Economists Alan Blinder and Mark Zandi have drawn the conclusion that the various bailouts and stimulus programs of the last 2+ years have prevented the economic downturn from being much, much worse even that it has been:
“While the effectiveness of any individual element certainly can be debated, there is little doubt that in total, the policy response was highly effective,†they write.
Mr. Blinder and Mr. Zandi emphasize the sheer size of the fallout from the financial crisis. They estimate the total direct cost of the recession at $1.6 trillion, and the total budgetary cost, after adding in nearly $750 billion in lost revenue from the weaker economy, at $2.35 trillion, or about 16 percent of G.D.P.
By comparison, the savings and loan crisis cost about $350 billion in today’s dollars: $275 billion in direct cost and an additional $75 billion from the recession of 1990-91 — or about 6 percent of G.D.P. at the time.
But the new analysis might not be of immediate solace to officials in the Obama administration, who have been trying to promote the “summer of recovery†at events across the nation in the face of polls indicating persistent doubts about the impact of the $787 billion stimulus program.
For one thing, Mr. Blinder and Mr. Zandi find that the financial stabilization measures — the Troubled Asset Relief Program, as the bailout is known, along with the bank stress tests and the Fed’s actions — have had a relatively greater impact than the stimulus program.
If the fiscal stimulus alone had been enacted, and not the financial measures, they concluded, real G.D.P. would have fallen 5 percent last year, with 12 million jobs lost. But if only the financial measures had been enacted, and not the stimulus, real G.D.P. would have fallen nearly 4 percent, with 10 million jobs lost.
There’s something for everybody in that statement. It doesn’t provide a lot of support for those who argue that the stimulus worked. It does support the effectiveness of the Troubled Asset Relief Program.
There’s an old rabbinic saying: if a woman comes from a far country and tells you she’s divorced, believe her (give greater weight to testimony against interest). I think that due consideration should be given to Blinder’s and Zandi’s findings but I’d have a lot more confidence in them if Eugene Fama or Robert Barro were telling me that TARP and the stimuli have averted a second Great Depression.
I’ll post the link to the actual study when it becomes available.
If TARP prevented a bunch of the mega-banks from crashing, it would have a far bigger effect than the stimulus. Makes sense to me.
Steve