Government intervention during the financial crisis saved the economy from a fate worse than the Great Recession, say economists Alan Blinder and Mark Zandi.
Blinder is a professor at Princeton and was vice chairman of the Federal Reserve in the Clinton administration. Zandi is chief economist at Moody’s Economy.com and was an adviser to John McCain.
Action by the government and Fed saved GDP from an additional loss of 6.5 percent, the two say in a new paper obtained by The New York Times. GDP fell 1.9 percent in 2008.
Everything — including the government’s fiscal stimulus, the Fed’s monetary stimulus, the bank bailout, the bank stress tests — helped the economy, Blinder and Zandi say.
“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.
Without those moves, we’d be suffering deflation, Blinder and Zandi maintain. And the steps saved 8.5 million jobs, a bit more than the 8 million jobs lost.
They say the bank bailout had a greater impact than the $787 billion fiscal stimulus program.
Debate has raged over whether the U.S. economy needs more fiscal stimulus.
Harvard economist Ken Rogoff says the United States doesn't need additional stimulus.
“There is a growing chorus for indefinitely sustaining aggressive postcrisis fiscal stimulus,” he wrote in the Financial Times.
“Huge uncertainty hangs over the global economy, but is the case against commonsense fiscal conservatism so compelling? I don’t see it.”
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