The media did it back in 2001 when President George W. Bush was fighting a recession. They’re doing it again today. Whenever the press discusses what government can do to jumpstart a failing economy, reporters often downplay tax cuts and praise government spending.
Now the media have found a favorite source to lend credibility to its pro-spending proclivities. Mark Zandi of Moody’s Economy.com is frequently consulted by the press and cited by Democratic politicians for his “Bang for the Buck” chart in which Zandi advocates government spending over tax cuts.
Although a spending-heavy stimulus proposal has cleared the U.S. House of Representatives by a 244-188 margin and is expected to eventually pass in the U.S. Senate, the debate still rages over what should be done except in the news media. In those reports, government spending, or investment, has been given the edge.
If It’s Coming from a Former Republican Adviser, Now Helping Democrats, It Must Be Right
Zandi has become one of the darlings of this pro-Keynesian stimulative push by the left. Keynesian economics is the theory “that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability,” according to Investopedia. Zandi’s ideas emphasize the government intervention and spending side, but downplay the monetary policy side of John Maynard Keynes’ economic model.
Zandi was an economic adviser to Republican Sen. John McCain’s failed presidential bid, but has an idea favored by congressional Democrats – so people on the left, including Speaker of the House Nancy Pelosi, D-Calif., are using his name for “bipartisan” cover.
“Well, in issues of this size, you really want as much legitimacy as possible, and sustainability,” Pelosi said on CNN’s Jan. 11 “Late Edition.” “You want to try to bring people together. And these investments are absolutely necessary. Economists from right to left, whether it’s Martin Feldstein, an adviser to President Reagan, Mark Zandi, economic adviser to John McCain, and all the way across the board, everyone says we need to have a recovery package. They also tell us that more jobs are created by investments, and especially Mark Zandi makes that point.”
Donna Brazile, an analyst for CNN and formerly an adviser to both Bill Clinton and Al Gore, also cited Zandi – although she misstated some of his numbers and embellished his title with the McCain campaign.
“You know, Mark Zandi, who was the chief economist and adviser to John McCain, said that, for every dollar in the stimulus, it will create $1.32 amount of GDP,” Brazile said on CNN’s Jan. 27 “The Situation Room.” “I don't know anything about the economy, but I know that it will give relief.”
The actual numbers Zandi uses are included in his “Fiscal Economic Bang for the Buck” chart on his Economy.com Web site. With this document, Zandi makes the case for a one-year dollar change in real gross domestic product for a dollar given in federal tax revenue or increase in spending – where the Keynesian spending is shown to be more beneficial than the tax cuts.
His chart says temporary cuts can stimulate the economy $1.29 for every dollar spent. Permanent tax cuts are much less effective in his view – 30 to 48 cents of stimulation for every dollar spent. However, the government spending increases are where Zandi says the effective stimulus comes from:
Extending UI benefits 1.64
Temporary increase in food stamps 1.73
General aid to state governments 1.36
Increased infrastructure spending 1.59
MSNBC’s Rachel Maddow, on her Jan. 28 show, also used Zandi’s data, but left out his name, and with that, his politics – and just referred to Moody’s.
“Well, Moody’s Investor Service looked into it,” Maddow said. “Moody’s doesn’t really play politics. They play money.”
She then cherry-picked the data for viewers, showing the worst-case for tax cuts and the best case for the increases in government spending.
“[T]hey say that every dollar spent on food stamps generates about $1.73 in economic activity,” Maddow said. “Every dollar spent on infrastructure about $1.59 on economic activity. Tax cuts, which Republicans are ideologically committed to, they can have a stimulative effect on the economy but not nearly as much, about $1.03. When you start talking corporate tax cuts specifically, you are down into negative territory. Every buck you spent to do that stimulates the economy about 30 cents.”
It’s worth noting that Maddow and others who agree with her are willing to trust the economic arm of Moody’s – Economy.com, but the media often cite some reports suggesting Moody’s failure to accurately rate debt was the impetus for the subprime crisis that led to this recent economic downturn.
Though Zandi likely played no role in the debt-rating arm of Moody’s, it’s still interesting that Moody’s is still being considered an authority.