Politics

Economists Say Government ?Intervention Helped Avert a 2nd Depression?

By Karina

Today, economists Mark Zandi and Alan Blinder will release the first comprehensive study that estimates the total effect of fiscal and financial policies of the last few years. In a summary of the analysis this morning, the New York Times writes that the ?sweeping interventions to prop up the economy since 2008 helped avert a second Depression.”

Without the government response:

There would be about 8.5 million fewer jobs, on top of the more than 8 million already lost.

The nation?s gross domestic product would be about 6.5 percent lower this year.

The economy would be experiencing deflation.

Excerpts:

?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.

?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.

By comparison, the savings and loan crisis [of the early 1990s] cost about $350 billion in today?s dollars: $275 billion in direct cost and an additional $75 billion from the recession of 1990-91 ? or about 6 percent of G.D.P. at the time.

??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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Full post as published by The Gavel on July 28, 2010 (boomark / email).