In a major new paper for CBPP’s Policy Futures initiative, Alan Blinder, former Federal Reserve Vice Chairman, and Mark Zandi, chief economist of Moody’s Analytics, explain that “the massive and multifaceted policy responses to the financial crisis and Great Recession — ranging from traditional fiscal stimulus to tools that policymakers invented on the fly — dramatically reduced the severity and length of the meltdown that began in 2008; its effects on jobs, unemployment, and budget deficits; and its lasting impact on today’s economy.”
Without the policy responses of late 2008 and early 2009, Blinder and Zandi estimate that:
This landmark paper is especially important because many policymakers argue that the 2009 Recovery Act and other measures didn’t work and that the very notion of the federal government helping to stimulate a weak economy is misguided. At some point, the economy will fall into another recession or even, as Blinder and Zandi warn, experience another financial crisis. When either or both occur, policymakers must be ready to use the resources of government to restore a weak economy to health, not stand aside and claim the measures taken to combat the Great Recession failed.
In addition, policymakers must know how to act in effective ways. The Blinder-Zandi paper examines the efficacy of each measure, or set of measures, taken to stem the Great Recession and financial crisis — from TARP (the Troubled Asset Relief Program) and the rescue of auto companies to Federal Reserve monetary policies to the Recovery Act. They find, for example, that the Recovery Act added almost 3 million jobs at its apex.
This paper should prove instrumental both in educating policymakers, opinion leaders, the media, and other key audiences in the years ahead about how the extraordinary measures of 2008 and 2009 rescued the economy — and in providing crucial lessons for how policymakers should respond when the economy falters in the future.