Second Depression Averted Due to Bailouts: Study

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Second Depression Averted Due to Bailouts: Study

Published: Wednesday, 28 Jul 2010 * 5:18 AM ET Text Size By: Sewell Chan
The New York Times DiggBuzz FacebookTwitter More Share
Like a mantra, officials from both the Bush and Obama administrations have trumpeted how the government’s sweeping interventions to prop up the economy since 2008 helped avert a second Depression.

Now, two leading economists wielding complex quantitative models say that assertion can be empirically proved.



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.

“While the effectiveness of any individual element certainly can be debated, there is little doubt that in total, the policy response was highly effective,” they write.

Mr. Blinder and Mr. Zandi emphasize the sheer size of the fallout from the financial crisis. They estimate the total direct cost of the recession at $1.6 trillion, and the total budgetary cost, after adding in nearly $750 billion in lost revenue from the weaker economy, at $2.35 trillion, or about 16 percent of G.D.P.


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.

If the fiscal stimulus alone had been enacted, and not the financial measures, they concluded, real G.D.P. would have fallen 5 percent last year, with 12 million jobs lost. But if only the financial measures had been enacted, and not the stimulus, real G.D.P. would have fallen nearly 4 percent, with 10 million jobs lost.

The combined effects of both sets of policies cannot be directly compared with the sum of each in isolation, they found, “because the policies tend to reinforce each other.”

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.

“When all is said and done, the financial and fiscal policies will have cost taxpayers a substantial sum, but not nearly as much as most had feared and not nearly as much as if policy makers had not acted at all,” they write.
 
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They are hoping the double-dip hits after the mid-terms when they can try to blame it on Republicans and get re-elected in 2012.
 
Alan Blinder, big shock a hardcore Keynesian would have study to show that. They just never admit defeat.
 
Pffffttt. I think we should have followed the advice many Cons gave in the Fall of 2008: let the banks fail, massively cut back government outlays, let auto companies fail, and pursue more deregulation of corporations. That's my story, and I'm sticking with it!
 
Pffffttt. I think we should have followed the advice many Cons gave in the Fall of 2008: let the banks fail, massively cut back government outlays, let auto companies fail, and pursue more deregulation of corporations. That's my story, and I'm sticking with it!

I guess some of us think long term.

When Volcker whipped inflation by jacking up interest rates over 20% people were saying he was doing the wrong thing because it caused more short term harm and higher unemployment but now everyone knows it was what was needed to have the 25+ year boom we had once the inflation was beat. Same thing we need to do with the debt crises. Your shit Keynesian policies will lead to years and years of stagnation like they did in Japan, the Depression and very other time it's been tried.
 
Playing the devil's advocate here, when we do double-dip, its still a case where we are in large recession territory. If we did indeed avoid a depression by bailing out AIG, Freddy & Fanny, and the rest of the major lending institutions (Cypress' reference to the Big 3 was irrelevant, because they were not relevant to the recession - that was all about saving face, jobs, and union contracts), then another hit to the economy would still be preferable to a depression.

That said, I'm not a keynesian...
 
Actually they pretty much say that TARP was useful to some degree, while the stimulus was a failure. Now the administration wants more failure. Go figure.
 
Playing the devil's advocate here, when we do double-dip, its still a case where we are in large recession territory. If we did indeed avoid a depression by bailing out AIG, Freddy & Fanny, and the rest of the major lending institutions (Cypress' reference to the Big 3 was irrelevant, because they were not relevant to the recession - that was all about saving face, jobs, and union contracts), then another hit to the economy would still be preferable to a depression.

That said, I'm not a keynesian...

recession depression, no real difference, except some arbitrarily created designations...
 
Second Depression Averted Due to Bailouts: Study

Published: Wednesday, 28 Jul 2010 * 5:18 AM ET Text Size By: Sewell Chan
The New York Times DiggBuzz FacebookTwitter More Share
Like a mantra, officials from both the Bush and Obama administrations have trumpeted how the government’s sweeping interventions to prop up the economy since 2008 helped avert a second Depression.

Now, two leading economists wielding complex quantitative models say that assertion can be empirically proved.



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.

“While the effectiveness of any individual element certainly can be debated, there is little doubt that in total, the policy response was highly effective,” they write.

Mr. Blinder and Mr. Zandi emphasize the sheer size of the fallout from the financial crisis. They estimate the total direct cost of the recession at $1.6 trillion, and the total budgetary cost, after adding in nearly $750 billion in lost revenue from the weaker economy, at $2.35 trillion, or about 16 percent of G.D.P.


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.

If the fiscal stimulus alone had been enacted, and not the financial measures, they concluded, real G.D.P. would have fallen 5 percent last year, with 12 million jobs lost. But if only the financial measures had been enacted, and not the stimulus, real G.D.P. would have fallen nearly 4 percent, with 10 million jobs lost.

The combined effects of both sets of policies cannot be directly compared with the sum of each in isolation, they found, “because the policies tend to reinforce each other.”

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.

“When all is said and done, the financial and fiscal policies will have cost taxpayers a substantial sum, but not nearly as much as most had feared and not nearly as much as if policy makers had not acted at all,” they write.
You realize Topper that by the lights of the wingnuts on this board this makes you a socialist? LOL
 
They are hoping the double-dip hits after the mid-terms when they can try to blame it on Republicans and get re-elected in 2012.
They couldn't possibly be that politically inept. They are praying, praying hard I tell you for jobs, jobs, jobs. If they can increase jobs and decrease the #'s of unemployed then they can point to these studies as evidence that their policies worked.
 
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