What was Zandi smoking?

This morning there is a piece in the Philadelphia Inquirer by Mark Zandi under the headline "Mistake to believe the stimulus Failed". In the column, however, Zandi points out that the biggest part of the federal government's response to the economic crisis was the TARP. Of course, TARP was the emergency plan to shore up the banks and the banking system that was passed in 2008 when Bush was president. It was not part of the stimulus bill at all. Zandi points out that it looks like the federal government will get back all of the funds expended on the original TARP investments. In other words, the banks were saved at no final cost to the taxpayers.

Next Zandi points out how extensions of unemployment benefits and some tax cuts put funds into consumers' pockets and that this help greatly as well. Again, most of this was not in the stimulus bill. So here too, the headline is wrong.

Zandi also says that the infrastructure projects funded by the stimulus are just now getting into high gear. In other words, a year and a half later, the stimulus is finally moving ahead with the so-called shovel ready projects. Zandi, however, points to the economic performance of the last year as justification for the stimulus. If the shovel ready projects are just really starting, it is safe to say that they had nothing to do with the last year's economic performance.

Finally, Zandi says that the money shoveled by the feds to the states and localities prevented layoffs which would have come at the wrong time. That is true. What Zandi fails to mention, however, is that the money also led to expansions of state and local expenses that were entirely unnecessary. Imagine the response from the states and localities if Congress had passed a bill that sent funds to state governments on the condition that the states changed their pension systems to defined contribution systems. In other words, state employees would have the equivalent of the ubiquitous 401K plans of the private sector. That change alone over time would save state governments trillions of dollars. The change would have required the agreement in most states of the employees, but it would have given them a choice between layoffs and a different sort of pension in the future. Many would have chosen the pension modifications.

In summary, Zandi wants us to believe that the stimulus bill worked. In support he points to items that for the most part were not part of the stimulus. Nothing that Zandi says indicates that the stimulus itself actually worked sufficiently well to justify the cost.