The article written by Princeton Economics Professor Blinder and Moody Analytics Economist Dr. Mark Zandi lays out the case how effective the stimulus (ARRA) and TARP programs had been in ending the recession and putting this country back on the path of economic recovery. The alternative scenarios proposed by the authors using their models are scary indeed..
The U.S. government’s response to the financial crisis and ensuing Great Recession included some of the most aggressive fiscal and monetary policies in history. The response was multifaceted and bipartisan, involving the Federal Reserve, Congress, and two administrations. Yet almost every one of these policy initiatives remain controversial to this day, with critics calling them misguided, ineffective or both. The debate over these policies is crucial because, with the economy still weak, more government support may be needed, as seen recently in both the extension of unemployment benefits and the Fed’s consideration of further easing.
In this paper, we use the Moody’s Analytics model of the U.S. economy-adjusted to accommodate some recent financial-market policies-to simulate the macroeconomic effects of the government’s total policy response. We find that its effects on real GDP, jobs, and inflation are huge, and probably averted what could have been called Great Depression 2.0. For example, we estimate that, without the government’s response, GDP in 2010 would be about 11.5% lower, payroll employment would be less by some 8½ million jobs, and the nation would now be experiencing deflation.
When we divide these effects into two components-one attributable to the fiscal stimulus and the other attributable to financial-market policies such as the TARP, the bank stress tests and the Fed’s quantitative easing-we estimate that the latter was substantially more powerful than the former. Nonetheless, the effects of the fiscal stimulus alone appear very substantial, raising 2010 real GDP by about 3.4%, holding the unemployment rate about 1½ percentage points lower, and adding almost 2.7 million jobs to U.S. payrolls. These estimates of the fiscal impact are broadly consistent with those made by the CBO and the Obama administration. To our knowledge, however, our comprehensive estimates of the effects of the financial-market policies are the first of their kind. We welcome other efforts to estimate these effects.
Professor Alan Blinder was a member of the Clinton’s Council of Economics Advisors Team. Here’s the link to his website
I remember him for his pioneering work on offshoring and outsourcing.
And for the extremely successful Cash for Clunkers program of last year.
Dr. Mark Zandi was McCain’s Economic Policy Advisor and is currently the Chief Economist at Moody’s Analytics.
A tidbit about the last name Zandi. It is actually from the Zand family, once the ruling class from Persia in 1700s…
Anyway so you’ve heard all the naysayers, the negativism from the Tea Party Republicans and the despair from the left wing (read DKos and you’ll find at least one diary on the reclist claiming the disaster this economic policy had been). What do you think?