How the Great Recession Was Brought to an End

[SunsetDreams]

Prepared By
Alan S. Blinder
Mark Zandi
JULY 27, 2010

The U.S. government’s response to the financial crisis and ensuing Great Recession included some of the most aggressive fiscal and monetary policies in history. The response was multifaceted and bipartisan, involving the Federal Reserve, Congress, and two administrations. Yet almost every one of these policy initiatives remain controversial to this day, with critics calling them misguided, ineffective or both. The debate over these policies is crucial because, with the economy still weak, more government support may be needed, as seen recently in both the extension of unemployment benefits and the Fed’s consideration of further easing.

.....

When we divide these effects into two components—one attributable to the fiscal stimulus and the other attributable to financial-market policies such as the TARP, the bank stress tests and the Fed’s quantitative easing—we estimate that the latter was substantially more powerful than the former. Nonetheless, the effects of the fiscal stimulus alone appear very substantial, raising 2010 real GDP by about 3.4%, holding the unemployment rate about 1½ percentage points lower, and adding almost 2.7 million jobs to U.S. payrolls. These estimates of the fiscal impact are broadly consistent with those made by the CBO and the Obama administration.2 To our knowledge, however, our comprehensive estimates of the effects of the financial-market policies are the first of their kind.3 We welcome other efforts to estimate these effects.

The U.S. economy has made enormous progress since the dark days of early 2009. Eighteen months ago, the global financial system was on the brink of collapse and the U.S. was suffering its worst economic downturn since the 1930s. Real GDP was falling at about a 6% annual rate, and monthly job losses averaged close to 750,000. Today, the financial system is operating much more normally, real GDP is advancing at a nearly 3% pace, and job growth has resumed, albeit at an insufficient pace.

.....

Critics who argue that the ARRA failed because it did not keep unemployment below 8% ignore the facts that (a) unemployment was already above 8% when the ARRA was passed and (b) most private forecasters (including Moody’s Analytics) misjudged how serious the downturn would be. If anything, this forecasting error suggests the stimulus package should have been even larger than it was.

A most excellent economic paper, very well written.
Here: http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf

[marmar]

1. I suspect most people in the real world would tell you it's not over.

nt

[impik]

3. Not most people and not even

half of them. Too many, yes, way too many, yes - but not most.

[marmar]

5. Ahem....

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aTLKHA2yXnHk

[SunsetDreams]

4. that might be true,

who knows? This paper if one reads it, will show that it could have been much worse.
Is there still work to do? Of course.

[Oregone]

11. "will show that it could have been much worse"

Which doesn't mean its over and which doesn't mean it wont get worse; the more "safe" people feel, the more non-evasive economic intervention may become, which could lead right back into a disaster. And in the meantime, even with an upward steady trend, until we are back at baseline suffering will persist; it is in everyone's interest that the government help to achieve full employment as soon as feasibly possible.

One thing I found interesting today:
http://finance.yahoo.com/news/Recession-was-deeper-than-apf-3247751846.html?x=0&.v=3">Recession was deeper than gov't previously thought

The Commerce Department, in revisions issued Friday, estimates the economy shrank 2.6 percent last year -- the steepest drop since 1946. That's worse than the 2.4 percent decline originally estimated.

The economy's plunge underscores why the unemployment rate surged to 10.1 percent in October, a 26-year high.

The revisions in gross domestic product, or GDP, now show zero growth in 2008. That compares with a 0.4 percent gain previously estimated.The economy also grew less in 2007 (1.9 percent) than earlier thought (2.1 percent).

For all three years, consumers spent less and home builders cut more deeply than had been thought. Those factors help explain the downward revisions on the economy.

The revisions also show that struggling state and local governments cut spending more last year than previously thought. And they spent less in 2007 and 2008.

The economy slid into its worst recession since the Great Depression in late 2007. Many economists think the recession ended last summer, although a panel of academics that dates the start and end of recessions hasn't declared when this one ended. The panel usually does so well after the fact.

From the start of the recession in December 2007 until the April-to-June quarter of 2009, the economy sank 4.1 percent. That was deeper than the 3.7 percent decline previously estimated for the recession.

[SunsetDreams]

13. Thank you for quoting me

I don't profess to say it's over, I haven't made that argument. My argument is that it could have been much worse, than it is.
The writers of the paper, knew the recession was deeper than anyone thought, as well.

Thank you for adding that piece to this thread. It helps one understand what the writers were talking about in the 4th paragraph that I copied.

[Oregone]

14. Well thats like arguing about the shape of the world to Flat Earthers

Of course stimulus isn't zero-sum. Of course without it, things would be "worse". Continuing this discourse with a non-believer may not be entirely fruitful. That said, this concept doesn't mean....

1) it was the most efficient stimulus
2) it was the proper size
3) that the problem is completely solved (recession over)
4) no more intervention is needed or helpful

So I'm merely posting to get that out in the air. Too much confidence could become problematic when implemented into policy (see 1937); so criticism of past action and advocation for future action is still very appropriate and necessary. Even Zandi has publicly said more stimulus is needed.

[DrToast]

7. That wouldn't mean they were right.*

*

[asdjrocky]

2. Not over in my town.

Two neighbors lost their homes in July.

Unemployment at 17%.

Maybe for wall street, not for the rest.

[SunsetDreams]

6. Yes, the

individual stories are heartbreaking. You are correct, in representing that the Unemployment rate, is higher in certain areas.
This paper is talking about the average. One has to wonder if those unemployment rates were broken down by state, city, if some of it might be a result of that state/cities policies, as well. It could be that there was a major factory/business that went down, that bolsters those numbers too. Those numbers definitely need to be broken down to get to the heart of the reason, they may be higher in some places than others.

[seattleblue]

9. The unemployment rate is broken down by state and city

and everything else if you bother to look for it. http://en.wikipedia.org/wiki/List_of_U.S._states_by_unemployment_rate The average unemployment (the ones they still count) is near 10% and the real rate is probably 16-17%. No the Great Recession is not over. It is just over for Wall Street and those who are trying to cover up for them and tell us to "move along now, nothing more to see".

[SunsetDreams]

10. You are correct, I've seen that graph, BUT

it doesn't get to the heart of the reason.

[seattleblue]

17. The reason is that our industry has been exported.

We are left with a service/information based economy. That type of economy can't support a nation as large as ours.

[Kurovski]

18. +1 (nt)

[SunsetDreams]

19. I believe that is part of the reason

too. It's a piece of the puzzle.

[TheKentuckian]

22. Because investment is the new work, work is the new welfare, welfare is the new hell and so on

Almost equally dangerous is the huge concentration of wealth in the hands of people who can only spend a tiny portion, no longer invest as a principle earning system because it is a sucker's bet when you've got the big returns and minimal to zero risk speculation.

You mix that with exporting any position that isn't nailed down or pays high six figures, a decade of flat and declining wages, modernization, automation, a ton of disincentives to create small businesses (especially the refusal of capital to invest), and about a thousand kinds of slickster schemes facilitated by a captured government and you start seeing a pretty nasty picture.

[The Northerner]

8. Until the unemployment rate decreases significantly, I'll continue to doubt there's a recovery

[MadHound]

12. We haven't seen the end of this recession, at most all we've seen is a paper recovery

Out in the real world 16% of our population is still unemployed, even more are underemployed. Money is still tight, foreclosures are still plentiful, people aren't spending and companies aren't expanding. Tax revenues are down, millions are underwater on their home, and personal debt is still at crisis levels. And that's just the average, nationwide big picture. You start going into places like Detroit, Florida, etc. and you'll find even less positive news.

Yes, corporate America has pulled up out of the recession. But the fact of the matter is that the rest of us are still stuck in the quagmire, and many are still sinking out of sight.

[IndianaGreen]

16. To the jobless recovery we can now add a paper recovery

I am happy that people that write bullshit such as the OP author, are gainfully employed.

[treestar]

15. K&R

:kick:

[pnorman]

20. K & R for the entire thread.

n/t

[amborin]

21. Consensus: Not only NOT over, but heading for a 2nd big dip