Economists Spar on Effectiveness of U.S. Stimulus Response
Zandi said the U.S. response to the crisis slowed decline
Chris Keane/Bloomberg
Mark Zandi speaks at the Credit Markets Symposium in Charlotte.
Mark Zandi speaks at the Credit Markets Symposium in Charlotte. Photographer: Chris Keane/Bloomberg
Alan Blinder said measurements staved off a depression
JB Reed/Bloomberg
Alan Blinder speaks in New York.
Alan Blinder speaks in New York. Photographer: JB Reed/Bloomberg
Economists Alan Blinder and Mark Zandi say fiscal and monetary stimulus measures taken by the U.S. government staved off a depression. Stanford University economist John B. Taylor disagrees.
“The totality of the response was impressive and ultimately successful,” Zandi, chief economist at New York- based Moody’s Analytics Inc., said yesterday in a radio interview on “Bloomberg Surveillance” with Tom Keene. “It brought an end to the recession much more quickly than otherwise would have been the case.”
Alan Blinder, a professor of economics at Princeton University, and Zandi said in a paper published July 27 that the U.S. response to the financial crisis probably slowed the decline in gross domestic product and saved about 8.5 million jobs. Taylor said there is scant evidence showing stimulus measures such as the Obama administration’s $862 billion stimulus package were necessary to improve the economy.
“There’s a bit of implausibility to the whole case,” Taylor said in a separate interview yesterday with Tom Keene. “They’re finding that the policy actions did a lot of good, and I just disagree with that.”
President Barack Obama says the stimulus package and the bailouts of financial firms in 2008 have helped stabilize the economy. Republicans, ahead of this year’s midterm congressional elections, say the programs benefited Wall Street firms and unnecessarily expanded the budget deficit.
Nervous About Debt
“Now you’re seeing some of the down-sides because the debt is much higher and that’s making people nervous about the possibility of tax increases or other damaging effects of the debt,” Taylor said.
Congress authorized $700 billion for the Troubled Asset Relief Program in October 2008, during the presidency of George W. Bush, aimed at preventing a collapse of the U.S. financial system. Taxpayer bailouts of companies including Citigroup Inc. and Bank of America Corp. ensued.
The program has been criticized by lawmakers from both parties, including Senator Maria Cantwell, a Democrat from Washington state, and Representative Jeb Hensarling, a Texas Republican, for helping big banks more than average citizens.
Blinder, a former Fed vice chairman who’s now a vice chairman at Washington-based banking consultant Promontory Interfinancial Network LLC, said in the radio interview that his analysis with Zandi found “considerably stronger effects on the economy from the financial policies than from the fiscal stimulus -- which is not to say the fiscal stimulus didn’t have a large effect. It did. But the financial policies had an enormous effect.”
Clinton Adviser
Blinder was a member of former President Bill Clinton’s Council of Economic Advisers.
Had the Bush and Obama administrations not acted, GDP would have fallen 7.4 percent in 2009, the economists said in the report, titled “How We Ended the Great Recession.” The economy contracted 2.6 percent last year, the Commerce Department said July 30.
The Obama administration has implemented various programs to jumpstart consumer spending, which accounts for about 70 percent of the world’s largest economy. One initiative, known as “cash for clunkers,” offered auto buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel- efficient vehicles. The program expired last year.
“These things are not affecting the dynamics of the economy,” said Taylor, who included in his criticisms a tax incentive for homebuyers. “They’re not creating a strong recovery.”
To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net
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