The director of the White House Office of Management and Budget, Peter Orszag, is out with a new blog post touting the success of the "stimulus" spending package by citing two private-sector analyses:
Both Goldman Sachs and Mark Zandi of Economy.com have estimated that GDP growth in the second quarter was given a significant boost due to the Recovery Act. In particular, official estimates are that the economy contracted by an annualized rate of 1.0% in the second quarter. The Goldman and Zandi estimates suggest that the economy would instead have shrunk by 3 percent to 4 percent in the second quarter, if the Recovery Act had not been enacted.
It's hard not to be skeptical about all this. Goldman, after all, is benefiting from $29 billion in government-guaranteed debt under the same FDIC Temporary Liquidity Guarantee Program that is being denied to CIT. That's on top of the $10 billion in TARP aid that it has repaid. It is subject to the threat of increased federal regulation on everything from its compensation practices to its capital reserves, its high-frequency trading, and its market-making in derivatives. In light of all that, does anyone really think that even if Goldman Sachs believed the stimulus spending was a mistake or a waste, it would say so, given the enormous leverage that the Obama administration has over the firm? The same goes for Economy.com. The post by Mr. Orszag doesn't mention it, but the full name of Mr. Zandi's outfit is Moody's Economy.com. That's right, Moody's, the same agency that was slapping AAA credit ratings on now-toxic mortgage-backed securities, but that has nevertheless avoided any real legislative consequences or a repeal of its status as one of three nationally recognized ratings agencies (with Fitch and Standard and Poor's).
Mr. Orszag may believe what Goldman Sachs and Moody's are peddling. To me, it is the chief of the National Economic Council, Obama aide Lawrence Summers, who made more sense when he said, "It is too early to know how successful our policies have been. It is not even clear how we will know ultimately whether they have succeeded, because of the difficulty of constructing a counterfactual and knowing what would have happened without intervention." Goldman Sachs and Moody's have somehow managed to surmount that difficulty. No doubt Mr. Orszag appreciates it, but the achievement probably also deserves to engender some skepticism. For Mr. Orszag to tout the Goldman and Moody's estimates as credible takes a certain boldness in light of the past track records of the firms and in light of their interests at stake in Washington.