The Troubled Asset Relief Program (TARP) was designed and endorsed by the George W. Bush Administration and passed with Democrat support. It has been an unmitigated success in saving the banking system and is proving to be highly profitable for tax payers. Although designed for the purchase of “toxic securities”, the direction was bravely and wisely changed within 60 days when that approach was found to be impractical and, instead, the funds were leant to major banking institutions in exchange for interest and, in the case of CitiGroup, new stock in the company. Most of the funds have been repaid. Profits alone from the CitiGroup investment have already exceeded $5 billion and may reach as high as $20 billion.
The Bush Administration started work on what was to become the American Recovery and Reinvestment Act (Recovery Act) but its ultimate form and thrust was determined by the Obama Administration, that combined what normally might have been five major Bills into a multi-year $800 billion plus attempt to pull the nation (and the world) out of the worst recession since the 1930s.
According to “The Promise, President Obama, Year One” by Jonathan Alter, the Recovery Act contained: “The biggest tax cuts for the middle class since Reagan, the biggest infrastructure bill since the Interstate Highway Act in the 1950s, the biggest education bill since Lyndon Johnson’s first federal aid to education, the biggest scientific and medical research investment in forty year, and the biggest clean energy bill ever.” Alter described it as the “‘big bang’ strategy of using the economic crisis to confront long festering problems in health care, energy, and education that were preventing the United States from achieving greatness in the twenty-first century.”
(At the time of its contemplation, the Watchdog joined many Republicans in urging that only the infrastructure portion be approved with each of the other facets being vetted and enacted separately.)
Economic recovery has been delayed in part because it takes a year for so called “shovel ready” projects to actually reach the construction stage. Furthermore, due to the varied aspects of the Recovery Act, large portions of the spending will only take place in future years.
Currently there are grave concerns that the mild recovery experienced at the end of 2009 and early 2010 is now leveling off, in part due to serious debt problems experienced by European Union nations restricting demand for American products. Furthermore states, cities and school districts are meeting their constitutional and statutory requirements to balance their budgets at a time when tax revenues are greatly depleted. Therefore positive effects from the Recovery Act are being offset by governmental lay offs and curtailment of other spending. (A fortuitous stimulant in 2010 was the Census which temporarily engaged a quarter million workers. Their services are no longer needed.)
Opportunists in the Republican leadership as well as “blue dog” Democrats are ignoring how similar attempts to balance budgets during 1937 plunged the nation back into the Great Depression that lasted until the outbreak of the Second World War. Some politicians are just ignorant of economics; but most are pandering to constituents who do not understand that deficit spending is essential to pull the nation out of recession before major reforms can be instituted to bring the federal budget under control.
The Great Depression of 2012 may result from the ignorance of the general public to Keynesian Economics (the need to run deficits to stimulate recovery during times of great unemployment, which is not intuitive) and a failure to put country ahead of political opportunism by candidates for office.
