How’s That Radical Socialist Agenda Workin’ for Ya? August 2, 2010Posted by Dwight Furrow in Dwight Furrow's Posts, politics.
Tags: The Great Recession
The polls say that the public thinks government actions, taken over the past two years, to prevent the economy from collapsing were ineffective and unfair. Everybody hates the bailout of the financial industry, the stimulus package was just wasted taxpayer money, and the bailout of the automobile industry was an excessive government intervention in a private enterprise, according to this version of events.
This of course is precisely what Republicans said about these efforts (despite the fact that most of them voted for the bailout of the financial industry.)
Democrats have insisted that strong government action avoided a catastrophe, but somehow it is the Republican version of events that has captured the public “mind”’.
But what about the reality of the situation?
Two respected economists have tried to quantify the effects of the financial bailout and stimulus package.
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.
The paper, by Alan S. Blinder, a Princeton professor and former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics, represents a first stab at comprehensively estimating the effects of the economic policy responses of the last few years.
“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. […] “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,”
Zandi is no left wing economics professor. He was an advisor on economic policy to the McCain presidential campaign.
What about the Republican do-nothing approach? Would that have worked? Bender and Zandi write:
It is clear that laissez faire was not an option; policymakers had to act. Not responding would have left both the economy and the government’s fiscal situation in far graver condition. We conclude that [Federal Reserve Chairman] Ben Bernanke was probably right when he said that “We came very close in October  to Depression 2.0.”
As to the government bailout of the auto industry, when President Obama rescued the auto industry last year, Republicans claimed that not only would the government takeover not work and the taxpayer would have to foot the bill but that this was a socialist agenda designed to destroy capitalism.
But as the Washington Post noted last week, “many of the critics have retreated from their sharpest attacks as they watch the auto industry once again turn a profit.”
In the first quarter of 2010, GM earned a quarterly profit of $865 million, its first since 2007. Chrysler reported an operating profit of $143 million over the same period.
Preliminary figures suggest that auto industry employment in the United States may reverse a decade of decline. […] Today, most of the government money is expected to be repaid, but the program’s ultimate cost was estimated by the administration in March to be $24.6 billion. Administration officials predict that the expected loss will fall as the companies in which the United States has an ownership stake grow in value.
General Motors is expected to have a public offering of stock as early as August; Chrysler’s is expected next year. The government investments could be repaid then.
And thousands of people are employed who would have lost their jobs had the government not intervened and the tax payer is much better off than without the intervention.
Of course Republicans are now trying to take credit for the policy. Senator Corker now says:
“The ideas [Republicans] laid out there were followed through,” Corker told the Washington Post. “I take some pleasure out of helping make that contribution.”
There dishonesty is breathtaking.
It is a good thing the adults were in charge last year. It might be a good thing to keep them in charge.
For political commentary by Dwight Furrow visit: www.revivingliberalism.com