By the Numbers

Unless you are Babe Ruth, it is risky to point to the fences to predict a homerun. Economic predictions are even more precarious then baseball ones. especially when made by politicians. Nonetheless, in the course of selling their stimulus plan early this year, Obama’s economic team confidently argued that without Obama’s Recovery Plan, unemployment would peak in 2010 at about 9%. If, however, the country adopted the Obama approach, unemployment would peak this year at less than 8%. Why would anyone oppose the Obama Recovery Plan? Congress, dominated by Democrats certainly did not stand in the way and the stimulus package passed.

The evidence is in. As of May 2009, the unemployment rate reached 9.4%, above what the Obama team claimed would be the case without the Recovery Plan at all. The economic predictions were way off even over the very short term. The blog Innocent Bystanders has been following the numbers carefully. The plot below is a reproduction from The Job Impact of the American Recovery and Reinvestment Plan, published January 9, 2009, by Christina Romer, Obama appointee to the Council of Economic Advisors, and Jared Bernstein, from Vice-President Joe Biden’s office. The two lines indicate the Obama team’s prediction of unemployment, earlier this year with and without the Recovery Plan. The points plotted in red are the actual number published recently by the Bureau of Labor Statistics.



Clearly, the Obama Team overestimated the positive impace of the stimulus plan. Despite this pathetic performance, the Obama Administration is still claiming that they are creating jobs. One wonders how one can make any assumptions about the effect of policy over a year a two when predictions for a few months ahead were so wrong.  Even a straight line prediction would have been more accurate than the considered modeling of the Obama economic team.

From an historic stand point, it is interesting to compare this recession with previous ones. The plot below shows the unemployment rate for the 48 months following the minimum unemployment point for the pass recessions back to 1960. The line for the current recession is plotted in bright yellow.



This recession has experienced a far sharper increase in a shorter period of time from previous recessions. Now, we can never know what would have happened had the Obama Recovery Plan not be implemented. It is not persuasive or even plausible, however, for the Administration to argue that in face of an unprecedentedly rapid rise in unemployment, that its policies are working. Maybe they will sometime in the future. Maybe, the economy will recover in spite of the Administration.  But given the recent evidence, the Administration’s economic crystal ball is opaque.

To even have drawn the first plot above, projecting unemployment rates for a few years, with its implied precision, required an overabundance of arrogance. Prediction is hard, yet Obama’s economic advisers cavalierly assumed that they could make such predictions, and that these predictions could guide them as they expertly steer the economy. As the government seems to be running an ever expanding portion of the economy, we hope that Obama’s adviser’s hubris has been alleviated in the face of evidence of just how complicated and hard it is to predict future of the economy. Somehow, we doubt it.

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