Monday, August 29, 2011


Did President Obama's economic stimulus program work? In my view it did. In fact, I know it did. The primary reason I know it did is because of what would have happened if we had not dumped hundreds of billions into the economy via the stimulus program. We could have ended up in another depression, or somewhere near those lines.

This is where problems begin for most people. I always get asked, "So, how do you know? Show me the evidence ... ", usually with some fine expletive worked in there. Follow me as I explain how I know (I'll get to the actual stimulus studies below).

The problem with pursuing "woulda-coulda-shoulda" scenarios or asking "what if" is that many people don't think these exercises bare fruit. They think there's no way to contemplate what never was, especially if the "what if" undermines what they desperately want to believe is true. Part of the reason for this mind set is that Joe Six Pack just doesn't understand how we study the "what ifs" of our lives, especially when it comes to the economy (or any similarly complex topic). What they don't understand is that our kids engage in these kind of activities every day.

How do kids do this, you ask?  Here's an example.

When my son was five he would consistently ask questions like, "Who do you think would win in a fight, Superman or Spiderman?" or some similar question. It really didn't matter who my son was asking about. What he was engaged in was a creative mind exercise that allowed him to contemplate the "what ifs" of his world.

As my son replaced Spiderman with Batman, or some other super hero team, he was considering different outcomes under different conditions. Sometimes he would consider what would happen if Spiderman had kryponite, or some other outcome changing variable. It didn't matter. He was engaged in a mind exercise that social scientists also engage in. And while it may not be as simple or as fun as when kids do it, social scientists have gotten pretty good at studying the "what ifs" of our lives.

In the social sciences the "what ifs" we study are are referred to as counter factual activities. Wait, don't leave. I won't use that word more than once. What's a counter factual? (OK, twice). It's a mind exercise that allows us to think about alternative or other possible scenarios. Today we might watch programs like Spike's Deadliest Warrior, among others, which help us understand the science behind counter factual thinking. While the process behind using counter factuals for the social scientist is a bit more complex than what our kids do (it involves the scientific method), you get the point.

Unfortunately, apart from professional social scientists, most adults don't engage in stimulative mind exercises that force us to ask questions about things that make us uncomfortable. This is one of the reasons many are inclined to reject studies that respected social scientists put out. There are a number of reasons for this.

Many people get set in their ways, for example. Others fear the "What if I'm wrong?" moment. They don't want to entertain anything that might disturb their world view. This explains, in part, why Galileo's contemporaries didn't want to look into his telescope ...

Others fear disappointment and regret, especially if their lives or partners don't meet their expectations. It can lead to depression. Whatever it is, the end result is that many adults don't engage in (or accept) the free flowing creative mind activities that most kids do almost every day (which probably explains why adults don't skip, and children do; but I digress ...).

I bring all of this up because the Washington Post's Ezra Klein has done an excellent job of explaining why we know that President Obama's stimulus program worked. Or, to put it in terms that my then five-year old son would recognize, we now know for sure that Superman would beat Spiderman ;-) ...

For those of you who don't have the time to read the piece (or who find it a bit too technical), just know that Ezra Klein has broken down nine of the best studies on the effects of the economic stimulus program. What Klein presents is a lesson in how we study and understand counter factuals, like whether the economic stimulus program worked or not.

In this case, Klein explains why we know that the economic stimulus program worked.

- Mark

1 comment:

Jeff said...

Mark, how are these statistics real? In 2013, we have 7.8% unemployment. The real unemployment rate is much higher due to people stopping looking for a job altogether. Also, how is this chart factual when we have the lowest participation rate in the workforce since the great depression? I believe this is just another example of how math and statistics are meaningless these days.