How do you measure Job Creation?
Many questions surround the job creation numbers put forth by partisan's in Washington, and primarily the rhetoric put forth by the Obama administration. As a result, the question we should be asking is where do these numbers come from and how might they be affected?
First of all, let me point out that the 3.5 million Jobs that the administration has settled on comes directly from a CBO analysis that determined that the stimulus plan could produce 3.5 million jobs. However, just like Paul Harvey would state, now let's hear the rest of the story...
Job numbers are determined by utilizing Economic "multipliers" built upon economic variables and historical re-creation. The margin of error built into these formulas is measured in the hundreds of thousands and even the millions. In layman's terms, an accuracy rate that mirrors your accuracy in predicting lottery numbers. Moreover, these multipliers are built upon historical data, which in many economic sectors just doesn't exist or existed during a period in which are economy was structurally different. For instance, within the Energy sector, the Economic Recovery and Reinvestment Act predicts the creation of 26,000 mining jobs nationwide. However, because these numbers are built upon historical impact studies taken during periods of continuous sector growth, the numbers are 'wishful thinking' at best. The creation numbers do not take into account the ongoing shriveling of this industry, the impact of environmental regulation promised by congressional and administration leaders, nor the unmeasurable impact of alternative energies. As a result, the question becomes how do you drastically expect the expansion of an industry that has consistently shed jobs due to an attack on domestic natural resources.
Along the same line, consider the tens of thousands of "Green" jobs promised by the bill. Those numbers carry an even greater margin of error, as there is no historical data available and the public's willingness to utilize such services cannot be measured. Additionally, take for instance the thousands of jobs expected to be created through the Energy Efficiency Tax Credits. On paper, the tax credit is attractive, but in reality successful creation of jobs within the industries affected by the tax credit are premised upon Americans making the decision to upgrade their homes with the qualified windows, air conditioning units or furnaces. The "multipliers" are unable to consider real world factors, such as: How likely are Americans to invest hundreds or thousands of dollars to replace their windows, AC units or furnaces in order to receive a 30% tax credit? That is unless they have no other choice.
The truth is that when you throw such a large sum of money at the economy it will inevitably create some jobs. However, the current administration, who have commended themselves for honesty, have failed to mention that their 3.5 million jobs are based upon the literal best case scenario. In reality, the non-partisan CBO report, which the administration has used for the estimation, actually estimated that in the best case scenario the bill would create 1.2 Million-3.5 million jobs in the short term (also warning of a negative long-term economic impact). The administration and congressional leaders have simply left off the lower end of that estimate for political gain.
Even more disturbing however, is the administrations allocation of Jobs across the United States, whereas the administration is promising specific numbers of jobs in each State with no empirical evidence to support such numbers. The "multipliers" used by the administration are based upon national historical data and census built demographics, without any regard to the economic or regulatory variables that exist from state-to-state. As a result, the administration basically extrapolated local impact based upon the current production of geographical areas. As an example, once again look at the mining industry. For hypothetical reasons lets assume that West Virginia accounted for 12% of the US mining production. Therefore the administration allocated 12% of the funding and theoretical jobs to the state of West Virginia. This extrapolation does not take into affect any regulatory or economic conditions that exist in that state. If you live in a state where the industry is dying out due to a lack of resources or regulation, these numbers are simply not attainable. As a result, money does not necessarily arrive in the regions where it will best be spent. For instance, let's assume that $6 billion dollars (not an actual figure) was to flow into the mining industry within West Virginia, a state that is friendlier to the industry and which has seen an increase in it's percentage of national production. On the other hand, let's assume $1 billion was to flow to the mining industry in California, which has consistently shed jobs within the industry and chosen to push the industry out of the state. The national job estimates do not factor in the regional variables, as a result, the money allocated to California is less likely to produce as many jobs as if a larger share of the money were re-allocated to West Virginia.
Even more detrimental to the reliability of the government produced Job numbers are the real-world variables that the administration cannot account for. For instance, the administration has openly tauted that the Economic Recovery and Reinvestment Act will create 400,000 jobs by investing billions in infrastructure and technology (broadband) industries. However, the 'multipliers' used to determine these numbers cannot account for real world variables, such as the economic responsibility of most small business owners. For instance, assume that you were a road contractor and as a result of this stimulus plan your company received a contract to repave a substantial amount of roadway. The government, based upon the amount paid to you automatically assumes that you will now create new jobs. However, as a business owner, you have a responsibility to make decisions that look beyond a single contract and do not put your business or current employees at risk. As that business owner, you are going to consider the fact that this influx of cash is only temporary, with no reasonable assurance that long-term growth is achievable within the industry. As a result, these business owners will first and foremost try to maximize the production of their current employees and only hire new workers on an as needed basis, setting aside billions for a rainy day. With economic uncertainty looming, every industry and business will operate in this mode. Unfortunately our government is unable to comprehend that concept, considering that they spend every tax dollar and more that flows in the door.
The important thing for all Americans to recognize is that the rhetoric out of Washington is based upon the 'best case scenario' when it comes to job creation; and even then the 'best case scenario' isn't all together reassuring. If a single variable should occur when real world principles meet the government's hypothetical 'multipliers', the results could mean far fewer jobs than what the administration is promising. If the government's best estimate provides for a margin of error of 2.4 million jobs then perhaps it would have been smarter to pass this stimulus through a series of smaller targeted appropriations rather than a single all-encompassing bill. All things considered, a single economic, political, human behavior or other variable could throw the estimate off by hundreds of thousands of jobs; and there is one variable that could be the most detrimental: If financing of $1 trillion dollars cannot be found, will our government turn to the even worse option of simply printing the necessary funds?
We provide the facts and monitor the spending; we'll let you draw your own conclusions.
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