At Big Think, a consortium of bloggers (including me) have been invited to submit questions for use in video interviews with major players in the financial crisis. I posed a question to Mark Zandi, the chief economist at Moody’s, who had recently said this:
“It’s no coincidence that the great recession ended just as the stimulus package began providing its maximum economic benefit.”
My question was:
How do you know?
Here, from the video, is Mr. Zandi’s answer:
Well, it’s a good question. I mean, we can look at individual aspects of the stimulus package and then look at the parts of the economy to which that stimulus would have an impact. So for example, the Cash for Clunkers, we know that that had a huge effect on vehicle sales and helped turn around vehicle production and employment in the vehicle sector. The First Time Homebuyer Tax Credit, the housing market stabilized this summer. Housing prices actually have risen a little bit in the last few months. Now there are many reasons for that, all of them policy related, but one of the key policy aspects that helped the market was the First Time Homebuyer Credit.
This is, to put it mildly, ridiculous. Everyone knows that the Cash for Clunkers program diverted resources to the car industry—and therefore away from other industries. We got more cars, and less of something else. How does Mark Zandi know that more cars plus less of something else equals more stuff? That was my question, and he didn’t answer it.
Scott Sumner, who is always worth reading, makes the same point in a larger context.