That Tireless Cruncher of Numbers…

September 9th, 2011 at 11:50 am

…Mark Zandi must have been up late feeding the American Jobs Act into his macromodel, because after too little rest, I wake up to find his analysis of the jobs plan in my inbox.

Here’s his projected impact of GDP and jobs:

“–President Obama’s jobs proposal would help stabilize confidence and keep the U.S. from sliding back into recession.

–The plan would add 2 percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.”

Here’s the punchline in a graph.  As I’ve stressed, if we, and by “we” at this point, I mean Congress, we should expect unemployment to be where it is a year from now if not worse.  If we enact the AJA, it will be something like a point lower than that.

Source: Zandi, Moody’s Analytics

I’m afraid it’s really that simple.  The Recovery Act along with monetary stimulus helped move the economy from sharp reverse to slow growth.  But the depth of the downturn, the persistent job and paycheck weakness, the still depressed housing market, and the ongoing deleveraging of household and bank balance sheets, meant that as the Recovery Act and assorted Fed actions fade, slow growth downshifted to neutral.

It is not that these measures have not worked.  It is that they stopped to soon.  The AJA keeps them going and that’s extremely important right now.


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26 comments in reply to "That Tireless Cruncher of Numbers…"

  1. D. C. Sessions says:

    The employer-side cuts are, indeed, a poor choice. However I won’t say that they’re totally worthless. I know of at least one company that is trying to justify ramping up R&D in a down market and the management negotiated a cost-shifting deal with the Board: they can hire more people as long as the payroll expenses don’t rise. Not requiring cuts, but not allowing increases.

    In that one case, I can see the employer-share cuts doing some good.

    That’s too much like picking through the stable sweepings looking for edible grain.

  2. fausto412 says:


    and what if the current trend is worse that it leads on? and we find ourselves with 8.8 instead of Zandi’s 8.3 in 2012?

    do it right or don’t do it at all.

  3. Tyler says:

    I liked the jobs plan, but have a minor quibble: I doubt the benefits of a payroll tax cut on the employer/supply side. I’d prefer if we just scrapped that idea and instead exempted Americans with incomes under $50K from payroll taxes. Those are the people who are hurting for cash, not employers.

  4. Dan Furlano says:

    “Of the 1.9 million jobs added in 2012 under the president’s plan, the largest contributor would be the extended payroll tax holiday for employees, which adds approximately 750,000 jobs.”

    This is a fairy tale. The tax cuts aren’t big enough on the employee side to increase demand enough to increase jobs. Employer cuts will increase margins.

    Last night Obama got down on his knees and licked the shoe leather of every republican in congress. And they all smirked as again Obama did their bidding.

    Why? Simple. This plan has already been doomed to failure. It will not improve the economy and it will not create jobs. The republicans will make sure anything that gets passed will a) not really help anything b) have riders that will make your head spin.

    And the coup de grâce will be that the republicans will get their entitlement cuts and Obama will gladly give them what ever it is that they want. This will so polarize the democrats that large demographics of voters will not show up at the polls in 2012.

    This was possibly the worst speech by a president that I ever witnessed.

    • fyzzics says:

      Dan, I am not impressed by your economic analysis (I use the term loosely) of the payroll tax holiday effect – where is your model?

      However, I think your political take is exactly right. Given that we know the overriding concern of Republicans is to make Obama a one-term President (thanks to Mitch McConnell, who is always kind enough to tell us what Republican goals *really* are), it is unlikely that this plan will actually be implemented as it stands. It will be watered down, its most effective parts excised, and what’s left nullified by too-early gov. spending cuts.

      Seriously, how could the Republicans allow unemployment to go down to 8.3% before the elections?

      • Dan Furlano says:

        You’re correct, I did not do any real analysis. Although I like the idea of a tax break clearly to me this is way short of anything useful.

        So strictly going on opinion here is why I believe that the tax cuts will not really effect unemployment.

        1) 2% on 60k is $1200 a year – $25 dollars a week. I don’t see that changing the demand of anything. People will either not really notice it, spend it at Walmart, or catch up on debt payments.

        2) In the land of unintended consequences I would suspect some small business employers to use this as an excuse to short any raises. And I say “any” raise. So some employees actually net zero (of course after inflation that is a negative raise).

        750,000 jobs over one year at $25 a week per employee. I have a hard time understanding that. Maybe I am reading the numbers wrong or I am making a bad assumption. But when the Bush tax cuts first hit I don’t remember 750,000+ new jobs being created?

        • Jan Martin says:

          When I get home tonight I’ll do a a BOE calculation to see how the numbers work out.

          The point is that most of the payroll tax cut money, on the employee side anyway, is recycled back into the economy as consumer spending, which increases demand, which decreases unemployment. We hope.

          Weren’t the Bush tax cuts mainly income tax cuts? Income tax cuts are biased toward the wealthy, who tend to save much more, so less of the money is recycled directly back into demand. As I recall, we were in a much lower unemployment situation then, which also would tend to dampen job creation.

          • oh4real says:

            To add to your argument:
            – direct government spend has 1.4+ multiplier effect.
            – tax cut has ~0.7x multiplier.

            IMHO, payroll tax cut is almost assuredly spent so equal to direct government spend 1.4X multiplier

            Bush tax cuts predominantly favored the wealthy, so 0.7X (or worse).

        • fyzzics says:

          OK, the calculation I promised.

          The money spent for payroll tax holiday, employee side, is $175B, which is 1.2% of the US GDP of $14.5T. Simplemindedly assuming it all goes into GDP, and using Okun’s law, that should yield a drop in unemployment of about half that, or 0.6%. 0.6% of total US nonfarm employment (132M) is 792,000 jobs, which is not too far from the 750,000 that Zandi’s much more sophisticated model produces. I see he assumes a multiplier of 1.25 for this spending, but probably has some factor for the amount going to consumption and to saving, which I don’t know.

          Anyway, the numbers do not seem entirely unreasonable.

          • Dan Furlano says:

            So explain how the math works with this chart from FRED with unemployment vs GDP.


            I understand (somewhat) Okun’s Law and again my humble opinion with the current economic situation it shouldn’t be used at all.

            When productivity and demand drops like it has there is so much “slack” in the economy that unless you create a significant jolt the unemployment needle will not move.

            But of course the best test will be if the reduction passes. If I were working with the republicans I would tell them to pass it asap simply becasue I believe it will have the least impact on the economy.

          • perplexed says:

            “Simplemindedly assuming it all goes into GDP”

            My guess is your conclusions are very sensitive to this unrealistic assumption. These tax breaks are heavily weighted to the higher end of the income scale – many of whom are in under-water mortgages and facing “balance sheet recession” problems. A very significant proportion of these tax breaks will be used to pay down debt. With no other knowledge of the real number, a better estimate of the spending portion would be 50%, and that may be too optimistic. The only ones left with a “high propensity to consume” are those at the low end of the income scale. We need to get whatever stimulus is available to them as they need it the most and we get the most “bang for the buck.” There is just way too much of what is promoted as “stimulus spending” going to pay down debt & de-leverage. The savings and de-leveraging amounts have no stimulus effects, at all, add to the deficit, and only feed disingenuous arguments that “stimulus doesn’t work.”

            Its too bad that were in such a desperate situation to get any stimulus at all but we should at least be pushing to put whatever we can get to where it will help the most. Tax breaks for high paid workers isn’t that place – that’s why the republicans are most receptive to this alternative. When they’re done it will probably be all that’s left.

          • fyzzics says:

            Dan, your graph from FRED (what a great resource!) shows just the GDP and unemployment rates, while Okun’s Law is concerned with the rate of change of those quantities (the percent changes, as I used them in my calculation) which are really hard to see on a plot like that one. A nice post on an article looking at Okun’s law both historically and for the current “troubles” is on Economist’s View . It shows I think that Okun’s law can be used as it is usually done, even now, as an empirical approximation – not super accurate, but a guide to reasonable estimates.

            Perplexed, you are right that the results are dependent on my assumption of how the payroll tax holiday maps into GDP spending. But at least I showed my work – the dependence is linear. If we instead assume the 1.25 multiplier Zandi used, and your 50% number, we get 500,000 jobs. I tend to think that Zandi is well aware of the propensity to save that various income groups have, and so at least some of your objections are already included in his estimate. Of course, I have no way of really knowing this. Perhaps I am naive.

          • perplexed says:

            I didn’t mean to insinuate you were trying to hide something – your assumptions are clearly right up right up front and your analysis is appreciated.

            My concern is that we not over estimate the jobs impact of these tax cuts when better options exist for what little stimulus spending we will ultimately get. It plays into the hands of the “stimulus doesn’t work” critics and doesn’t get the $’s to those most in need. The effects on the economy don’t depend much on who first puts the money in circulation, only that it ends up there; so cycle it through those that need it the most (who are the same people that will simultaneously give us the “biggest bang for the buck).

  5. Farhan says:

    WH shared the plan with Mark Zendi (like Prof Krugman) before hand cause they need folks to start writing as soon president deliver his speech. Great strategy:)

  6. Candlbox says:

    I’m pleased that the proposal is larger than the pre-speech estimates, but I agree with many of the comments here and on your other blog posts — the proposal is still too small.

    It is deeply discouraging to see the president start with a too-small opening bid (for the nth time) in the latest Congressional negotiation. If this were the final bill, it wouldn’t be enough, but it would help (as Jared notes in this post)…but it’s the opening bid, and the end package will be less helpful. Maybe it will shrink, maybe the mix will shift to more employer tax cuts, or maybe it will be accompanied by deeper spending cuts elsewhere; we know that it will happen because that’s how negotiation works.

  7. Candlbox says:

    I also want to add a note about the projected effect on unemployment. Seeing a 1-point difference at the end of 2012 is encouraging, but then what? From what I gather, most of the AJA boosts 2012, but clearly it isn’t enough to get us out of the depression.

    By 2013 we’ll still have unemployment over 8% and as the AJA spending ends, it will be a drag on the economy. Worse, if we get this spending in 2012 in exchange for spending cuts later, those cuts will also drag on the economy. (I’m assuming Republicans will not agree to cuts far in the future, because they probably don’t trust that the cuts would happen in that case.)

    I worry that the net result is a mini-ARRA in the wrong ways. We pass something that helps in the short term, but it doesn’t last long enough, isn’t big enough, and so it will be a headwind to the economy long before the economy is recovered. From a policy standpoint, we don’t seemed to have learned from our mistake. From a political standpoint, the fact that this is too short and too small will bolster Republican arguments that stimulus is ineffective.

  8. urban legend says:

    More money in the pocket of middle class Americans will do very little until it is accompanied by confidence that, for the unemployed, a job will be found soon, and for the employed (a) the current job probably will not be lost, and (b) if the current job is lost for some reason, it will not be too long before a comparable job is found.

    Whether targeted tax cuts for businesses hiring helps, who knows? I guess if they don’t hire, they don’t get the tax cut — I hope not, anyway — so the amount of the total plan, and any effect on the budget deficit and the national debt, is reduced by the amount by which the plan does not work.

    The only thing that’s going to work to change the national pysche and finally rev up “animal spirits” is (a) preservation of existing jobs, and (b) direct creation of at least a two or three million non-outsourceable, high-paying, reasonably long-term jobs. What else can that be than fixing the infrastructure, including not only in the most shovel-ready near term, but also longer term in meeting the national needs for a modern infrastructure? That has been neglected for 30 years due to excessive tax aversion, and it has been a major part of the employment gap. The American worker realizes that as today’s U.S. economy is organized, even before the financial meltdown, cannot provide full employment. That’s why we needed a real estate bubble to even get close to, but not really achieve, a level that reasonably could be called full employment. Short term stuff will help, but it won’t create the confidence in the future needed to recover fully.

  9. JP2012 says:

    As far as messaging goes, the administration should pivot from its balance sheet metaphor to one that involves construction.

    e.g. The Republicans believe you should start first by building a Penthouse. If you fill the Penthouse with golden faucets and fixtures, and a Picasso painting on the wall, the rest of the building will magically appear. I, like many Americans, believe you have to start first with the foundation. If you build a strong foundation, you have the possibility of building something that will last. In fact, even Penthouses and Penthouse owners will benefit.

    For too long we have focused on the details at the top, and we have neglected the health of the entire structure of our nation and the economy. We have neglected our foundation, and the rest of the structure is the worse for it. We need to change course and re-build again. We owe it to those who are out of work and families struggling to get by. We owe it to future generations who will benefit from what we build today. We owe to our country. For when you attend to the base, and when we build a solid foundation, we have the possibility of creating something that will last and endure. If you just attend to the penthouse, the entire structure is unstable, unusable, and it will not endure. We need a new approach. We need to rebuild America. We can start today by focusing on the foundation of our economy. If we do that, then, and only then, will the rest of the economy prosper.

    • urban legend says:

      The right-wing meme is how deficit spending puts the debt on the backs of our children — without considering the fact that they would prefer to have that obligation spread out over many years into a future that, we would hope and expect, will have a much stronger economy, if it would mean they would not have to suffer now if they’re parents are unemployed, or if they are experiencing the plight of too many young adults in being yet to find their first real job after schooling is finished.

      Is it too much to hope Democrats could develop and promote a competing meme, namely that it makes no sense to make them suffer now in order to prevent a modest burden in the future?

      • perplexed says:

        Unfortunately your “competing meme,” while probably true, will do little to convince those that benefit to alter what they’re in control of to their detriment. Remember that the wealth and income concentration of the last 30 years continues unabated while all of this discussion goes on to little avail.

        It may well be that the best we can do under the circumstances is to focus on changing the campaign finance laws to eliminate government capture by a wealthy minority. This would at least allow those representing our children to be able to peacefully implement the wealth, estate, and income taxes that will be so desperately needed when their generation becomes more powerful (while simultaneously becoming more desperate as well). Those that think the youth of today are going to quietly accept and go along with this “inheritance” of trillions of dollars of wealth and income concentrated among a very few, huge government debts, worn out infrastructure, uncontrolled & ridiculously high health care costs, declining real incomes for the poor and middle class, the tremendous retirement costs associated with a rapidly aging population, costly cleanup of neglectful environmental policies, unprecedented competition from abroad along with unprecedented environmental and resources challenges etc., etc., either don’t have kids or is no longer listening to them; or maybe they’ve raided their kid’s stash and are smoking something very powerful, who knows.

        It really helps when you’re driving to pick up your head once in a while and look down the road a bit. Maybe you can avoid a disaster or two that you really didn’t see coming by being so focused on the first 30′ in front of your car.

    • Robert says:


      I really like your foundation analogy because it calls for a renewed commitment for establishment of our national economic purpose and goals. IMHO one of those goals should be to provide a guaranteed job for every American citizen who is able and willing to retool their skills and perform useful work.

      I would have preferred to see the AJA directly and explicitly target public sector job creation for those who are currently unemployed. When the private sector is unwilling or unable to generate sufficient numbers of jobs, which is the situation we have now, then the only sector left to pick up the slack is the government. I believe that a sustained government commitment for such a jobs program would provide hope for the unemployed and confidence for everyone to help uplift the American economy.

  10. Carol says:

    The “jobs” act is the Democratic Party version of the end of Social Security and Medicare. The payroll tax will never be restore and SS/Medicare will not survive future general-budget cost cutting. I’ll never forgive Obama and his fellow so-called centrists for this.

  11. Carol says:

    And why oh why can’t the Democrats think of a catchy name for their projects? The AJA and the PPACA, and last, but not least Obama’s WTF? Surely there’s at least one clever PR person who will work with the party.