TARP Worked

Let's assume for a moment this Time.com article is correct and TARP, as politically and economically messy as it was, worked largely as intended. The banking system did not irreversibly collapse, credit is flowing again (as a creek, not as a river) and the world, while different than pre-September 2008, survives largely intact. Think of it like Tom Hagen telling Don Corleone, when the Don returns home from the hospital, the family's working to bring Michael back...things have started to loosen up. Will the stimulus package be altered or clawed back?

Of course not.

Will its original, purely political purpose, be revised from creating a recovery (it didn't) to supporting a recovery (it won't).

Of course it will.

This may make my conservative brethren yell "Elizabeth, this is the big one!" but I ask these questions as a supporter of a stimulus plan, just not the one Obama outsourced to Congress. I think conservatives made too many silly criticisms about the government levering up while the rest of the world de-levered. That's the whole point of emergency deficit spending. But, because Congress isn't interested in temporary spending it came up with a bevy permanent entitlements (COBRA, payroll tax credit) instead of massive, and I do mean massive, public and military infrastructure improvements. Obama, like all politicians, took the easy political route of getting it done quickly instead of standing up to Congress and demanding genuine public investments instead of interest group payoffs.

Given Obama repeatedly tells us he inherited a mess, will he ever acknowledge he also inherited the cleaning crew?

Of course not.


Anonymous said...

Well, it is hard to be sure what evidence there is of "TARP working." Unemployment numbers don't show it. A suckers rally in the markets? I'm not holding my breath.

Anyway, the stimulus was not intended to solve the same problem as TARP. TARP was intended to keep Goldman Sachs et al from admitting bankruptcy. Stimulus was intended to fill preciptious drop in demand resulting from defacto bankruptcy of financial giants.

Does "TARP working" mean that the financial industry's defacto bankruptcy has been fixed, or that the lid has been kept on for a few more months?

Chris Janc said...

I have to take issue with your comment about the need for a stimulus plan. A significant part of the Keynesian argument for stimulus rests on the fact that, during a recession, tax receipts decrease while social safety net spending such as unemployment insurance increases naturally, creating the kind of deficits Keynes envisioned. Anything beyond that is nothing more than an excuse to spend, spend, spend on special interest priorities.

Anonymous said...

I think Keynes's view was that fiscal policy should be countercyclical, increasing public demand when private demand was low and vice versa. I don't think that he was all that particular about whether the support for demand should be based only on existing programs, or whether it should be pragmatic and adjusted to particular circumstances as required.

I am sure that he would be satisfied if a government could devise fixed policies that automatically compensate for variations in private demand, but I think he would be skeptical that we have the foresight to construct such policies; or that if we did, that we have the fortitude to resist attempts to change them. Just consider how many states cut taxes during the flush 90's, and are now facing rock and a hard place type choices.

Finally, I think that the phrase "spend, spend, spend on special interest priorities" describes TARP and the other bank bailouts far more than the stimulus plan.