The cool thing about the massive Federal intervention that saved the US economy is that we can talk about it — at least in part — without talking about politics.
Obviously, TARP and the bailouts and the Obama stimulus plan were all political in a way. They helped spark the tea party movement, which is transforming this year’s election.
And liberal groups are still fuming about the amount of money that Democrats funneled to Wall Street banks.
But those efforts were also fundamentally bipartisan, launched under Republican President George Bush, continued by Barack Obama’s Democratic leadership, and approved by both parties in Congress.
So the question isn’t whether one party or another is culpable for foisting these policies on the American people. The question is…did they work? Were they the right thing to do?
Despite the deep conviction held by tens of millions of voters that the programs were a bust, most experts say the answer is a fairly unambiguous Yes.
Let’s start with effectiveness: Was it necessary for the Federal government to intervene in order to stave off a much worse recession — or even a full-blown depression?
Here’s what Douglas Elliott, a former investment banker who now works with the Brookings Institute, told the New York Times.
“It was probably the only effective method available to us to keep from having a financial meltdown much worse than we actually had. Had that happened, unemployment would be substantially higher than it is now, the deficit would have gone up even more than it has.
But it really cuts against the grain for a public that is so angry at banks to think that something that so plainly helped the banks could also be good for the public.”
Elliott’s assessment is shared almost universally by economists — even most conservative ones.
The widely held view is that a full-blown depression would have taken down even many healthy parts of the economy, triggering a downspiral of layoffs, homeforeclosures, unemployment and bankruptcy.
So how about cost? Were the bailouts and stimulus funds too expensive, or were they doled out unfairly?
Here the answer appears to be No.
It now appears that the ultimate cost for the TARP program will be around $50 billion — far less than the $700 billion once feared. (It’s even remotely possible that the bailout will generate a small profit.)
That’s because many of the companies propped up by the Federal government — from Citigroup to AIG — are fairly healthy again and they’re paying back the money they owe taxpayers with interest.
Meanwhile, the White House is trumpeting a new report that shows fraudulent activity as part of the Stimulus program was extremely low. This from the Washington Post.
“Certainly, the fraud and waste element has been smaller than I think anything anybody anticipated,” said Steve Ellis, vice president of Taxpayers for Common Sense, a nonpartisan watchdog group.
“You can certainly challenge some projects as questionable economically. But there haven’t been the examples of outright fraud where the money is essentially lining somebody’s pocket.”
Indeed, many of the lawmakers most critical of the stimulus money have trumpeted the actual projects funded in their home districts.
But what about the socialism question?
As a matter of principle, isn’t it dangerous for the Federal government to own big chunks of stock in major corporations? Isn’t this a sign that our free market system is being usurped?
Two years after the crisis began, there’s actually no evidence of this. No one has accused the Obama administration of attempting to actually run these companies, or sway their decisions.
On the contrary, the government has cashed out its holdings as quickly as possible.
Despite all these successes, the Federal intervention in the economy remains unpopular for four reasons.
First, it was unfair. Even the Obama administration acknowledges that they bailed out people who behaved poorly. In the words of Treasury Secretary Timothy Geithner, “It wasn’t fair, but it was necessary.”
Second, the program hasn’t returned us to normalcy. A lot of people are still suffering with nearly 10% unemployment.
It’s only fair to point out, however, that Franklin Roosevelt’s New Deal (also approved with bipartisan support) worked much more slowly.
Third, Americans are legitimately terrified by the level of national debt and this Federal intervention has come to be seen as part and parcel of our slide into penury.
Most economists are convinced, however, that a depression — or even a more ferocious recession — would have made our debt load far worse, by slashing the number of taxpayers.
Finally — and perhaps most ironically — the program is hated because it was a bipartisan effort. That means everyone sees something here worth hating, from the liberals who hate Wall Street to the conservatives who hate socialism.
In the end, it’s doubtful that the Federal government’s laudable track record– and the praiseworthy performance of Presidents Bush and Obama — will count for much.
The vast majority of Americans will go on seeing their government as the problem rather than the solution, unaware that this time the Federal safety net caught us all.