Economists
Yesterday economists Mark Zandi and Alan Blinder released the first comprehensive study that estimates the total effect of fiscal and financial policies of the last few years. They write:
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..
In a summary of the analysis, The New York Times wrote that the “sweeping interventions to prop up the economy since 2008 helped avert a second Depression.”
According to the report, without the government response:
· There would be about 8.5 million fewer jobs, on top of the more than 8 million already lost.
· The nation’s gross domestic product would be about 6.5 percent lower this year.
· The economy would be experiencing deflation.
All of which is well and good, but it ignores one lingering effect of the worst recession ever: unemployment. The fiscal stimulus was not enough to avert this crisis, nor will it be enough to bring full employment back for many, many years.
Paul Krugman illustrates just how bad the employment situation is and will be:
Reading the b/s perpetrated by people making (or claiming to make) a living as “economists” is distinctly not more exciting than studying Talmud, which I personally abandoned years ago.
Comment by Dick Israel — July 29th, 2010 @ 8:23 am
The main thing I learned by majoring in Economics at Brown is that most economists don’t know what they are talking about, but Paul Krugman is an exception.
Comment by Jonathan Kantrowitz — July 29th, 2010 @ 8:27 am