POLITICS: PennAve

Mark Zandi: The go-to economist when fiscal war breaks out

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White House,Finance and Banking,PennAve,Joseph Lawler,Economy,John McCain,Housing,Magazine

Mark Zandi is the de facto referee of Washington's roiling fiscal arguments.

In his day job he's the chief economist for Moody's Analytics, but he has become the private-sector alternative to the nonpartisan Congressional Budget Office, which produces budget numbers for Congress.

By defining the center of economic opinion on a range of topics from mortgages to health care, Zandi has made himself a valuable authority. The leaders of both parties love to cite him -- when his analysis helps their cause.

“I view my contribution as kind of a public service,” says the 54-year-old Zandi. “I have a lot of data, a lot of tools,” he explains, adding that he hopes he can “be helpful to the discussion and dialogue” by focusing on data and modeling, and trying to stay above politics.

Part of what sets Zandi apart from other business economists, beyond his high-volume data analysis, is a stint he did with John McCain's 2008 presidential campaign. That connection later made him invaluable to the Obama White House, which rarely missed a chance to tout Zandi as a McCain adviser when mentioning his flattering stimulus estimates.

But the Obama administration overstated Zandi's role with the McCain campaign. He was one of three business economists who provided daily analysis of economic data to adviser Douglas Holtz-Eakin, who used that data to give McCain a weekly economic briefing along the lines of what he would get from the Council of Economic Advisers if he were president. But Zandi did not provide policy advice, and did not even meet McCain.

He's also a registered Democrat.

Nevertheless, Republicans like him. Kevin Hassett, a McCain '08 adviser and an economist at the right-leaning American Enterprise Institute, describes Zandi as a “really good person, a good friend, a pleasant fellow, very easy to talk to, and really well informed on ups and downs of the data.”

Zandi would be a “really good” candidate for a Democratic administration's chairman of the Council of Economic Advisers, Hassett says. The Obama White House had considered Zandi to head the regulatory agency that oversees housing finance, and he had expressed interest in that job, according to media reports.

Although he's in demand in Washington and New York, Zandi, married with three children, lives in the Philadelphia suburbs. It has long been his home: His father, an Iranian immigrant, was a professor at the University of Pennsylvania, and Zandi earned three degrees, including his doctorate in economics, at Penn before getting into the forecasting business.

Despite his prominence, Zandi has had his share of missed projections over the past six years, providing fodder for his partisan critics. He admits that he overestimated the recovery -- a mistake also made by the forecasters in the Obama administration and at the Federal Reserve.

He maintains that it wasn’t a misreading of the numbers or the policy environment that led him astray. “The fiscal response and even the monetary policy response was roughly right,” he says.

Instead, it was his underestimation of the power of mass sentiment and politics that caused him to think growth would be stronger than it was. “The recession did a lot more damage to our psychology than I expected,” he acknowledges, adding that he also missed “the damage the recession did to our political dialogue and process."

“For a guy like me who relies on models and data and is very quantitative, the psychology is very hard to measure and to quantify," he says. "And I think that gave me more trouble.”

Furthermore, he thinks that President Obama's ambitious agenda hampered growth -- but not necessarily because it was misguided. By making businesses skittish about taking on risks, “health care reform and financial regulatory reform have weighed pretty heavily on the recovery," he says, quickly qualifying that he's not “commenting on the merits of those reforms.” In fact, he suggests that it would "hard to imagine going through a crisis and not taking a crack at financial regulatory reform."

Zandi also blames unforeseen shocks such as the eurozone crisis and the debt ceiling showdowns as negative influences on the U.S. economy he couldn't have seen coming.

Overall, though, Zandi is "very optimistic," and he is predicting economic growth for the rest of 2014.

He dismisses the doomsaying of former Obama economic adviser Larry Summers, who has suggested that the United States might suffer from “secular stagnation” — that is, a condition in which the economy is unable to generate sufficient consumer demand to maintain economic growth without stimulus.

“The private economy’s been doing well,” Zandi counters, blaming the weak GDP figures on severe fiscal contraction by the government. The financial crisis has had “a very long shadow,” he says, but he predicts that fears of a secular stagnation will dissipate in coming years as lingering damage from the crisis fades away.

And while he worries about the distribution of income and wealth, he likewise brushes off the new lefty hero Thomas Piketty, who has warned that the developed world faces a future of inescapably rising wealth inequality. Zandi has skimmed Piketty's new best-selling tome Capital in the 21st Century and thinks the French economist “vastly overstates the problem.” Piketty's thesis is a special case of economic growth theory that has “been around for a long time,” according to Zandi.

“I’m not worried the capitalist system is headed down a dark path,” Zandi says. Contra Piketty, he thinks the “American dream is alive and well, we just have to reaffirm it.”

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