Saturday, July 31, 2010

The Stimulus Worked

I just wanted to point the interested reader to this just released report that explains in pretty good detail why and how government intervention saved our economy and ended the Great Recession:

"When we divide these effects into two components - one attributable to the fiscal stimulus and the other attributable to financial-market policies such as the TARP, the bank stress tests and the Fed's quantitative easing - we estimate that the latter was substantially more powerful than the former. Nonetheless, the effects of the fiscal stimulus alone appear very substantial, raising 2010 real GDP by about 3.4%, holding the unemployment rate about 11/2 percent points lower, and adding almost 2.7 million jobs to the U.S. payrolls. These estimates of the fiscal policy are broadly consistent with those made by the CBO and the Obama administration...

The US economy has made enormous progress since the dark days of early 2009. Eighteen months ago, the global financial system was on the brink of collapse and the US was suffering its worst economic downturn since the 1930s. Real GDP was falling at about a 6% annual rate, and monthly job losses averaged close to 750,000. Today, the financial system is operating much more normally, real GDP is advancing at a nearly 3% pace, and job growth has resumed, albeit at an insufficient pace."

And just so you don't get into a trap of comparing Reagan's rapid recovery to this one, Megan McArdle has some comparisons:

"And in exchange, they risk empowering a Republican Senate majority--if not in 2010 (which I think is very unlikely) then in 2012. It's absolutely true that Reagan and others had less popularity at this point in their presidency than Obama. Unfortunately for Obama, financial crises take a long time to recover from. The recession that ate away the popularity of Reagan was a classic monetary contraction that led to a boom as soon as Fed Chair Paul Volcker loosened his iron grip. There's a very good chance that in two years, Obama is still going to be trying to explain why unemployment is above 8% and GDP is kind of anemic. If that's the case, the Republicans will hold the house and the senate at the end of 2012."

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