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.