The New York Times reports on a new research paper by former McCain economics adviser Mark Zandi and former Federal Reserve official Alan Blinder:
In Study, 2 Economists Say Intervention Helped Avert a 2nd Depression
WASHINGTON — 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.
Blinder and Zandi argue that despite their political unpopularity, both TARP and the stimulus package were relative bargains, saving the country from even worse economic performance than we've experienced. Of course, even if their analysis is right -- and it's not the final word on this topic -- the fact that things could have been worse probably will not be very reassuring to the 8 million people who lost their jobs.
Even though this research might not ultimately make a great campaign slogan ("It could have been worse" won't be the centerpiece of Democratic campaigns this fall), it bolsters the case made by economists like Paul Krugman that we need more, not less, stimulus from the government and it points to the types of policies Democrats ought to be fighting for to help strengthen the economic recovery.