## The Obama Stimulus: Predictions vs. Reality

In this video, I take a look at the economic predictions that President Obama made in February regarding the stimulus plan and how those predictions are corresponding to reality.

The answer is: Not well.

But first, some references.

OK… now into the math. The chart that everyone is using does not have a corresponding table with hard number (at least no table that I could find), so I had to guess-timate what they were predicting the unemployment rates would be in May. I assumed that, because their graph divergence began immediately after the Q1, 2009 line, that that line represented the beginning of Q1 2009 (as opposed to the middle). So I estimated that the May would be just a shade before Q3, which is about the same place that Geoff put his May data.

Based on that, I estimated the points on the line like so:

 Unemployment Rate Unemployed Population Predicted Unemployment without the Stimulus 8.7% 13,492,000 Predicted Unemployment with the Stimulus 7.9% 12,251,000 Actual Unemployment with the Stimulus 9.4% 14,511,000

Now… here is the problem. In order to make our data symmetrical, we would have to have another row… a row called “Actual Unemployment without the Stimulus”. This, of course, is a row we cannot have because we sadly live in a space-time of collapsed quantum possibilities. We can never know what that row would hold.

This is where I start getting a little less analytical and a little more irritated. The president’s predictions have been shown to be completely off the mark… almost laughably so. And yet he acts as if he alone knows what would have happened if we hadn’t passed the stimulus because he keeps making statements like “we’ve saved 150,000 jobs“.

It is clear that, if he is referring to the chart we were presented with above, such a claim is absurd. What the president is doing is ignoring the fact that his predictions in the past were horribly inaccurate and simply moving ahead with new predictions. The big difference is that his new predictions can’t be judged against any set of objective reality. He is pitting the actual universe in which the stimulus bill passed against the imaginary universe in which it did not pass. Not surprisingly, the imaginary universe is worse that the real universe and the result is that the President is a hero for saving us from that imaginary universe.

I am not a very anti-Obama person. Predicting the future is tricky business and I think his team should get some leeway on this.

However…

Their predictions were not just kinda wrong. They were horrifically, disasterously wrong. If President Obama is going to use statistics and charts to push nearly \$800 billion in spending, I think we should be able to expect his numbers to at least kinda match the reality that comes out of his policies.

At the very least, I’d like to know how his team got those numbers. More importantly, I’d like to know how they have changed their method of prediction. President Obama is fond of saying that we tried tax cuts and they didn’t work, so we should try something else. In that same vein, his team tried predicting the effect of the stimulus and that didn’t work. So I would like to know if they are using the same failed methods they used before or if they are doing something different.

1. Sir Omer says:

video removed by user?

2. politicalmath says:

I made an error that I didn’t catch until Sunday morning… I’m working on uploading a new version today.

3. […] on YouTube. You can also read more about the details behind the numbers in this video at his Political Math website. Share and […]

4. Aluceo says:

HOW THE STIMULUS PLAN HAS BEEN WORKING ALREADY AND WHY IT IS BOUND TO GATHER PACE

The stimulus plan in of itself has halted the dramatic plunge in business and consumer confidence with the very likely threat of an economic depression earlier in the year, and businesses and consumers taking a less weary and more upbeat attitude to the future. Maybe more than anything else this will be the most significant impact of the stimulus package in the long-run enabling a spectacular recovery from the real possibility of depression before its passage. Businesses and consumers have become more and more confident that spending from the stimulus in the upcoming months will provide a solid environment for economic activity thus encouraging investment, reducing the pace of job losses and encouraging consumer spending. In other words, the stimulus package has avoided “a cycle of economic downturn to depression” and is now about to engender “a cycle of economic upturn to recovery”.

The stimulus package cash handouts and other social initiatives have played no minor part in lessening the burdens on individuals of the economic downturn and the consequent increase in the number of people unemployed thus palliating the effects with regards to mortgage, health coverage and consumer spending.

The stimulus package has halted the lost of jobs in the areas of education and other state level services and enabled States to avoid budget bankruptcy (caused by the fall in revenues due to the economic downturn) with the result of avoiding indirect job losses in the private sector as well.

The stimulus package is bound to lead the way for new jobs creation to be followed suit by direct private sector investments with the consequence of increasing spending in the economy and accelerating economic recovery. It should be noted that jobs created by the stimulus will have a multiplier effect in the creation of jobs by private enterprises.

Perhaps more fundamental for long-term economic recovery, given the areas of investment of the stimulus package (infrastructure, energy and green jobs, education. etc.), it is the type of government investment required for renewing long-term economic growth. As was the case with FDR’s New Deal in the 1930s and Eisenhower building of interstate highways and investment in the sciences in the 1950s, the stimulus package is bound to restructure the foundation of the US economy within which private enterprise will thrive.

The fundamental element in the criticisms levied against the stimulus package that it will increase the US deficit is the total disregard by most critics of what would have happened without the stimulus with respect to avoiding the real threat of a depression, raising business and consumer confidence and restructuring the economy. Thus providing a good foundation for real growth in the long-run (boostered by the Stimulus and led by private enterprise) with economic growth by itself and healthcare reform allowing for deficit reduction in the long-run.

While the Stimulus Package has often come under this one-sided criticism of increasing the US deficit, such an argument can only be credible to the extent that it elicits how the results mentioned above which have been obtained (and are to be obtained) by the Stimulus Package could have been attained otherwise. Most critics of the stimulus package seem to think that this economy which was at the very brink of collapse simply avoided a depression by some miracle and that by the same token recovery is bound to occur by magic. To the extent that their arguments fail to answer these fundamental facts about avoiding a depression and beginning a recovery, to that extent, such arguments can hardly be considered credible.

Actually, the initial impact of the stimulus for private enterprise and consumers has been “anticipatory” in that it arrested a situation where business and consumer confidence was heading the economy to a depression. That is why the statistics point to the fact that business and consumer confidence stop plunging after the stimulus plan was passed and the stock market has been “going north” since then. It is the anticipation of the impact of the stimulus plan that has stabilized business and consumer confidence, heading off the real prospect of a depression. In other words, the stimulus package first impact was to act as the brakes for an economy that was heading to a depression disaster.

http://www.rususa.com/money/finance.asp See link above for the effect of the stimulus plan on the stock market immediately after its passage in mid-February 2009: the NASDAQ, Dow Jones and S & P 500 have made a dramatic U-turn upward since March 2009.

The reason for the high job losses is very simple. Those jobs were going to be lost anyway as business and consumer confidence entered a vicious cycle to depression following the failure of the financial system – these job losses arose out of lack of confidence in the financial system. Actually, the stimulus role at the onset more than any immediate spending in the economy itself has been to provide assurance to consumers and businesses that government will spend in the economy thereby upholding consumer and business confidence and avoiding the real prospect of a depression. So the stimulus first role has been “anticipatory” in forestalling a depression.

Believe it or not, it is not out of the question that without the stimulus plan we might have been talking now about the loss of not 1.6 million jobs but 5 or 6 million jobs at the trend at which consumer and business confidence went on falling before its passage. See link on the rise of consumer confidence since the stimulus plan was passed in mid-February 2009.
http://www.market-harmonics.com/free-charts/sentiment/consumer_confidence.htm

Actually, the word “stimulus” here can be misleading in that it underemphasizes the effect of the stimulus in arresting a grave and downward spiral of the economy and rather draw focus mainly on creation of jobs which is the second and yet to fully come dimension of its impact.

Let’s imagine that the stimulus plan was to be suspended now. What will happen is that the anticipation consumers and business had about its boosting effect on the economy will die out, and this of itself will create uncertainty and may well lead to a new downward spiral. The Stimulus has a double effect with respect to recovery and job creation. Perhaps the lesser acknowledged effect is the confidence created in the economy for private enterprise and consumer consumption. In fact, this indirect effect will be the strongest push for economy recovery and job creation. Then there is the direct effect of the Stimulus Package spending and its multiplier effect given the areas of expenditure (education, infrastructure, green jobs, etc.)

5. I hope your blog gets LOTS of attention. For years I have been frustrated with the irresponsible use of numbers in news reports and in government persuasion talk. (I have a degree in math and physics.) My husband will be glad to know that I am not the only one who sees a problem with “number nonsense” to make a point, to shock an audience, or even worse to develop public policy or legislation!!!!!! I also love it that you see that both sides of the table play this game! 🙂 Thanks for your work, I look forward to future reading….I read all the older posts!
AM

6. […] here is a written explanation. […]

7. […] Via Political Math: […]

8. Chuck says:

Congrads. Chris Muir at Day by Day just worked you in.

http://www.daybydaycartoon.com/

-Chuck

9. Rob says:

Excellent work. I linked to this.

10. aluceo says:

Hi Chris. Great blog you got here. I beg to differ with your very close use of figures though. Economics like Meteorology or Earthquake Prediction for that matter is “no Physics or Maths”. What ultimately matters is the big picture and trends. Going by the job losses figures for March, April and May (652000, 504000 and 345000) the argument made by the administration definitely holds. In fact, the Fed, the Treasury as well as other institutions involved in the prediction of economic data tend to revise their figures quite often. What matters is the trend and bigger picture.

The Stimulus is rather like a project but in this instance a massive and complex national project. A project can be broken down in two broad categories: design and execution. At the design stage (the first few months of the Stimulus), everything is being organised and put in place administratively with relatively little being carried out. The upcoming months will be the period when the massive spending and investments will be executed at an exponential rate. In fact, 1 billion dollar is already being allocated each day for Stimulus projects.

In layman’s terms, the Stimulus is needed for the simple reason that with the failure of the financial system, businesses and consumers were less willing (uncertainty) and less able (banks failures and failure to provide credit) to produce and spend in the economy implying that companies sold less goods and services than usual and so the companies had to lay out workers who in turn bought less and so the cycle goes (and this might just as well have led to a depression).

What the stimulus is meant to do, and is doing, is to incite and give businesses and consumers the confidence to keep on producing and spending respectively for the upcoming spending in the economy it is to generate exponentially. Initially by giving tax breaks, benefits, spending to maintain teaching and social services jobs and then spending on stimulus projects contracts given to companies which are then encouraged not to lay off workers. All these with the consequent multiplier effect in the economy.

Companies and consumers effectively bought to this idea once the Stimulus bill was enacted and kept on producing and consuming respectively in anticipation that upcoming Stimulus spending will maintain a stable economic environment from which recovery is possible. Hence the reason why the stock market and consumer and business confidence started rising. This effort was accompanied by the bank bailout and efforts to provide credit to consumers and companies.

It is effectively because the Stimulus Package is real, a commitment of 789 billion dollars by the US government for real economic projects, that consumers and businesses bought to the scheme and started acting in a positive manner in anticipation of its positive impact in the upcoming months (the Stimulus Package direct impact should enter in full force by the fourth quarter). In fact, many economists have even argued that the amount provided for the Stimulus should have been much more higher.

As a final note, I’ll argue that irrespective of party creed, it will seem to me that the criticism levied against the Stimulus is much more of a “political vogue” (and has nothing to do with “realistic” economics) naïvely taken up by the media which tend to operate on the basis of “two sides to any story” . The milestone which any such critical arguments has to overcome is to answer the question: how could a depression be avoided and a recovery started following the failure of the financial system?

11. […] the talented calculators at Political Math.  Here is the blog post which accompanies the […]

12. egciowa says:

What Obama said or promised is actually meaningless.

To make an accurate comparison you need only two variables: (1) What did happen and (2) What would have happened if we had actually done nothing. #2 is unknowable. Meaning, your conclusions are 1/2 speculation based on political leanings.

To give your analysis more rigor, you need to go back and look at what the Fed and Treasury predicted was going to happen vs what actually happened. Then you would have Obama’s predictions in context.

Peace,
Eddie Caplan
http://www.eddiecaplan.com/

13. Mike says:

I’m pretty sure Chris’s point is that Obama irresponsibly used statistics to support a spending splurge. That there are other reasons for spending the same money may be true, but is irrelevant to Chris’s point. Either Obama should be held accountable for packaging his policies in the veneer of scientific fact, or he should not make that kind of argument. After all, Obama did promise to return science to its rightful place.

14. Aluceo says:

Well, I get your point buddies. The fact is Economics is no Mathematics; Economics is not an “exact science”, any student/scholar of economics will tell you that. It is about getting the general tendency and as we can see, the unemployment figures (caused by the financial crisis) for the last three months has been “going south” since the stimulus package was passed (652000, 504000, 345000 for March, April and May respectively). The economic growth rate predicted at the beginning of the year do not always turn out to be the actual growth rate at the end of the year. This is also the case with other economic data.
http://www.cnbc.com/id/21216721/ This linked article perfectly illustrates the point I am making. The reason why the Obama administration (just as economists) make forecasts with exact figures is simply for the sake of having a sense of direction. what matters afterall is the trend/tendency, because it is about Economics and Economic Theory and not Mathematics!

15. politicalmath says:

First, my name is not Chris. Chris Muir is the author of the comic “Day By Day” which referenced my work. Honest mistake.

Next, Mike is pretty spot on, so I won’t repeat him.

I totally understand your point about the revision of economic data and I understand that economics isn’t like physics (if only!) But I’d like to posit a few questions:

1) Why did the Obama administration as like they could predict the future when they clearly could not? Do they not understand that economics is not like physics?

2) If the stimulus was going to require so much “design and planning” (and if the Obama administration knew this) why did they not reflect this knowledge in their graphs? It would have been simple enough to do.

3) On the “the stimulus is more about confidence and less about money,” I’m willing to concede that point. However, I would like to point out that the Obama administration had no problem trying to destroy American confidence in the economy when he was running for president. If the issue is more about confidence than it is about money or policies, than he holds far more responsibility for the economic downturn than if it is actually about money and policies.

16. politicalmath says:

Eddie,

What Obama said or promised is absolutely vital. He is a salesman and he is selling policies. I don’t mean that in a derogatory way, my dad is a salesman.

But my dad understands that if he promises one thing and he doesn’t deliver, he is in deep and lasting s***.

Obama had the stage, he gave us data and it was all widely reported. He is doing the same thing with his health care policies right now. We need to know if what he says is an accurate representation of what will happen. Otherwise we will make policies based on faulty data.

17. Aluceo says:

Hi Politicalmath, sorry I referred to you as Chris. I do understand your common position with Eddie and Mike. However, I beg to disagree with the interpretation you are making. It is the culture in the field of economics to provide figures when making explanations. Economists will like to make exact predictions but this is very difficult as the economic and social world is very unpredictable. In fact, putting out a figure as the Obama administration did is rather seen as a sign of “seriousness” among economists. Implicitly, economists understand that the predicted figure must not necessarily be the actual figure but rather that the general trend of the argument is sound as can be seen with falling unemployment rates after the stimulus package. By the same token, the rate of 8.8 percent unemployment might still be attained in 2010 if the current trend carries on with a reverse in the rising rate of unemployment.

Secondly, as emphasized before economics is no “exact science”. What can be predicted is simply the general tendencies especially given the scale of the entire American economy. In fact, the Obama Administration effectively said they expected the full impact of the Stimulus package by the fourth quarter and even then they are rushing to create 600000 direct jobs in the third quarter.

On the third point, the stimulus is no more about spending than confidence or inversely. The real prospect of the stimulus package spending at the tune of 789 billion dollars effectively instills “anticipated” confidence in the economy. This is more important and concrete to businesses and consumers in instilling confidence than anything Obama might say by itself.

18. politicalmath says:

Fair points. My experience with economics is decidedly less than my experience with mathematics and statistics, so I have no problem deferring to you on this matter.

However, I do have a question and I’d love to hear your take on it:

If the predictions are so fuzzy, what is the most appropriate way for President Obama to communicate the effect of his policies when he is selling them?

It seems like you are saying (correct me if I’m wrong) that when he said “This plan will save or create 3 million jobs”, that number wasn’t really very meaningful because the economic situation includes so many variables that unless his predictions were spot on, it would be impossible to say one way or the other if the stimulus actually worked or if it was something else (perhaps the market actually hit a natural nadir and is rising on its own).

19. Kathy says:

You need a SHARE link on your blog so we can spread the word in our networks! Thank you for what you do!

20. Aluceo says:

Actually, this is a very critical question. It is important to note that when the President speaks he is talking to many audiences ranging from the general public, economists, business professionals, business owners, etc. He definitely, has to meet the needs of each of these groups in his speeches because his speeches have consequences in the decisions people make. Giving his best shot on what he expects the unemployment rate to be in 2010 and for saving or creating 3 million jobs is important as it sends the message of his commitment and what has to be expected by the business community and consumers alike. Ultimately, it is meant to give a sense of direction/purpose that he will do everything to reduce unemployment around the 8.8 percent mark and save or create many jobs around the 3 million target mark. The fact is, he has to advance a figure. In any case, we are not yet in 2010, so we can’t write the administration’s arguments out as of yet especially as the economic trends have been stabilizing. Another point is that, given that the President is a political figure, it is just but normal that critics are out there to undermine the administration (as is expected in a democracy). In the case of the FED which constantly makes forecasts and revisions on economic data all along the year, nobody raises any criticism given that there is no political interest in doing that.

21. Lucien K. says:

Why, you evil white male racist, you! How dare you defy his Holiness with facts and figures! This isn’t helping Michelle’s kidz! Off to the gulag with you!!!
/sarc

22. politicalmath says:

“it sends the message of… what has to be expected by the business community and consumers alike”

And all I’m doing is pointing out that those expectations a) have not been met and b)are not on track to being met.

It seems unfair to say “he has to advance a figure” but then tell other people that they can’t take that figure seriously. It shifts the scales in such a way that basically says we have to be silent when he makes up numbers to advance his policies (because we can’t prove that they’re not going to happen), but we also have to be silent when his numbers don’t align with reality (because they weren’t meaningful numbers in the first place).

We live in a culture in which people see numbers and say to themselves “Look, numbers! That must mean this is science-y, which must mean it is true.” If we cannot call the president on his poor use of numbers, then he has no incentive to approach those numbers with rigor and discipline.

23. Aluceo says:

well, I’m afraid then there will be no economic predictions then! (or for that matter weather predictions). What I’m trying to point to is that the trend of monthly lay offs has been moving in the right direction (652000, 504000, 345000) following the passage of the stimulus package. If this was rather moving upwards, then the Obama administration will have been wrong. But for the economist, what matters more is that the trend substantially proves the administration’s argument.

24. netlosh says:

Aluceo,

It is important to note that when the President speaks he is talking to many audiences ranging from the general public, economists, business professionals, business owners, etc. He definitely, has to meet the needs of each of these groups in his speeches because his speeches have consequences in the decisions people make.

Are the ‘needs of each of these groups’ somehow not inextricably link with a reasonable expectation of accuracy in the figures cited? When the POTUS declares such figures in the manner he presented them to the public (i.e. as if scientific) are there not ‘consequences’ for everyone who takes those same figures to at least be somewhat accurate?

25. netlosh says:

What I’m trying to point to is that the trend of monthly lay offs has been moving in the right direction (652000, 504000, 345000) following the passage of the stimulus package.

May I point out that the chart he used when selling the plan indicated that even without the stimulus plan, monthly lay offs would trend the same direction anyhow.

26. politicalmath says:

Where are you getting your monthly layoff information? According to the the official numbers, the new monthly unemployment trend is not as you have described.

March – unemployment rose 694,000
April – unemployment rose 563,000
May – unemployment rose 787,000

Based on your own determination of accuracy, this would mean that the Obama administration is wrong. Or maybe I’m not using the right data… which data are you using?

27. Aluceo says:

For the official Statistics from the labor department (Bureau of Labor Statistics Data) see link:
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CES0000000001&output_view=net_1mth

Jan – 741000, Feb – 681000, Mar – 652000, Apr – 504000, May – 345000

28. politicalmath says:

Maybe this is a stupid question… why are you using those numbers instead of the unemployment rate?

Obama based his numbers on the unemployment rate. His charts were using the unemployment rate. His tables made reference to the unemployment rate. Everything I could find in his speeches referred to the unemployment rate. So why should we use this chart instead of the unemployment rate chart? Isn’t that like comparing apples to oranges?

Also, if you know, what is the difference between the unemployment numbers and these numbers?

29. Aluceo says:

right on the spot! These are trend numbers, describing what is really happening in the economy and the impact of the stimulus in arresting the impact of the financial meltdown on job losses, and possibly bringing about an upturn …

30. Steve says:

First, great video.

However, could you please let me know when the video of the president (or candidate) was taken and give a link to that. It looks like Obama is talking to the department of energy.

Thanks

31. timeforthorns says:

Jonah Golbdberg at The Corner put me on to you. So many people think they can’t grasp the concepts, let alone the numbers of economics — thank you for creating a smashingly easy to understand visualization which everyone can grasp!

32. […] a comment » The Political Math blog has a new video using pennies to show Obama’s stimulus predictions as compared to the reality […]

33. egciowa says:

We definitely will make policies based on faulty data; all the data (the future and the “might have beens”) isn’t available.

But to diss the Prez because things changed from what he foresaw and fore-promised can only have the purpose of attacking him for what nobody could have known and for what the Republicans also engaged in and for what we all knew when we voted.

It’s unwarrented criticism in retrospect.

34. […] interesting post over at Political Math on how President Obama’s stimulus plan projections are fairing to the real world results. I […]

35. JamesD says:

Thanks for the useful info. It’s so interesting

36. […] Obama Stimulus: Predictions vs. Reality PM has posted and explained mathematically the “change” we were supposed to believe in from […]

37. Jeff says:

I love this blog, but what you got here is a little meaningless. The predictions don’t match the results, so what? That’s what predictions are. Everyone knows that. Obama cannot make exact predictions, and I don’t believe that there was any actual malice on his part in this case.

You have made the classic mistake of logic in assuming that because the economy got worse after the stimulus package, that means the stimulus package caused the worsening of the economy. Logically speaking, of course, this may not be the case whatsoever. The worsening of the economy may be entirely unrelated. Or it may be that the economy would have suffered even more without the stimulus package.

The economy is a real tricky entity, I don’t think even the experts can predict it quite correctly. Though I love this blog, and may link to it in upcoming posts on my own blog, I really think you missed the mark on this particular post.

38. Matt says:

I wish I could go on ABC when he sells his healthcare reform package to ask him if he is using these same parameters to estimate the benefits of the aforementioned package.

39. toes192 says:

Do you need a loan? I think you need to re-do the video but I’m pretty sure you need a bigger table and more pennies this time…

40. […] 12:57:05 · Reply · View rwidmer: Looks like the stimulus package is working! http://politicalmath.wordpress.com/2009/06/07/the-obama-stimulus-predictions-vs-reality/ 2009-06-18 12:53:52 · Reply · View SalBarguil: World Bank raises China GDP […]

41. […] I looked up the video-creator’s website, and he has more commentary on it there as well [LINK]. […]

42. […] Political Math Blog has an excellent video and companion piece on this and many more  “Political Information Visualization and Other Math-y Things”: […]

43. Tom says:

I came across your videos after one was posted on a site I read regularly. I’ve now added “Political Math” to my favorites. Your videos do an amazing job of putting the numbers into perspective for people who know longer know what numbers actually mean. Keep up the good work.

44. […] on YouTube. You can also read more about the details behind the numbers in this video at his Political Math […]

45. Elliot says:

Everyone has a valid point (the effects of the Stimulus Pkg are debatable)…so let me describe this whole issue in a way that has been CLEARLY demonstrated: the Stimulus Pkgs was a massive spending package that was jammed full of ‘pork’ and political pay-offs. It’s also one of the first of many lies being spewed by Obama such as (paraphrasing) ‘I pledge to carefully (without haste)consider and debate bills before a vote.’ I can understand his politician ways but his destruction of our economy and healthcare system thru socialization is unforgivable. If you are one of those who voted him into power YOU are responsible. If he (Obama) is successful, you get to tell your grandkids that their unbearable debt is a result of YOUR choice for president. Idiots!

46. Elliot says:

How about a graphic display of a trillion? It would be helpful to people trying to wrap their mind around just how deep a hole this administration is digging for generations to come.

47. politicalmath says:

This is my favorite visualization of a trillion dollars.

ATrillion Dollars

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