Wise words Chris Edwards at Cato:
Will Congress approve the second $350 billion of TARP money? I have no special skill at political speculation, but since a reporter asked, here are five reasons I think that it won’t, thankfully.
- It is not clear that the first $350 billion of TARP money has aided the economy at all. I suspect that all the recent Treasury micromanagement through TARP has destabilized the economy and delayed the recovery, not helped it. But certainly TARP supporters cannot claim any big success
- Congress and the general public are unhappy with the lack of transparency and poor oversight of TARP spending. President-elect Obama campaigned on creating a more transparent government. TARP spending does not fit into that Obama vision.
- Democrats don’t like TARP anymore. Democrats are unhappy that TARP money has bailed out Wall Street and not Main Street, to use their nomenclature. They are resisting further bailouts of financial firms.
- Republicans don’t like TARP anymore. Republicans in Congress are unhappy that the Treasury bailed out the auto firms with TARP money after they explictly opposed an auto bailout. They don’t want to give the new Democratic administration a similar open-ended opportunity to spend.
- The U.S. economy will recover from the current recession, and the Obama administration will want to take credit for it. Renewing TARP will muddy the waters for that credit-taking. For Obama, it is politically important that he “do something” in his first few months to the economy so that when the recovery comes he can claim success. TARP is a Bush thing, Obama needs something fresh and new.
What Obama should do is a pass a large corporate tax rate cut, which would spur long-run growth. Alas, Obama appears to be an old-fashioned Keynesian, and his credit-taking vehicle is shaping up to be a gigantic “stimulus” spending plan. I think that’s crackpot, as I touched on here, and will address in future blog posts.