The No-Stimulus Baseline
David Leonhardt writes:
The Impact of Another Kind of Stimulus: On Wednesday, Alan Blinder, the Princeton economist and former Federal Reserve vice chairman, and Mark Zandi, chief economist of Moody’s Analytics, will release a new analysis of the federal government’s response to the Great Recession. 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....
We find that the effects on real GDP, jobs, and inflation are huge, probably averting what would have been called Great Depression 2.0. For example, we estimate that, without the policy responses, GDP in 2010 would be about 6½% lower, payroll employment would be about 8½ million jobs lower, and the nation would now be experiencing deflation.
When we divide these effects into two components, one attributable to the various rounds of fiscal stimulus and the other attributable to the panoply of financial-market policies (including the TARP, the bank stress tests, and the Fed’s quantitative easing), we estimate that the latter are substantially more powerful than the former. Nonetheless, our estimated effects of the fiscal stimulus policies alone are very substantial: In 2010, real GDP that is about 2% higher, an unemployment rate that is about 1½ points lower, and almost 2.7 million more jobs...
As Mr. Blinder and Mr. Zandi note, their estimates of the fiscal stimulus are similar to the estimates of others — including the Congressional Budget Office. The program has had a very large, and positive, effect on the economy. And the effect of the the policies aimed at financial markets seems to be even larger.
It is very nice to see that they are attempting this. The hard part of it, of course, is figuring out what would have happened to the flow-of-funds through financial markets in the absence of TARP, of quantitative easing, and of other extraordinary financial policy interventions. That they were, collectively, about twice as big as the ARRA smells right to me, but the only pieces of information I have to support that are even shakier than back-of-the-envelope calculations.
