Shocker: The Fed is the Real Savior

I’m back!  With an Understatement of the Year Nominee:

The $787 billion stimulus package was a good for the economy, but the Federal Reserve played the biggest role in rescuing the U.S. economy from the financial crisis, according to the majority of economists in the latest Wall Street Journal forecasting survey.

“A much worse result would have occurred if nothing had been done,” said survey participant Allen Sinai of Decision Economics, co-author of a paper examining the effects of government intervention with colleague Paul Edelstein. But “the absence of monetary policy easing [by the Fed] would have resulted in a much worse economy than the absence of the fiscal policy stimulus.”

You.  Don’t.  Say.

Despite what others have observed, I think conservatives, by and large, believe that just because the stimulus has indeed created some jobs—a maximum of half of what it was supposed to (Wait!  Wait!  We haven’t spent all of it yet!  Well, what’s the point of the “jobs bill” then?)—does not mean that it wasn’t a “flop”.  As Frum points out, it has probably had even less effect than CBO claims because a significant portion of the funds went to state governments, which promptly directed the resources toward preserving government jobs, which pay more than private sector ones.  Indeed, as everybody begins to agree that the stimulus has already had its greatest possible effect on unemployment—it probably peaked a long time ago—is it really that big of a stretch to say that the rest of the unspent money will do more harm than good to our long-term economic prospects?

This also stresses, again, the inability of fiscal policy to combat economic recession.  I get it: it’s January 2009, interest rates have been at zero for four months, the economy is still in the tank, and you have to at least try to do something.  But what are you going do to?  People save their tax cuts and rebates during recessions.  Infrastructure spending takes forever.  State governments just use federal dollars to shore up their budgets.  In the end, easy money is what counter-acts the downside of the business cycle.  If conservatives are in denial/pretending that ARRA didn’t create any jobs, then liberals are in denial/pretending that it was the Administration that kept the country out of depression.  TARP, which stabilized the banking system and cleared the path for the recovery, started under the 43^rd Administration.  The Federal Reserve, which is the real hero, is not headed by the President.  The current Administration deserves basically no credit for (what I hope is) the recovery that we’re experiencing.  Feel free to keep pretending though—the voters don’t agree with you.