New Economic Study: If People Don't Eat Chicken, They Will Starve to Death

This surprising result -- that the failure to eat chicken leads to starvation -- would be shown true using the same methodology of 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 provides 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 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 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, it fits the bill, but it is not serious analysis and the media should not treat it as such.

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written by izzatzo, July 29, 2010 7:39

The implicit counterfactual is to alternate counterfactual

As concentration of wealth is to trickle down wealth

As golden parachute is to free puke bag

This is Captain Blinder and Co-pilot Zandi, we're going to crash land because credit is not handy

We're collecting wallets on behalf of TARP, put your heads between your knees as the plane we depart

With the only two parachutes, to save the golden geese, to lay some more eggs, even if you're deceased

There's only one counterfactual, either chicken or nothing, so fork it over now and pray for our survival, lest you end up eating cake at the KFC revival

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written by Scarecrow, July 29, 2010 8:46

I'm not sure Blinder/Zandi are trying to defend the exact choice/blend of interventions. Rather the main point seems to be that it took massive intervention by the Fed, Treasury, stimulus etc to avoid a far more serious recession, and that without SOME intervention of large magnitude, it would have been much worse. That's a different point from arguing this was the best choice/blend of intervention options.

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written by tinbox, July 29, 2010 8:56

Excellent post.

But these are very Serious economists and who will argue with them--who didn't support TARP? Paul Krugman sure did, so did DeLong...and for the same reasons that B&Z conclude that the TARP worked--it was better than nothing.

So not only will the media treat it as serious analysis, so will top Democratic economists. (Dems voted for the TARP)

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written by skeptonomist, July 29, 2010 9:11

This "study" appears on Moody's site and was presumably sponsored by them. It's one thing if Moody's puts out self-serving hackery, but why do academics like Blinder participate? I would think they would avoid making their ownership by Wall Street quite as obvious as this.

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written by misterxrobto, July 30, 2010 8:47

Suppose as an alternative counterfactual, we let the market do its work.

Maybe I just don't get it, but isn't that the equivalent of doing nothing?

It seems a more apt counterfactual would be Roubini's idea: nationalize the banks.

Then you'd have the choice of chicken (TARP), beef (Nationalize), or nothing (let the market do everything).

-1

I've never trusted Blinder
written by Quiddity, July 30, 2010 9:14

It does look like he's carrying water for someone in this instance.

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written by Anonymous, July 30, 2010 9:54

I think their point is that, although you may agree or disagree with the exact path the intervention took, it worked. Sure, there were mistakes. There are always mistakes. Were there mistakes in the Allied response to WWII? Of course, lots of them. Were the Allies in WWII still better off fighting back instead of doing nothing? Of course they were.

-2

Featured on PBS NewsHour
written by leo, July 30, 2010 11:55

Too bad Baker wasn't on last night's PBS Newshour. They featured former McCain adviser Mark Zandi and even more conservative economist, John Taylor to discuss this -- as if that were the universe of opinion on the subject.

http://www.pbs.org/newshour/bb/business/july-dec10/economy_07-29.html

Are we better off?
written by Scott ffolliott, July 30, 2010 12:47

Are we better off?
It does depend on who we are?
Cue bono?

We, the working class, are not better off in the U S of A. It can be argued that had the rescue been focused on creating jobs and credit directly to working people while closing down the non-productive financial institutions, we would be much better off now.

replica watches
written by sean.waches, September 07, 2010 10:08

I like your theory. It explains a lot about Holmes/Watson too (both old and new), which, while not incest, always has turn-century-homophobia giving it a charge. Even if the writer doesn't choose to deal with the question of transgression directly, there's Paul Picot replica watches
always going to be a reason that H&W can't be open about their relationship.

New Economic Study: If People Don't Eat Chicken, They Will Starve to Death

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