What makes the current 9.5% unemployment rate look good?
How about one that reaches 16.5%? A paper by Moody’s economist Mark Zandi and Princeton University scholar Alan Blinder contends we would have reached that threshold had the government not poured trillions of dollars into the economy after the financial meltdown of 2008.
The paper, called “How the Great Recession Was Brought to an End,” uses a Moody’s Analytics framework to sketch out what might have happened if the Treasury failed to bail out the banks, Congress failed to pass a stimulus program and the Federal Reserve decided not to flood the economy with cash in late 2008.
Though the true costs and benefits of these moves can’t possibly be measured, count Zandi and Blinder as supporters of the efforts led by policymakers including Fed chief Ben Bernanke, former Treasury Secretary Henry Paulson and current Treasury head Tim Geithner, then at the New York Fed.
Their dedication to countering the collapse of private spending saved 8.5 million jobs, more than a trillion dollars of economic output and the economy itself, they contend.
“We find that its effects on real GDP, jobs, and inflation are huge,” Blinder and Zandi write, “and probably averted what could have been called Great Depression 2.0.”
With Washington again chewing over the need to stimulate the economy as Europe struggles with its debt problems and government spending here loses steam, the economists throw in a timely endorsement of the 2009 fiscal stimulus program.
“The effects of the fiscal stimulus alone appear very substantial, raising 2010 real GDP by about 3.4%, holding the unemployment rate about 1½ percentage points lower, and adding almost 2.7 million jobs to U.S. payrolls,” they write. “These estimates of the fiscal impact are broadly consistent with those made by the CBO and the Obama administration.”
The findings build on statements Zandi has been making for a few years now as Washington’s favorite economist. He predicted in 2008 just a few weeks after President Obama’s election that unemployment could hit 10% in 2010 without a stimulus plan. Obama, meanwhile, has been criticized in some quarters for having predicted unemployment would top out at 8%.
No wonder the administration is promoting the 23-page paper, which is available here and no doubt coming to an election season soundbite near you.