NYT Goes to the Numbers

Economists' analysis brings welcome data to stimulus debate

The New York Times has a good early look at something that’s much in demand—an analysis of where the economy would be without the government interventions of the last couple of years.

The story is based on a new paper by two bold-faced names in the economics world, Alan Blinder, a former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics.

And, as David Leonhardt writes in a blog post about colleague Sewell Chan’s story, “As far as I know, it’s the first serious attempt at analyzing the effect both of the stimulus programs passed by Congress and of the various financial-market policies put in place by the Fed, the Treasury and Congress.”

The hed makes clear what the big-picture conclusions are:

In Study, 2 Economists Say Intervention Helped Avert a 2nd Depression

But the details are what make this interesting:

In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.

In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.
The numbers whizzes also provide some good, broad context for their findings:
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.

So yeah, this was a big deal.

But, as the Times story points out, that doesn’t mean the new study will be particularly handy for the Obama team as it tries to convince the public about the effectiveness of the stimulus program.

The economists found that the financial stabilization measures “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.

The Times notes that “the combined effects of both sets of policies cannot be directly compared with the sum of each in isolation,” because, the economists said, the policies tend to reinforce each other.

Nonetheless, those kinds of figures are a welcome addition to the long-running, and heavily politicized, debate about the effectiveness of the first stimulus package, and well as the possibility of more federal spending. And it’s the kind of data that was sadly lacking in the WSJ story I wrote about yesterday.

Derek Thompson put it this way at TheAtlantic.com:

When I go to conferences with conservative economists, I often hear the line: “Now that we know the stimulus isn’t working…” I want to respond, what do you mean by “working”? The first few hundred billion dollars went primarily to three things: tax cuts, Medicaid funding, and state rescue. The tax cuts were pocketed as families paid down their debt, and the state funding mostly salved budget wounds that would have bled out in a worse recession. It wasn’t a stimulus. It was a stopgap.

The Blinder/Zandi report gives him evidence to support that view. “The stimulus didn’t fail,” Thompson writes. “It just didn’t succeed enough.”

This is all politically loaded terrain, and the Times should have found a spot to mention that these economist/authors are staked out in the debate. Blinder, a Princeton professor, served on President Clinton’s Council of Economic Advisers; he and Zandi were among several dozen economists, historians and others who recently called for more stimulus spending and tax credits to revive the economy and put Americans back to work.

As it should have, the Times did look for critical views of the new analysis, and found one at the Hoover Institution, which has become the go-to place for stimulus skeptics.

“I’m very surprised that they find these big impacts,” said John B. Taylor, a Stanford professor and a senior fellow at the Hoover Institution. “It doesn’t correspond at all to my empirical work.”

Mr. Taylor said the Fed had successfully stabilized the commercial paper and money markets, but he argued that its purchases of $1.25 trillion in mortgage-backed securities have not been effective. And he said the Obama administration’s stimulus program has had “very little impact and not much to show for it except a legacy of higher debt.”

It would have been better to provide a little more information about Taylor’s empirical work to help readers judge the effectiveness of these programs.

Well done to the Times for highlighting the report, and bringing some data to the debate.

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Holly Yeager is CJR's Peterson Fellow, covering fiscal and economic policy. She is based in Washington and reachable at holly.yeager@gmail.com.