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This surprising result — that the failure to eat chicken leads to starvation — would be shown true using the same methodology as a new study on the impact of the TARP. The study, by Princeton University Professor Alan Blinder and Mark Zandi, the chief economist at Moody’s Analytics, examines the impact of the TARP and the stimulus on economic growth and unemployment. It finds that GDP would be 11.5 percent lower in 2010 had it not been for these two policies, with about three quarters of the benefits attributable to the TARP and various Fed/Treasury/FDIC policies that provide aid to the financial sector.
While the analysis of the stimulus is pretty standard and very much in keeping with other estimates, this is not the case with the analysis of the financial sector policies. The problem with the study is the implicit counterfactual. It effectively assumes that if we did not do the TARP and related policies, that we would have done nothing even as the financial sector melted down.
This is comparable to doing an analysis of the benefits of eating chicken where the counterfactual is that people eat nothing. Needless to say, we would find very large benefits to eating chicken in such a study.
Suppose that as an alternative counterfactual, we let the market do its work. Citigroup, Goldman Sachs, Bank of America, Morgan Stanley would be out of business, with their highly paid CEOs walking the unemployment lines. Rather than doing nothing, we could then have the Fed flooding the system with liquidity (much as it did), without having to worry about money being siphoned off by bonuses for the honchos who led these banks to ruin.
It would be difficult to fully flesh out the counterfactual in this scenario but it is certainly more plausible than the one described by Blinder and Zandi. If we need a study to make us feel good about the fact that the Wall Street is rich while the rest of the country is poor, this study fits the bill, but it is not serious analysis and the media should not treat it as such.
47 Comments
Thank you, Dean, for debunking smug know-nothingness.
The disconnect is astounding.
That so many have swallowed this as gospel is beyond absurd.
It is nothing but empty calories.
DW
Thanks Dean.
I’m sure this academic study will be used to skewer NPR listeners on the morton’s fork of making the rich richer -or- making the poor poorer.
When I read the work of these well paid “experts” I say to myself: What clowns! I could do that! But then I remember that I have a soul and thus lack the key virtue which drives these men.
That would be Bill Clinton’s Alan Blinder, in case you’ve forgotten.
And that would be the same Bill Clinton whose economic major domo was Bob Rubin, former head of Goldman Sachs. So waddaya expect.
I wonder if anyone really wants to do an analysis of how well of this country would be if they took bank tarp and simply created public sector jobs, small business loans, infrastructure projects, research and development projects
man, this economy would be like;
what?…there was a depression just a year ago?
instead, give money to the corporations that pillaged our economy and brought it to our knees, some of the crumbs from their largess falls to the economy and some people want to claim this is some kind of success
BRILLIANT
Great news for chickens, bad news for us vegans.
“I had the choice between burning down the neighboring homes so my home didn’t burn down, getting fire trucks to the area to save everyone, or doing nothing
I chose burning down my neighbors house, which saved my house so there is proof that burning down my neighbors house was the right solution”
I’m sure I could come up with a better scnenario that describes the self serving “study” but I only had a few seconds and it developed as I typed
I’m sure someone else can come up with a better scenario then I did
not such great news for chickens though, better news for cows cause if you eat cows you’re gonna starve as we see the study shows if we don’t eat chicken we starve
chickens need to hide right about now
Wiki has an interesting example:
Of course, that could spur a whole different discussion.
: – )
Wow, you’re right. Haven’t eaten chicken in years. I think I’m about ready to collapse.
Hope the birds in the sanctuary for wayward chickens in Key West are safe.
I’m not making up my mind about this until Megam McArdle weighs in on it, and she’s busy with Part II of her own debunking of Elizabeth Warren. So I’m not making up my mind about this.
New post up top…
Thanks, Dean. The illogic of this report is beyond belief for two economic “experts.”
How can Zandi and Blinder ever get taken seriously again, or do Universities, these days, give a pass to economists who make their role as political animals trump their role as economists?
Must be all that grant money.
Dr. Baker,
It’s good to see that you and other economists have made the point that our nation has to create a 100 million plus jobs in the next twenty to thirty years, if we are going to capture any economic viability in the future. Thus, the “stimulus” did one thing that makes sense to date, and that was investing in the automotive industry and consequently, hundreds of thousand jobs were either maintained or even created.
As to the economic study under discussion, had the financial institutions failed and faced a bankruptcy, historians would have the ability to investigate what I believe to be, was the actual cause of the financial meltdown, and that being the Sovereign Funds. When these Funds were faced with a severe meltdown for being sold bogus financial instruments, the Oval Office and the leaders in Congress quickly realized that any American traveling, visiting or working in any of these 150 nations, the lives of Americans would be worth about a plugged nickel or a stick of stale gum.
Now if the Oval Office and Congress fail to create a wealth of jobs, even using taxpayer dollars, we here in the Spanish-speaking community, will be feeling the brunt of this political failure, far more than other non-Spanish-speaking communities. Consequently, immigration reform will pale in comparison to jobs creation and which will cause greater problems for Democratic Leadership and their less than astute political operatives. To wit, the street demonstrations of yesterday here in Phoenix, Arizona, will be far greater in passion and much larger in the number of participants, and the Democratic leadership team won’t have the luxury for hiding under the bed.
And last but not least, thanks for your assessment.
Jaango
“[B]ut it is not serious analysis and the media should not treat it as such.” And yet you know they will.
You are a bit hard on Blinder – who I’ve disagreed with over the years, but not on this.
What you are saying is you are upset he did not do a comparison of TARP with a Fed balance sheet only approach and swaps redeemed at market rather than at 100 cents on the dollar – in effect taking on the counter-party credit risk for no good reason.
I concur the TARP versus nothing study design – while reasonable given the politics of getting anything else passed – is a value limiting decision. But I found the information useful and interesting. And setting up an alternative Fed response is complicated by the arbitrariness of the decisions on what to include in that response.
Given the rapid pay back of TARP funds by the banks, one wonders how useful it was. It appears the Fed was trying to save Deutsche Bank and other EU banks, in some theory of preventing a world wide melt down – or at least protecting large investors in the mid-east and elsewhere.
And one of the primary justifications for all of that TARP money was that banks would need to be bailed out, in order to be able to continue to loan money to small business.
What money?! …and to which small business?!
They have not held up “their” end of that so-called bargain.
and the real question there is;
“why the hell couldn’t the government make the loans straight to small business themselves?”
in other words, the entire issue of an entity to make those loans did not even exist
Your argument rest on the idea that in addition to pointing out what would have happened if Tarp had not been implemented they should have also included the woulda shoulda coulda alternatives. To do so would have demanded they indulge in alternatives that history has never ever offered. How can someone do a study of alternatives that never happened? We have no idea what kind of things could or would have been implemented and never will. I understand the weakness in their work but to do as you suggest would have been immediately considered a politically motivated study from all sides because any alternatives are speculative and inherently biased
and the government knows who the small businesses that are hurting.
they are the ones that owe the IRS payroll taxes.
it would have been a simple thing to do, every business that fell behind on taxes after 2001, would get a low interest loan.
Everything seems to be ‘bait and switch’ nowadays. If they tried selling this BS as what it is they wouldn’t have a chance.
Mr. Baker wrote:
In hind sight, I’d bet 80% of the population would opt for any alternative — including doing nothing. They actively created this mess, screw them.
How can someone do a study of alternatives that never happened?
They did just that. The counterfactual world where there was no TARP was the alternative.
True this is the weakness of this report. My argument was that adding possible alternatives to the implemention of Tarp would make it a study in speculation.
If I remember correctly there was only one alternative to Tarp at the time and that was to let the market take it’s course, in other words do nothing. This happened under Bush and these were the choices under discussion. Did the Administration at the time offer any other choices? The debate seemed to be Tarp or nothing.
It wouldn’t make it any more of a study in speculation than it already is. Why not compare TARP to a credible response rather than a do nothing response? In what way would that be any more or less a matter of speculation?
Considering this study without somehow speculating on the possible outcomes of alternative actions might be equally biased and politically motivated. It’s like believing “there was no alternative.” The best use of this study would be in gauging the possible effectiveness of alternatives against the known outcome we see here. Like finding clues to building a better chair in the collapse of the last one you built.
Our problem seems to be that everyone in charge comes from Wall Street and they primarily have Wall Street’s interests at heart.
Off the top of my head, and this may not be relevant to the discussion, but when I think of housing and that industry’s importance to society I’d say it’s primary importance is to the people who shelter in the houses, of secondary importance would be the jobs building and maintaining homes, Wall Street and other middlemen might come in third if I haven’t forgotten something. Since money is power, that gets turned on it’s head.
No, there were other alternatives voiced. Here’s a few examples:
James Galbraith, Sept 2008, WashingtonPost: A A Bailout We Don’t Need
Dean Baker, Sept 2008, TPMCAFE: Progressive Conditions for a Bailout
There were alternatives voiced bt NOT considered or debated. I understand the desire to discuss what ifs that Progressives had offered and how they would have been infinitely better but they were not. We will never know what would have been. Unfortunately history offers no alternatives.
I would like to say no Matter how valid Dr. Bakers argument is. This study has help deal wiht the Rethuglican meme that Tarp was useless. It has put the rethugs on the defensive to some degree. In my thinking the main problem with Tarp was it was not geared for helping main street. So as usual the people got screwed.
So you’re only interested in looking at the options presented to Congress by Henry Paulson?
I hardly see how that would lend any credibility to the notion that TARP was the right thing to do.
I never suggested Tarp was the Right thing to do. I said it was the only choice offered with the alternative of doing nothing and letting the markets deal wiht them alone. At the time the situation was presented as an impending disaster that had to be done immediately or else we were in for a crash of 1929 magnitude. whether that was true or not is certainly debatable. Obviously Tarp was enacted. The study under discussion considers the impact on our economy as opposed to doing nothing. What alternatives to tarp and their impact is in my opinion is just speculation to far afield.
Baker makes the point I made yesterday in scarecrow’s post on this subject. The comparison of doing something vs. nothing is a talking point, nothing more. The real comparison is between what was done and what needed to be done.
Yup. Exactly.
The TARP was useless. Remember its original purpose was to buy up crap assets from banks via a reverse auction. I could go into why this did not happen but suffice to say that it did not. Instead in a last bid effort to justify a reason for its existence at all, a small, up to then ignored, provision that had been almost accidentally retained, was used to make loans to banks. But this really wasn’t necessary because the Fed was already providing liquidity to them and in much larger amounts. Now there was kabuki about the government using the TARP loans to cut back on bonuses but this largely didn’t happen. First, the government allowed bonuses to go forward that were already in the works, you know all that “sanctity of contracts” BS. Second, most of the big banks “repaid” the TARP loans (if you can call paying off one government loan with ZIRP supplied cash) so they could go back to paying those bonuses.
The only effective uses of TARP that I can think of were the loans to the auto industry, and here too that was really outside the original TARP mandate.
We are all vegetarians now.
Now I can agree with this statement.
“The real comparison is between what was done and what needed to be done.”
Although we must agree this statement is more in the realm of the political. As a strong progressive I believe we are in a world where what is obviously the right thing to do is more often ignored and dismissed to the Chagrin of those in the know who offered them and as usual proven correct. Yet ignore over and over again. I’m sure Dean Baker is absolutely right in his preposition that the study in question ignores all the alternatives that were offered at the time and the study should have presented them. If only they listened to him and the rest of us hippies we would be in a much better place today and in truth we never would have had a President Bush in the fires place.
If they can take the time to calculate “what woulda, coulda happened” without the TARP bailout, they could take the time and spend the resources to postulate what “woulda coulda shoulda” happened with other reasonable scenarios, many of which were proposed at the time. That would have lent less partiality and more validity to the study. As the study stands now it is obviously a “politically motivated” study as you put it.
But they didn’t did they. When you do your study I’m sure you will cover every woulda,coulda, shoulda. It will be a marvelous piece of well studied speculation but it will be your ‘politically motivated’ study.
Yep, they’re killin us, and it ain’t softly with no song either, just a macabre dance of doom.
Class war, baby.
Tastes like tofu!
;-)
Just kidding, of course, and I loved your comment . . . VERY well struck!
*G*
Not me, nicely done Perris!
lol
Nicely done Jaango . . . as was Mr. Baker’s piece.
Love this town, always rcc’d of course . . .
*G*
Class war baby, class war.
/Telly Sevalas Accent
Two nice catches, thanks . . . I thought I had bookmarked those, but didn’t!
They is now . . . lol
Class war.
What needs to be done is presently not an option for the masses that will be considered, but likely, the inevitability of our collapse will certainly alter our options. ;-)
In a pig’s eye!
;-)
Ummmmmm . . . I smell bbq!
lol
Right, whereas you’ll keep studying only what was deemed mete by the powers that be and come to the conclusion: hey, we can’t consider the effects of any other course of action since they weren’t taken so the one that was must have been really, really salutary-relative to the much more reasonable-to-consider course of doing nothing at all. It’s called a foregone conclusion.