Today’s N&O features an article by Mark Zandi, chief economist of Moody’s Analytics. In the article, Zandi claims that without the federal stimulus, our economy would be in much worse shape than it is now.
But Zandi’s conclusions are drawn not from real-world experience, but crude and out-dated Keynesian statistical models. Stanford economist John Taylor explains here.
First, I do not think the paper (one co-authored by Zandi) tells us anything about the impact of these policies. It simply runs the policies through a model (Zandi’s model) and reports what the model says would happen. It does not look at what actually happened, and it does not look at other models, only Zandi’s own model.
Furthermore, economist Arnold Kling slams Zandi’s work here . A sample:
What the Blinder-Zandi paper does is explore the properties of a macroeconometric model. The economics profession abandoned those models thirty years ago, so the tool they are using is like a fossil, frozen in time.
One should take pause when considering the influence that Moody’s and Zandi have over our economy and the current mess we are in. For instance, Moody’s is one of a few “nationally recognized statistical rating organizations,” which were responsible for slapping high ratings on investment securities chock-full of subprime and otherwise shaky mortgage-backed securities. Without these ratings, investment firms would not have demanded these securities, and the effects of the housing bust would have been mitigated.
With such a porous track record, one would think that Zandi would have little credibility left. Yet progressives prop up his sloppy and crude research as some proof positive that government stimulus schemes have made us better off.