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Two economists say in new paper that TARP worked

And what about the stimulus? Famously, the Obama administration predicted it would keep us beneath 8 percent unemployment. That obviously didn't happen. Does that mean it was a failure?

Zandi: The original forecast was just a bad forecast. The unemployment rate was already at 8 percent by the time stimulus passed. We just didn't know it because the data lags. What really matters is what the unemployment rate would've been if we didn't do stimulus, and in my view, it would clearly have been higher.

If the response to the crisis was effective, then why do we seem to have stalled out in recent months? Since May, the recovery has been lagging, hiring hasn't been very strong, and there's a general sense that the economic momentum we saw earlier in the year has dissipated a bit.

Blinder: Well, I know why it is, though it pushes the question back one level: Given the growth of GDP and the amount of spending that's come online, the number of jobs created has been puny. That's mitigating the usual virtuous circle where spending creates jobs and those people spend and that creates jobs and so on. That process is going on, but not at the level we expected. That pushes the question back to how come there's not more hiring. My speculation is that it's doubts about the durability of the recovery and firms not wanting to hire more permanent workers until they're more confident this is for real.

So what would you do going forward?

Blinder: I would do two things, both aimed at jobs. I would do the so-called new jobs tax credit on a much bigger and better scale than the HIRE Act, which was a baby step. The second thing I would do is a WPA-like program of temporary, direct, public hiring. People could work in parks, in maintenance, the many paper-shuffling jobs there are in government. You could save a lot of state and local jobs that would otherwise be terminated.

Zandi: If the unemployment rate was peaking at 7 percent, I'd say no worries, no need for more stimulus. But I'm nervous about 9.5 percent unemployment when you have a zero percent interest rate and a huge deficit. If we're all wrong and we go into recession, we've got no policy response. So I think it's prudent to err on the side of doing too much rather than too little. And we can do that. We're not Greece or Britain or Germany. We have a 3 percent 10-year Treasury yield. We have always solved our fiscal problems, and the world has faith we will solve our future ones. So we have the resources.

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