Free Exchange and Noam Scheiber both comment David Gregory’s interview with Larry Summers

FE

David Gregory did not acquit himself well in his Sunday interview with Larry Summers, in which the host repeatedly suggested that since the unemployment rate was higher than predicted the stimulus had necessarily failed and should be repealed because of deficit concerns. This is wrong on two levels. First, as Mr Scheiber notes, Mr Gregory fails to understand that improvement off a lower than anticipated baseline might still generate a worse unemployment rate than forecast. And second, this is not the time to be focused on closing the deficit, and the stimulus is fairly insignificant so far as long-run budget problems are concerned.

Scheiber

Gregory was simply unwilling or unable to see that the point of the stimulus was to boost employment relative to where it would have been without the stimulus.

The common retort to this has been “didn’t the Administration tell us that the world was going to come to an end, how could it have been worse than that.”

The answer is that the Administration was mixing problems and mixing solutions.

The first problem was that the American financial system was on the verge of collapse and would probably have taken the global financial system and the global economy with it. This was the end of the world scenario. If that had happened its hard to imagine that a $787 Billion stimulus package was really going to matter.

Indeed, a combination of actions including TARP, Federal Reserve backstopping and massive credit easing prevented a global meltdown. This left us with the second problem – a large but ultimately manageable fall in consumer spending.

This is what the stimulus was about. The stimulus was never going to fix the end of the world. It was going to make the world more tolerable provided that some other program saved it. Now, its hard to make these points clear in sound bites which is why I maintain they never should have printed this chart: