Probably not – the US experienced a severe recession. But there is always the old chestnut; it could have been worse. That is exactly the argument Alan Blinder and Mark Zandi have made.
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 paper, by Alan S. Blinder, a Princeton professor and former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics, represents a first stab at comprehensively estimating the effects of the economic policy responses of the last few years.
But not everybody is convinced. Arnold Kling is dismissive.
What the Blinder-Zandi paper does is explore the properties of a macroeconometric model. The economics profession abandoned those models thirty years ago, so the tool they are using is like a fossil, frozen in time.
…
If macroeconometrics were a viable paradigm, we would have seen major efforts to try to bring this sort of model up to date from its 1975 time warp. However, for reasons I have documented, the profession has decided that this macroeconometric project was a blind alley. Nobody bothered to bring these models up to date, because that would be like trying to bring astrology up to date.
John Taylor is also underwhelmed.
…I do not think the paper tells us anything about the impact of these policies. It simply runs the policies through a model (Zandi’s model) and reports what the model says would happen. It does not look at what actually happened, and it does not look at other models, only Zandi’s own model. … old Keynesian models (such as Zandi’s model) show large effects and new Keynesian models show small effects.
Kling’s other criticisms are quite damning.
… in the competition for public attention, Blinder and Zandi have two advantages. First, they support a narrative in which government experts did the right thing, which is comforting to government experts and all who believe in them. Second, at a tactical level, their use of an esoteric computer model along with those two decimals of precision, they intimidate journalists and other laymen.
I know that they think this is for a good cause. They really believe that the stimulus and TARP were good policies that got a bad rap. But in my view that does not justify this unseemly exercise in propaganda dressed up as research.
That’s hard.
of course it could have been worse.
If the US adopted retarded economic poicies advocated by you and other crackpots which were implemented in Ireland and the Baltic states the US would have been in far worse condition.
Butterfield, Bloomfeld % Bishop
30 Jul 10 at 8:34 am
John Taylor poo pooed the idea the Taylor rule meant interest rates should be around -5%.
He stated quite categorically they should be positive and very low.Hence we have had very expansionary monetary policy for some time now except nothing is happening.
If he can’t even work out his own rule why would anyone take notice of anything else?
Butterfield, Bloomfeld % Bishop
30 Jul 10 at 9:11 am
A huge failure of Keyenesianism, no question.
It’s much worse a failure than it officially appears because of the laughable definition of jobs “saved or created” used by the administration. Defined: “if the project is being funded with stimulus dollars – even if the person worked at that company or organization before and will work the same place afterwards – that’s a stimulus job.”
This probably – what? – triples or quadruples the number of actual jobs created.
C.L.
30 Jul 10 at 10:34 am
Homer – Team Obama’s predictions have been massively repudiated.
Massive fail.
.
30 Jul 10 at 10:38 am
The Keynesian zombie is hard to stop.
dover_beach
30 Jul 10 at 10:57 am
the economy was much worse than thought when it was implemented.
It should have been much larger. It wasn’t a large stimulus.
oh yeah what happened in Ireland, the Baltic states, Hungary etc which implemented your poicies.
Double digit unemployment rates, Double digit deficits as a % of GDP and soaring debt.
funny how this is ignored here, well no it isn’t Reifler right again.
Arnie Kling doesn’t get out often. similar models are used in economic journals all the time
Butterfield, Bloomfeld % Bishop
30 Jul 10 at 11:28 am
You’re right, Dove. He just keeps going and going and going. Not even bullets could stop this zombie.
Homer scram. Go away.
JC
30 Jul 10 at 11:30 am
Shorter Homer:
Ireland, Baltic states
Ireland, Baltic states
For Das Fuhrer!
jtfsoon
30 Jul 10 at 11:31 am
That is too right Statman.
I will keep on mentioning them all the time after all they implemented Catallaxian policies
Butterfield, Bloomfeld % Bishop
30 Jul 10 at 11:45 am
Does any of this really matter? Recovery, if it exists is quite feeble.
America(among others) has massive debts and compounding. America can repudiate much of the debt by inflation if it is in US dollars as most of it is.
If deflation sets in then the debt increases accordingly and outright default becomes inevitable.
The rest is trivia.
Rodney
30 Jul 10 at 2:01 pm