How effective are directed credit policies in the United States? A literature survey

Schwarz surveys U.S. experience with directed credit as background for a larger study of the Asian experience. Almost half of net credit lent in the United States annually is directly affected by government policies - half of net credit covering budget deficits, and half falling under various federal credit programs. The main difference between U.S. and Asian credit policy is that U.S. credit policy is oriented more toward equity than toward growth. Different sectors are affected differently by U.S. credit policies. Few empirical studies test how U.S. credit policy affects growth - perhaps partly because of the motives behind those policies. Few enpirical studies even test whether the policies edffectively increase credit to the target group. Schwarz outlines a method for testing the effectiveness of credit policy, then examinesexisting empirical work to see how it fits that methodology. The first common empirical technique examines credit allocation in the economy. Schwarz finds that for the largest program, housing credit, the effect of credit program on credit allocation is very small and may be negative when cross-program effects are considered. The second common empirical technique examines individual sectors. Results here are mixed. In agriculture, much of the credit raises the demand for land, providing a gain for landowners rather than increasing production. In education, less than a third of the students who got government credit would not have gone to college without it. So in both cases, the credit has a positive impact but at a sizable cost. Schwarz concludes that despite its huge volume, directed credit in the United States has a limited impact in growth. The credit programs have generally succeeded in increasing credit to the targeted group, but not necessarily in increasing investment by that group.