Clarence
the angel has a tough job in "It's a Wonderful Life." He must show the
suicidal George Bailey what terrible things would have happened had he
not been born. Two prominent economists are playing Clarence to the
multitudes who believe that forceful government intervention during the
financial meltdown should never have been. Using econometric models,
Alan Blinder and Mark Zandi argue that the bailouts, the stimulus and
other extraordinary actions saved America from nothing less than
another Great Depression. Blinder was vice chairman of the Federal
Reserve. Zandi is chief economist at Moody's Analytics and advised
Republican presidential candidate John McCain. Had Washington not
taken any aggressive steps starting in 2008, the results would have
been horrific, their study says. Real gross domestic product would have
fallen a "stunning" 12 percent, rather than the actual decline of 4
percent. Nearly 17 million jobs would have vanished, twice as many as
the real count. And the unemployment rate would have peaked at 16.5
percent. The campaign trail is not a welcoming place for careful
analysis. Tea party favorites routinely bash their opponents (often
fellow Republicans) for having supported the stimulus and various
government rescues. In Arizona, Republican Senate candidate J.D.
Hayworth pounds incumbent McCain for having supported the $700 billion
bank bailout, known as the Troubled Asset Relief Program. In Texas,
Republican Sen. Kay Bailey Hutchison lost a primary race for governor,
many say, because she voted for TARP. Rep. Roy Blunt, a Missouri
Republican running for the Senate, refers to the $800 billion program
to revive the economy as "the now-failed stimulus." In Florida,
Republican candidate for the U.S. Senate, Marco Rubio, jabs
Republican-turned-independent Gov. Charlie Crist for backing a stimulus
that "has failed to keep unemployment from soaring." Such contenders
often cite Barack Obama's projection (they use the word "promise") that
unemployment would level off at 8.5 percent once Congress passed his
stimulus plan. With joblessness now at 9.5 percent, Obama clearly
underestimated the challenge, but that's still a whole lot better than
16.5 percent. Ignoring what might have happened had the government
not launched a vigorous response may be irresponsible, but it can be
good politics. That's because many Americans -- seeing the weak job
picture and forgetting their own terror during the early days of the
economic freefall -- can be convinced that such polices were
ineffective and possibly counterproductive. They remind me of family
members who, four weeks after a quadruple bypass, want to know why
Grandpa isn't dancing. At least the family knows that the operation was
needed. One number the public does see and understandably dislikes
is the federal budget deficit. Most assume that TARP and the various
recession-fighting programs helped raise the deficit to $1.4 trillion
in fiscal 2010. But how many have considered what that number might
have been with no policy response? Blinder and Zandi have. Recessions
themselves fuel deficits by raising social spending and lowering tax
revenues. Thus, government programs that make economic downturns
shallower and end them sooner can pay for themselves. If Washington
had not reacted as quickly and as forcefully as it did, the two
economists write, "the costs to U.S. taxpayers would have been vastly
greater." With no special government intervention, the 2010 deficit
would have passed $2 trillion, according to their model. It would have
reached $2.6 trillion in fiscal 2011 and $2.25 trillion in 2012. Add
outright deflation to the expected massive unemployment and falling
GDP, Blinder and Zandi conclude, and "this dark scenario constitutes a
1930s-like depression." Happily, government stepped in, and America
bucked a catastrophe. How fortunate for us all that the tea party
wasn't running Washington.
To
find out more about Froma Harrop, and read features by other Creators
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