So, let's suppose that Obama had just said "create 4 million jobs" without the "save" bit. Under Greg's proposed estimator we measure the number of people employed on the day of the press conference and the number employed on some future day and if the difference is more than 4 million, we say the stimulus plan worked.Question: The American people have seen hundreds of billions of dollars spent already, and still the economy continues to free-fall. Beyond avoiding the national catastrophe that you've warned about, once all the legs of your stool are in place, how can the American people gauge whether or not your programs are working? Can they — should they be looking at the metric of the stock market, home foreclosures, unemployment? What metric should they use? When? And how will they know if it's working, or whether or not we need to go to a plan B?The expression "create or save," which has been used regularly by the President and his economic team, is an act of political genius. You can measure how many jobs are created 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.
Answer: I think my initial measure of success is creating or saving 4 million jobs. That's bottom line No. 1, because if people are working, then they've got enough confidence to make purchases, to make investments. Businesses start seeing that consumers are out there with a little more confidence, and they start making investments, which means they start hiring workers. So step No. 1, job creation.
I hate to be a party pooper, and maybe this sort of estimation strategy is all the rage in macro, but in addition to the obvious problem of choosing just when to measure employment in the future (i.e. picking the "after" period in the before-after estimator) is the additional problem that the assumption underlying this estimator is that without the stimulus package, the expected value of employment in the "after" period is what it was on the day of the press conference. I am certain that Greg does not really believe this identifying assumption, even though his proposed estimator relies on it. I don't believe it either.
The first lesson here is that measuring the impact of the stimulus relative to a counterfactual, which could be no stimulus or some different stimulus, is pretty hard whether the claim has to do with job creation and retention or just plain old job creation. Maybe one of those models in Greg's textbook could help out with this task?
The other lesson is that Obama, whatever his other sins, is not sinning that much worse than any other politician on this one. One thing not in short supply during the financial crisis is bold claims about difficult-to-estimate causal effects.
