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Monday, July 9, 2012

Beware of a Revival of Misleading Economic Claims

As the 2012 campaign season gains steam we are beginning to hear the same economic claims we heard two years ago during the mid-term election. In 2010 much of the debate was about (1) whether the 2009 stimulus package was a success or a failure, and (2) whether the large deficit and rapidly growing federal debt were nothing to worry about or a serious danger. At least as indicated by the outcome of the 2010 election, those who argued the failure and danger side carried the day, with increased stimulus spending, growing debt and a slow economy at the top of voters’ concerns, which resulted in an unprecedented political shift in Congress. In my view, the economic facts were also consistent with the failure and danger position, and are even more so today.
 
Nevertheless, the same old claims that the debt-increasing stimulus was a success are being made again. In my view they should still be challenged and debated. An example was on yesterday’s ABC’s This Week, where Steve Rattner claimed that there is a bipartisan consensus of economists that the 2009 stimulus was a success, referring to a 2010 working paper by Mark Zandi and Alan Blinder as evidence. Rattner’s claim went unchallenged on the show, but it should have been challenged because it is false.
 
First, there is certainly no consensus that the stimulus was effective, as evidenced, for example, in debates I had with Zandi and Blinder back in 2010. The main points of refutation, which I summarized on this July 29, 2010 blog, are still valid.

Second, the Zandi-Blinder paper is not really bipartisan, certainly not in a Democrat versus Republican sense. Mark Zandi is on the record as saying “I’m a registered Democrat” in a Washington Post interview, and Alan Blinder is certainly not a Republican. Moreover, both were active advocates of the 2009 stimulus package before it was passed. Sometimes people say Zandi was an adviser to John McCain, but that is not true. McCain Campaign Adviser Doug Holtz-Eakin did ask Zandi and many other economists for their forecasts during the 2008 campaign, but Zandi did not advise McCain on policy.