Moody's Economist Has Become a Go-To Guy on Stimulus Plan

By Shailagh Murray
Washington Post Staff Writer
Tuesday, February 3, 2009

It's an open question whether the stimulus bill can lift the nation's ailing economy. But this much is certain: It's a bonanza for the career of Mark Zandi.

The 49-year-old economist is a Democratic dream, a former adviser to GOP presidential candidate John McCain who advocates spending over tax cuts as the best way to deliver a quick jolt. The founder of Moody's now asserts that even if it reaches $900 billion, the current package may be too small. His PowerPoint presentations are a staple at congressional hearings. In floor speeches and news conferences, Democratic lawmakers confer on Zandi an authority once bestowed on Alan Greenspan, the former Federal Reserve chairman.

"I'm just saying what Mark Zandi from Moody's, an adviser to John McCain, is saying: You have to have a package of this robustness if you're going to make a difference," House Speaker Nancy Pelosi (D-Calif.) said at a recent news conference.

What distinguishes Zandi from other economists are the statistics he churns out. His widely cited "bang for the buck" chart shows, for example, that every $1 spent on food stamps will generate $1.73 in economic activity. He has outlined by industry the number of jobs the stimulus bill is likely to create, its effect on state unemployment rates and the impact of its various provisions on quarterly gross domestic product.

But his political pedigree has set him apart. Zandi is often grouped with Martin Feldstein, President Ronald Reagan's chief economist and another early advocate of a robust stimulus bill, to validate the package's crossover appeal.

"I think [he] is a Republican. I am pretty sure he is," Senate Majority Leader Harry M. Reid (D-Nev.) said of Zandi after a recent meeting. Sen. Charles E. Schumer (D-N.Y.) described Zandi on Fox News as a "conservative Republican." Defending the bill's sizable spending during a recent CNBC interview, Rep. Chris Van Hollen (D-Md.) responded: "I think if you listen to economists like Mark Zandi, who was the economic adviser to John McCain in the presidential election, he has said this is the right mix."

Democrats lost Feldstein on Thursday when the Harvard professor published a Washington Post op-ed declaring the House bill "an $800 billion mistake" laden with ineffective provisions.

Zandi is not exactly a convert to the cause. "I'm a registered Democrat," he acknowledged.

He signed up with McCain when Douglas Holtz-Eakin, the candidate's chief economic aide and a longtime friend, asked him to join the campaign's diverse economic advisory team. "My policy is I will help any policymaker who asks, whether they be a Republican or a Democrat," Zandi said. He declined to say whether he voted for McCain or Barack Obama in November. "My wife would also like to know the answer to that question," he noted.

Asked this week about his relationship with Zandi, McCain deflected with a clipped "I had many advisers."

Holtz-Eakin called Zandi "a good economist" and "an articulate and thoughtful presenter." He said Zandi was not a McCain policymaker but rather a rapid responder who provided McCain with instant analysis of economic news. Holtz-Eakin joked that the relationship was "a greater tribute to McCain's bipartisanship" than to Zandi's, because of the risk of relying on a Democrat for campaign advice.

Republicans respect Zandi but are growing annoyed by the false billing. When Democratic leaders announced a Friday-afternoon stimulus conference call with Zandi, Schumer and Sen. Jack Reed (D-R.I.), a senior GOP Senate aide complained by e-mail, "He's doing a press call with Schumer today and he's advising Democrats on this bill -- but he's always cited as a 'former McCain adviser' as if that means he's a Republican endorsing the Democratic proposal."

Others object to the clout Democrats have accorded a private economist, in a debate over one of the most expensive and high-stakes bills Congress has ever considered. "The bill claims to save 3.7 million jobs but does so at a cost of $222,000 each. Private-sector jobs only cost $50,000 each. The bill quotes one economist, Mark Zandi, six times, but doesn't mention the Congressional Budget Office," said Rep. Mark Steven Kirk (R-Ill.).

Zandi's delivery style is simple and reassuring, and he has a knack for delivering troubling information in a non-threatening way. His numbers make a clear case that stimulus spending, and lots of it, is the path to economic salvation. "This may be where my Democratic leanings come out," Zandi said. "Government needs to be extraordinarily aggressive at this point in time, because there's a huge hole in the economy. The only player in the economy with resources is government."

As the stimulus debate unfolded last week on the House floor, Zandi was cited with the frequency of Obama. He has logged more than a dozen references in the 2009 Congressional Record and is on pace to well exceed his 2008 total of 26 references -- compared with three mentions in 2007.

Zandi is the son of an Iranian immigrant who became a University of Pennsylvania engineering professor, and he and a brother founded their company in 1990, amid another recession. His first client was a credit card company, and he used his personal credit card to fund start-up expenses. "Which is kind of ironic," Zandi noted, given the credit crisis today.

He is best known among his peers as one of the first economists to grasp the magnitude of the housing problem. His book "Financial Shock," about the subprime mortgage crisis, caught the attention of House Financial Services Chairman Barney Frank (D-Mass.), who became an early cheerleader.

"Residential mortgage loan defaults and foreclosures are surging and without significant policy changes will continue to do so through the remainder of the decade," Zandi warned the Senate Judiciary Committee in December 2007.

The economist pinpoints a paper he delivered at a Brookings Institution forum in January 2008, as his debut as the oracle of stimulus. Titled "Assessing the Macro Economic Impact of Fiscal Stimulus 2008," the report showed the GDP impact of individual measures, the effect on employment and the potential cost of inaction. All remain standard features of Zandi presentations.

Back then, President George W. Bush and Congress weighed about $150 billion in tax and spending incentives to prevent a turn toward the dire. "This is big enough to provide a meaningful economic boost," Zandi asserted in the Brookings paper. He endorsed the $800 tax rebate that Congress approved in February, predicting that "it would provide a measurable quick boost to the economy."

But by late 2008, he had changed his tune. At a Nov. 17 hearing before the Senate Budget Committee, Zandi urged Congress to go back to the drawing board to stave off "the worst recession since the Great Depression -- not in the league with the Great Depression, but the worst since that very dark time."

He told lawmakers, "I strongly support the idea of a fiscal stimulus package for early '09 into 2010." He recommended "at least $400 billion, which would be 2.5, 3 percent of GDP. I think that would be good starting point."

He now urges Congress to pad the bill with more tax relief for home buyers and a payroll tax holiday for the third quarter of 2009. Much of his data are derived from daily up-to-the-minute credit delinquency and default reports and foreclosure notices that flow into his firm. He doesn't like what he sees.

"It's unbelievable, is what it is," he said. I could not foresee this. I knew it was going to be difficult. But this is scary."

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