Whatever else you may say about economic policy over the past 12 months, the fact of the matter is that the much-derided TARP program has been a big success. There was a fear that financial panic would lead the global economy into a downward spiral. That hasn’t happened. The developed world saw a sharp contraction from which we are now slowly rebounding, and the leading developing economies avoided recession altogether. Asset prices have stabilized. It’s been obscene to watch some of the very people who engineered this crisis back to earning so much money, but the correct response to that is better regulation and higher taxes in the service of more and better public services, not a backlash against a policy intervention that’s set the stage for economic recovery.
Best of all, as I’ve been noting for a while the true net cost of the program is much less than the gross $700 billion congressional appropriation. Today, the Treasury Department further revised downward its estimate of the actual net cost to taxpayers. Now there’s talk of using that extra cash as a pot with which to finance additional job creation measures. It’s a good idea.
The alternative proposal is to use the money to reduce the national debt. This is a bad idea. Borrowing money right now is cheap and easy. The real debt problem lies in the future. Policy changes that effect projected future debt levels, like comprehensive health care reform, are a good idea. But a one-off debt reduction in 2009 doesn’t do that. What we need to do to set the stage for a reasonable debt-reduction program over the long run is to return the country to its trend level of economic output.