How Would the Economy Look Under McCain?

Pylades · Jun 4, 2009

June 2, 2009, 3:47 pm
How Would the Economy Look Under McCain?
By Catherine Rampell

I was on a panel discussion recently where the moderator asked how this recession and the policy measures taken to address it would look if John McCain, rather than Barack Obama, had been elected president.

It’s always hard to imagine counterfactuals. But it’s an interesting thought experiment.

Senator McCain criticized the stimulus bill as “ generational theft,” and he eventually voted against it. He also proposed an alternate stimulus bill that was about half the size of the one eventually passed and that relied more on tax cuts.

Given all this, it seems the economic situation would look very different than it does today, for better or for worse.

But would it really? The dirty little secret that many people don’t realize is that monetary policy, not fiscal policy, has been much more aggressive in addressing the current crisis.

In fact, trillions of dollars more aggressive.

As of mid-May, less than 5 percent of the $787 billion available in stimulus funds had been spent. For comparison’s sake, take a look at this graph showing the expansion of the Fed’s balance sheet, which Joseph Brusuelas at Moody’s Economy.com refers to as the “magma chart.”

Most people don’t realize how much more active monetary policy has been for two reasons:

1. The Fed doesn’t have to seek congressional approval to kickstart most of the programs it’s enacted since the start of the crisis, so there’s no long, drawn-out, media-smothered lead-up to the expansion of the Fed balance sheet. The Fed just does what it does, with little fanfare and few talking-head blowhards debating it on T.V.
2. Monetary policy is complicated, and many of the Fed’s programs are very difficult to understand. It’s much easier to understand (and frankly, for journalists to write about) a program to spend money to build a new bridge than a program called the “Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility.”

Monetary policy is by and large set by the Fed, which is set up to be an independent organization. Many economists I’ve spoken with in recent weeks have referred to Ben S. Bernanke, the Fed chariman, as an “unsung hero” of the recession, and credited the Fed with doing most of the heavy-lifting in stabilizing the economy.

So if, compared to stimulus spending, the Fed’s programs are A) more aggressive, B) more effective and C) likely to have remained the same under a different administration, then the implication is that we’d probably be in the economic place we are now even if Mr. McCain was president.

I called Tyler Cowen, an economics professor at George Mason University and super-blogger at Marginal Revolution, to ask his thoughts about this alternate universe question. He said that, by coincidence, he and his colleagues had been arguing about the exact same premise over lunch today, and the conclusion was that things would probably look about the same.

The one surviving counterargument, he said, was that President Obama has done more to bolster confidence than John McCain might have, whether because of President Obama’s looks, smooth-talking or what have you.

“That’s plausible,” Professor Cowen said, “but it’s hard to know how big that effect would be.”

Of course, having a different president could have set off a whole other set of unknowable ripple effects in international relations or other types of policies that affect the economy (butterfly effect and all that). Still, I’m curious to hear what readers make of the general argument.
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Both interesting to laugh at the blowhard Republicans and to illustrate just how much of a fraud the "stimulus" was. Timely and targeted indeed.

Archangel · Jun 4, 2009

Thought...blog...NY Times.

I think very little else needs to be said.

Pylades · Jun 4, 2009

So ad hominem and ignoring the content, then.

Asyncritus · Jun 4, 2009

That's pretty much my analysis as well, but there is an aspect they don't mention: Even though the situation right now would be the same, if by some miracle McCain had managed to push through a significantly smaller stimulus package (not that I am at all confident about that), the problems would be less a few years down the road when the government has to either spend all that money or else renege on it. Either of those courses of action will have strong negative results (though not the same in each case).

I'm still not saying I would rather have McCain, though, because as I said, I don't have any confidence he would have managed to come up with a seriously better approach to dealing with the economy.

Ramen · Jun 4, 2009

Well that's pretty stupid.

Will a car that had an oil change 4,000 miles ago start up as well as a car that hasn't had a change in 15,000 miles? Probably.

Well then, keep on drivin', Scooter!

Order2Chaos · Jun 4, 2009

Ramen said: ↑

Well that's pretty stupid.

Will a car that had an oil change 4,000 miles ago start up as well as a car that hasn't had a change in 15,000 miles? Probably.

Well then, keep on drivin', Scooter!
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Yeah, but when neither of them have had the brakes replaced in 200,000 miles, do you really care when the oil was changed?

Ramen · Jun 4, 2009

Order2Chaos said: ↑

Ramen said: ↑

Well that's pretty stupid.

Will a car that had an oil change 4,000 miles ago start up as well as a car that hasn't had a change in 15,000 miles? Probably.

Well then, keep on drivin', Scooter!
Click to expand...

Yeah, but when neither of them have had the brakes replaced in 200,000 miles, do you really care when the oil was changed?
Click to expand...

No, because there's always the E-Brake.

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