Counterfactual Thinking

A recent Washington Post interview with economist Alan Blinder about his new book nicely illustrates liberal condescension. While discussing the effects of TARP and the stimulus bill, the Post’s reporter and Blinder questioned the reasoning ability of those who think that TARP and the stimulus failed to stimulate the economy. You see, non-liberals apparently have difficulty “with reasoning counterfactually,” meaning that people only see what actually happened and don’t understand that it’s necessary to consider what might have happened in a hypothetical, non-stimulus world.

Of course, Blinder contends that without the stimulus, the economy would have been worse, implying that a substantial drop in private economic activity was essentially offset by increased government spending. But the argument against the effectiveness of TARP and the stimulus is that these policies themselves, and the political environment surrounding the policies, kept much private business activity on the sideline. That is, without TARP and the stimulus bill, government spending may have been lower, but private business activity would have been higher.

Contrary to the musings of the reporter and Blinder, this argument is not simplistic and it even implicitly contains the counterfactual, because it suggests that TARP and the stimulus affected business activity in a negative manner that could have been avoided. If anything, it is Blinder whose thinking is simplistic when he states “if you think about it for 30 seconds, it’d be impossible to spend that much money without creating any jobs.” Yes, a whole 30 seconds, and he’s got the answer.

I haven’t yet read Blinder’s new book (inertia sets in when it comes to financing liberal propaganda), so possibly he has evidence showing that the decline in business activity would have occurred or persisted anyway, even in the absence of the stimulus policy and Obama’s leftwing agenda. But even if Blinder has evidence – his “30-second” statement suggests that he’s not looking into the question too deeply – it wouldn’t change the sophisticated nature of the argument against TARP and the stimulus.

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