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The “What If” Game

Yesterday morning at the Senate Budget Committee hearing, we saw yet again the same old run-around arguments that seem to be the only support behind the stimulus bill. Research presented by two of the three witnesses, Dr. Alan Blinder and Dr. Joel Prakken, attempted to model what would have happened if the government had not stepped in and “saved” the economy with the massive TARP stimulus bill. Their projections showed catastrophic losses that were only avoided by the government’s quick thinking and high dollar buy-out of failing firms. Yet the “what if” game is one of the oldest and most annoying questions that plague historians when they try to present real data and stories of what actually happened.

With a dynamic and massive economy like the one we have it is not even possible to quantify the results of many of the policies that we have enacted much less the policies that we have not. The same rules apply for trying to quantify what would have happened. It‘s not possible. It is a cheap run-around and a last defense move when nothing else has worked. If you cannot point to really positive results from TARP then why do you think we should believe that you could measure what would have happened if TARP had not been enacted?

Yet these arguments are attractive to Senators who were quick to agree and point out all the great projects in their states that created jobs for their constituents. Yet if you look at the appropriation of TARP funds you will see that only about 10% actually went to infrastructure. What happened to the other 90%? It definitely did not go to building bridges and roads.

It was sad to see the committee eating up the wonder statistics shown by the two economists who have had anything but a solid record of accurate statistical projections. Dr. Joel Prakken works for Macro Advisors, a group that has been notoriously off mark with their projections. Take for example the new GDP data for 2011. As off today, BEA numbers show that real GDP growth for 2011 was 1.7%. Macro Advisors predicted that growth for the same year would be over 3%, way off the mark. Dr. Alan Blinder has also been horribly mistaken in his analysis. In his testimony yesterday he advocated more government borrowing because interest rates have been so ridiculously low and will remain so because of the Fed. He said that people all over the world are clamoring to buy US Treasuries at negative rates and the government should take advantage of it. However, if we look at US Treasury bond purchases we see that foreign and domestic purchases have fallen dramatically. So who is clamoring to buy the bonds with no expectation for return? Try the Federal Reserve. Yes, the Fed has massively increased its purchases of treasuries and is almost completely responsible for the “booming” treasuries market.

It does not take a doctorate in economics to see where this will go.

2 thoughts on “The “What If” Game

  1. As a historical scholar of U.S foreign affairs, my professors (and generally anyone in the field of historical studies) curses the “What if’ game. To play the game is to detract from any serious discussion of the current issue at hand and does nothing but deflect attention. However, one must also consider that “real history” and “real facts” are equally subjective categories that depend on who is writing the narrative.

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