The Corner

Summer Re-Runs

The New York Times highlights a new study by Alan Blinder and Mark Zandi on the effects of government policy on the recession:

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.

This is kind of like saying that without China, India, and Bulgaria, the world would have 2.4 billion fewer people. The Times is good enough to acknowledge as much:

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.

Blinder and Zandi still give the stimulus credit for saving (or creating?) around two million jobs, but I suspect this has more to do with the assumptions built into their models than with any empirical evidence to that effect. The Times is good enough to acknowledge this as well:

Told about the findings, another leading economist was unconvinced.

“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.”

The disagreement underscored the extent to which econometric estimates are heavily reliant on underlying assumptions and models, but Mr. Blinder and Mr. Zandi said they hoped their analysis would withstand scrutiny by other scholars.

The bottom line is that it’s still pretty early in the game to be evaluating what effects the bailouts, the Fed interventions, and the stimulus actually had — particularly when, with regard to the stimulus, that involves simply re-running Keynesian models that predicted what the stimulus would do. I have some more thoughts on the great stimulus debate on the home page today.

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