Alan Blinder tells NYT readers this morning that thanks to Bernanke's adept handling of the crisis, the economy recovered much more rapidly than anyone anticipated: "The economy was nearly in free fall during the last quarter of 2008 and the first quarter of 2009, dropping by 5.4 percent and 6.4 percent in real terms, respectively. Then the moves by the Fed and the Obama administration took hold: G.D.P. barely declined in the second quarter of 2009; and by the third quarter it began to rise. As this was happening, the job loss rate, which was staggering last winter, fell by more than three-quarters. On Friday we will get the initial estimate of fourth-quarter G.D.P. growth, which analysts expect to top 5 percent. And there is a good chance that job growth is about to resume. This rapid improvement came faster than almost anyone expected." Is that so? Let's see, if we go to the Congressional Budget Office's projections made in January of 2009, in the middle of the crisis, they were predicting that in the absence of fiscal stimulus, the economy would grow 1.5 percent in 2010, with the unemployment rate peaking at just over 9.0 percent. The incoming Obama administration had a slightly more optimistic forecast with the unemployment rate just edging 9.0 percent, assuming no fiscal stimulus. These projections were typical of the projections made at the time by public and private forecasters. So, when Alan Blinder tells us that "this rapid improvement came faster than almost anyone expected," who is the "anyone" in the sentence? The reality is that the economy did worse even with the benefit of President Obama's stimulus package than it was projected to do in the absence of stimulus. In other words, in spite of Bernanke's "superlative" performance in the post-Lehman period, the economy has done worse, not better, than expected.
--Dean Baker
