The final step is to take the effect on GDP and translate it into job creation. Not all of the increasedoutput reflects increased employment: some comes from increases in hours of work among employed workers and some comes from higher productivity. We therefore use the relatively conservative rule of thumb that a 1 percent increase in GDP corresponds to an increase in employment of approximately 1 million jobs, or about three-quarters of a percent. This has been the rough correspondence over history and matches the FRB/US model reasonably well.In other words, Obama's team has no clue how closely GDP growth relates to job growth, so they made up a number. So I just decided to do run a check on their numbers: 1% GDP growth is $138 Billion per year. 1 million average workers in the US would make just over $25 Billion. Obama's numbers have no basis in fact. Denninger found the most egregious example of this, here are his thoughts:
Obama: You Need To Fire Everyoneinvolved in producing your American Recovery and Reinvestment Plan.
Why? In "Appendix 1"Please tell me this is a joke. Obama really believes that The Fed can hold interest rates at zero for four years and they can spend without bound, while the bond market will blithely look on at $1-2 trillion deficits annually and the economy will begin to recover?
We considered multipliers for the case where the federal funds rate remains constant, rather than the usual case where the Federal Reserve raises the funds rate in response to fiscal expansion, on the grounds that the funds rate is likely to be at or near its lower bound of zero for the foreseeable future.
You're kidding, right?
To give the Obama team some credit, at least they admit how much they understand. From the Conclusion:
As emphasized at many points in the analysis, there is substantial uncertainty around all of our estimates.Hold onto your shorts, folks. We're in for a rough ride.