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The Spectacle Blog
Robert Samuelson has a long track record of independent thinking, making it so disappointing that he’s fallen for the official line on TARP in his latest column.
It’s not that there’s much that’s new in Samuelson’s case that TARP has been a “success story.” In fact, his column is mostly a recitation of stock adminstration arguments, such as the red herring that TARP has cost much less than anticipated, and the evidence-free and meaningless claim that there would have been a Great Depression without TARP.
The liberal economist Dean Baker shows the faulty logic underpinning those two talking points. First, he demonstrates that TARP has cost the taxpayers a fortune, government spin aside:
Samuelson apparently does not understand the idea of money carrying an opportunity cost.
Suppose the government lent me $1 trillion for 10 years at 1 percent annual interest. In the Robert Samuleson world, the government is earning a $100 billion profit on this investment ($10 billion a year for 10 years). Economists familiar with opportunity costs would instead see this as a huge loss to the government, since it is giving me an enormous loan at an interest rate that is several percentage points below the market rate.
We saw how this worked with the TARP when Warren Buffett reported earning twice the money on his investment in Goldman Sachs which was half of the size of the investment from Treasury. Buffett got the market rate of return on his investment, the difference was a subsidy from taxpayers to the shareholders and executives of Goldman. The same story was true with the other TARP loans, as well as the even larger amount of money lent through the Fed as well as the guarantees provided by the FDIC.
Second, Baker takes apart Samuelson’s assertion that “Without TARP, we’d be worse off today. No one can say whether unemployment would be 11 percent or 14 percent; it certainly wouldn’t be 8.9 percent.”
This is incredibly bad logic. These numbers are based on a counter-factual in which the government and the Fed let the financial system collapse and then did nothing by way of response. These are undoubtedly reasonable projections of the unemployment under such circumstances, however that is not a plausible counter-factual.
Baker’s point should be obvious, but it’s important nevertheless: there were alternatives to TARP. One alternative, for example, would have been to devise a stability plan before the collapse of Bear Stearns, Lehman Bros., and Fannie Mae and Freddie Mac.
There are two points to add to Baker’s. First, the claim that we’d have 11 or 14 percent unemployment without TARP or any other kind of legislative intervention is reasonable, but it’s evidence-free; we simply can’t know what would have happened if the government had simply ignored the problem. Bush Treasury secretary Hank Paulson got Washington to believe that unless they passed his specific plan, there would be a second Great Depression, but if you think about it almost any plan whatsoever would be justified by that logic. Second, just to keep score, it’s weird to claim that TARP staved off terrible unemployment when there really is terrible unemployment in the U.S. In September 2008, unemployment was 6.2 percent; now (two and a half years later) it’s 8.9. For black people, it was 11.4 percent; now it’s 15.3. For black men, it was 12 percent, now it’s 16.2. That doesn’t seem like a success story to me.
It’s understandable why the administration wants to recast its stewardship of TARP as a success, but it shouldn’t be allowed to get away without scrutiny. It’s cause for concern when even an independent- and conservative-minded journalist like Samuelson embraces the administration’s propaganda.
View all comments (10) | Leave a comment
More Blog Posts by Joseph Lawler
http://spectator.org/blog/2011/03/28/robert-samuelson-tarp-fanboy
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Eric Cartman| 3.28.11 @ 9:21AM
It's pretty simple, Mr. Lawler. THIS is what passes for success in D.C. Here, let me recap:
1. Create a big mess.
2. Borrow money from China to fix the "mess".
3. Claim success!
You must have been absent the day the day they explained how Washington works. You're welcome.
Alan Brooks| 3.28.11 @ 6:07PM
"One alternative, for example, would have been to devise a stability plan before the collapse of Bear Stearns, Lehman Bros., and Fannie Mae and Freddie Mac."
Yeah, right. plan that far ahead? dream on, Lawler. America is hopeless, there is everything great about it- but nothing good.
Jonah| 3.28.11 @ 6:32PM
Leftist projection--there's nothing good about you, Alan.
Alan Brooks| 3.28.11 @ 6:50PM
You will never fix America-- it is too large. No way to devolve satifactorily, the Tea Party is a feint, all sound and fury; making a big deal out of small victories.
YOU are the chump, Jonah.
Grzmlyk| 3.28.11 @ 9:54AM
The name of the game is "kick the can down the road."
We'll keep printing money and creating bubbles (the stock market is the new one) to convince suckers - I mean consumers - to continue to spend money so that we can tout inflated GDP numbers and continue to pretend that we're in the midst of a magical, pixie-dust enabled recovery instead of the reality that we are in a death spiral, being sucked into the black hole of the fast-metastasizing welfare state.
Meanwhile, government continues to swallow ever larger chunks of our nation's productivity - it's up to about 1/3 - and nobody who has the power to stop the Leviathan's insatiable gluttony REALLY cares (and why should they? They're swimming in our money even as we suffer an unprecedented economic drought).
Too many of us have bought into the Michael Moore/Big Government canard that we're not really broke - we just need to a good plan, and that plan is to send Purple Shirts to the homes of everybody in this country who makes more than $250k, put a gun to their heads and explain nicely that if they don't fork over everything, they will sleep with the fishes.
Well, of course, any good liberal government exempts its friends and influentical cronies from such naked extortion (which would, no doubt, allow Michael Moore to continue to live large - in every sense of the word - off of his own stolen wealth).
So our game of "kick the can down the road" is actually combined with another childhood game - musical chairs. As long as you are connected with someone in Obama's thugocracy - Jeffrey Immelt, for example - you'll find a seat when the music stops after there's no more road left down which to kick the can.
But most of America - you know, the ignorant, bigoted, redneck, too-stupid-to-bow-before-the-Ivy-League-elite, Fox News-watching, God-fearing, gun-toting, normal citizens who make this country work - are going to be screwed.
In other words, everything is going according to Obama's plan.
Harry| 3.28.11 @ 10:54AM
TARP is a mixed bag. It accomplished some urgent goals such as preventing a total freeze of the financial system. It also unfairly interfered with some of the necessary shake-out among the financial sector, propping up certain interests at the expense of others.
Any other response to the crisis would have had mixed results as well, due to the nature of the event and uncertainties. Undoubtedly a better response could have been constructed given better knowledge of events and the political will to act. Other alternative responses may well have made the economy far worse off.
TARP was a Bush Administration response, handed off to the incoming Obama Administration, which administered TARP in ways that benefited their own allies while damaging other sectors that were not important supporters.
Few crises of this magnitude have been well handled by governments. That argues for reducing the government's direct control over the economy to include only a few levers of power.
robert curry| 3.28.11 @ 11:49AM
"Robert Samuelson has a long track record of independent
thinking, making it so disappointing that he's fallen for the official line on
TARP in his latest column. "
robert curry| 3.28.11 @ 11:49AM
"Robert Samuelson has a long track record of independent
thinking, making it so disappointing that he's fallen for the official line on
TARP in his latest column. "
robert curry| 3.28.11 @ 12:04PM
[somehow my comment was posted before I finished it]
Dear Mr. Lawler,
Thank you for your excellent and thoughtful discussion of TARP.
But I beg to differ on Samuelson--he is the conventional wisdom on economic policy, here as usual.
Actual independent thinkers saw the recent crisis coming, analyzed it correctly beforehand and, amazingly, often were correct as to the scale of the debacle. I know because I was reading them and listening to them before the debacle.
May I suggest, very politely, that finding them would help you in your noble purpose of elevating the discussion of policy in our country?
With best wishes,
Robert Curry
PattyMor| 3.28.11 @ 3:22PM
TARP has only demonstrated one thing. That the government messes up EVERYTHING it touches.
The financial industry is just the latest one. The gov'ment has destroyed families with welfare, destroyed schools thru the Educ. Dept., the health care system with Medicare, Medicaid, SChip and now Obamacare.