and political creativity in defining the goal in this way. Now that we have a couple of months of data, I’d like to reprise Greg’s post with a concrete example of why this is a misleading metric that is vulnerable to manipulation.

The Bureau of Labor Statistics reported the following on Friday:

Nonfarm employment level, January 2009 134,333,000
… plus change in February -653,000
… plus change in March -661,000
… equals nonfarm employment level, March 2009 133,019,000
Net change in Obama Administration -1,314,000

You can see that the U.S. economy has lost a net 1.314 million jobs since January. Let’s look at it graphically:

net job loss since January 2009

The traditional way to measure jobs “created” or “lost” is by taking the change between the starting point and the ending point of your timeframe. I have displayed this in red on the graph. Administrations are always judged (at least by the press) based on the change in the level of employment from January 20th in their first year to the current level.

I think the traditional way is a poor metric because political and business cycles don’t line up. I will expand on this further in a separate post about starting points, and whether it’s fair to assign blame or credit to the Obama Administration for jobs lost in the first two months of their Administration.(Hint: It’s not, but it is always done so they are stuck with it.) For now I want to focus on the “or saved” point. We start with the factual statement that the U.S. economy has lost a net 1.314 million jobs since the beginning of the Obama Administration.

Suppose, however, that you had anticipated the situation would be even worse. Suppose you had thought that the employment level would be down to 132.5 million in March, rather than the actual 133.0 million. I’ll draw this as a new yellow line on the same graph and label it the “counterfactual baseline.” This is what you could argue you think the employment situation would have looked like, had no new policies been enacted. I should emphasize that the specific yellow line I show here does not represent any numbers cited by the Obama Administration. I have chosen these illustrative numbers to explain the concept.

net job loss since January 2009 with counterfactual

The green line shows actual employment, and it includes the effects of policy changes enacted over the past two months. The yellow line represents the “counterfactual” – what you think (or claim) employment would have looked like had your policies not been enacted. You could argue that the 133.019 million people employed in March is 519,000 more people than would have been employed had your policies not been enacted. (Again, I emphasize so that nobody misconstrues me: I have chosen the numbers for the yellow line to illustrate the concept.) You would be trying to “frame” the numbers by measuring the positive orange change, rather than the negative red change.

In a world with no politics, that could be legit. I hope that the Administration’s policy changes will increase employment to be above what it would otherwise be, had those policies not been enacted. I did not like the so-called “stimulus” bill, and have big questions about the magnitude, efficiency, and timing of the economic benefits, but there is no question on the direction: these policies should be positive for employment, although over a much longer time period than that covered by this graph.

The problem is that the Administration can draw the yellow line anywhere they want it to be. Since the number of jobs “saved” (orange) is the difference between the green and the yellow lines, if you let me draw the yellow line, I can make the orange number as big as I want, and later claim credit for a large number of jobs saved. I would be arguing, “Sure things are bad. But I saved ____ million jobs from where it would have been had we done nothing. I would not be able to prove that this number is correct, but you could not disprove it either.” That’s why it is politically clever. It is specific, can be asserted, and can never be disproven.

As Greg wrote in February:

You can measure how many jobs are created [or lost -kbh] between two points in time. But there is no way to measure how many jobs are saved. Even if things get much, much worse, the President can say that there would have been 4 million fewer jobs without the stimulus.

This makes intuitive sense if you think about it on the personal level. If someone was unemployed on January 20th and they have a job on July 20th, you can understand why it would seem reasonable to count that as one additional job created since the beginning of the Obama Administration, even though policy may have had nothing to do with it.

If you had a job on January 20th, however, and you are in that same job on July 20th, does it seem reasonable to count your job as having been saved by the President’s policies? Maybe it was, but it is easy to see how that could be gimmicked by someone with a political incentive to make the numbers look good. How many of the 134.3 million people who were employed on January 20th would otherwise have lost their job? We’ll never know. A policy wonk would say that “you can neither prove nor disprove the counterfactual.”

You could correctly point out that the Administration has published an economic forecast that implicitly contains projections for employment, so we could at least hold the Administration to the yellow line they implicitly defined when they released their economic forecast in late February. The problem is that these official forecasts get updated every six months, and so the yellow line moves around. It will be impossible to tell how much of the yellow line’s movement from the February forecast to the July revision is legitimate changes in forecasting, and how much is political shading by an Administration that knows it will be judged on this metric. Note that I am not accusing this Administration of biasing their forecast, but instead trying to show that “or save” is an unreliable and misleading metric. We need a reliable factual metric that cannot be gimmicked or manipulated by political advocates from either side of the partisan fight.

The New York Times slipped the President’s phrasing into an editorial on Saturday that argued for even more spending and expansion of union-friendly policies:

It is painfully clear, however, that the law’s potential to create or save a few million jobs will not be enough to combat the current scale of unemployment.

Let’s return to the President’s statement from February 9th. Can we measure that?

Had he said that his Administration would create 4 million jobs, then we would have a simple metric: 134.3 million + 4 million = 138.3 million. Each month, we could compare the nonfarm employment level to 138.3 million to see if it was higher or lower than that goal.

Suppose, however, that a year from now this numbers is instead 133.3 million. If we measure this the way it has been measured for at least the past two Administrations, a fair reporter would write that “the economy has lost a net 1 million jobs since President Obama took office.” But the Administration could argue that employment would have been 129.3 million, and that they therefore saved 4 million jobs. And nobody could prove them right or wrong.

“Create or save” is unreliable and vulnerable to manipulation. Any time I hear it, I know that I am being spun.

21 responses

  1. Hi there,

    How important is the wording in a statement of intent? Doesn't your constitution have somewhere that it's ok to shoot your neighbor — do you shoot your neighbor? Wasn't eastern Europe supposed to be "popular democracies" — what matters more: words or actions?

    Do you know how to translate "free markets" into Chinese? is it "unfettered"? is it "unregulated"? is it "wild"? Some markets are more "free" in China than they are in the US, does that make China the model to follow?

    The Bush administration repeatedly stated that it cared about deficits and debt, but they didn't do a great job with that, did they? Obama at least is telling the truth about this particular aspect of his policy.

  2. Pat,
    i think you are misguided about the content of our constitution.

    And, you are right about the importance of actions vs words when it comes to sustaining free market principles. I think that in any case, removing text that upholds the right to private property and the rule of law is worrisome in any context, crisis or otherwise.

  3. "Doesn't your constitution have somewhere that it's ok to shoot your neighbor"

    Rarely does one have the oportunity to read a comment that tries so hard to tarnish any intellectual value it may add by the mindless toss-off of needless and easilly debunked hyperbole. Congratulations, Pat, I guess.

  4. Actually, a claim of saving 4 million jobs can be disproven. If we lose another 130,000,000 jobs, there will be less than 4 million jobs total. I sure hope that doesn't happen. Of course, if I'm one of those 4 million, I'll likely be one of the only people who can afford to buy anything (not that there'd be anything to buy, or, if there was, that people wouldn't just be fighting for it).

  5. Pingback: Create OR Save Jobs? « A Conservative Wanderer

    • Monetary stimulus is usually preferred over fiscal stimulus because fiscal stimulus has a delay in implementation. There is no help but for stimulus passed today to carry into 2010. This is why it was stupid for Bush to block fiscal stimlus last year. The large increase in unemployment we have today could have been tempered if Bush would have done the decent thing instead of being a total elitist tool. Fiscal stimulus is important now because monetary policy is in liquidity trap. Plus, the way out of the current downturn is to pump money into the lower rungs of the economic ladder. Monetary policy has a much tougher time with wealth transfer than fiscal policy.

  6. Actually there is a more fundamental problem with this.

    Suppose I had said on Jan 1st of 2004 that I had a new policy that would create 2 million jobs over the next year. It is as follows: I will turn around three times and click my heals. Judged by the metric of jobs created, my policy should be rated a success. By Jan 1st of 2005 the economy did indeed have 2 million more jobs.

    However, I think that most of us believe it unlikely that the policy was responsible for those jobs.

    In short, one never has the counterfactual, the addition of the term saved does not change that.

    In all cases one is basing success or failure on comparison to a forecast.

  7. Pingback: Secondary Sources: Timid Treasury?, Jobs, Inflation, Green Shoots - Real Time Economics - WSJ

  8. I am inclined to agree with Marcus … jobs alone are not a good measure. Should all jobs — at all pay levels, at all skill levels, in all industries — count the same? Indeed, I have thought each time I have heard an official from the Administration or a member of Congress tout those millions of new jobs, "Oh geez, don't promise that!" Given the complexities of the economy, it would be nice if we could avoid oversimplification, especially when those statements are potentially misleading. (I know. I know. I'm politically naive.)

    I would like to ask:

    1. What about the supposed multiplier effects of public investment? Setting aside exactly when the various forms of stimulus will reach the economy, is it not fair to estimate job creation based on dollars spent?
    2. Would Jeanne B (or KBH) say it is legitimate for the Administration to take credit for "saving" auto jobs in Detroit and beyond?

  9. Pingback: » Blog Archive » Secondary Sources: Timid Treasury?, Jobs, Inflation, Green Shoots

  10. It's amazing how many right-wing economists *now* don't like the idea of counterfactuals, or ceteris paribus, or looking at forecasts. Perhaps one could consult with James Heckman or Donald Rubin to understand such things.

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  12. Pingback: » Blog Archive » Secondary Sources: Timid Treasury?, Jobs, Inflation, Green Shoots

  13. Obviously, the refusal by Bush to enact more fiscal stimulus in 2008 was a huge mistake that made his failure even worse.

    You should at least start counting from Jan 20 instead of Jan 1.

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  19. Perhaps it would have been wise for the Obama Administration to enact a stimulus designed to create jobs now rather than after 2010. The bloated "Stimulus" passed in secrecy and in great haste was a travesty. The President should roll it back and design a real stimulus package before unemployment hits over 10%.

  20. I've met Donald Rubin and he is misguided on counterfactuals. One could consult Philip Dawid to understand such things.


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