Only fourteen months ago, the Senate passed and the House accepted the legislation which enacted the Emergency Economic Stabilization Act of 2008—otherwise known as TARP. The act authorized the Department of the Treasury to establish the Office of Financial Security which ultimately appropriated $700 billion in TARP funds to banks, insurance companies, and the automobile industry.

Many economists credit the TARP with providing the American economy with sufficient stabilization which prevented the "Great Recession" from sliding into the second Great Depression of American history with its world-wide economic implications. Widely reported problems have hounded the TARP but it seems its shortcomings have not been exceeded by its critical infusions of capital into tottering banks and businesses deemed "too-large-to-fail." The Dow which fell to 6,547 in March, 2009 has rebounded to over 10,000 and other leading economic indicators are gradually turning more positive.

No one knows for certain what would have happened in the absence of the TARP but looking at statistics from the Great Depression—granted it is problematic to compare historical events and economic conditions separated by some 75 years—is a sobering endeavor when you consider:

J. Bradford DeLong's point that from the time of the Bear Stearns failure in March, 2008 industrial production declined 14 % below its peak in 2007. By contrast, the failure in December, 1930 of the Bank of the United States was followed by a fall of 54% in industrial production by September, 1932 according to the Federal Reserve Index.

Other harrowing Great Depression statistics include:

  • a decline of U.S. Gross Domestic Product (in current dollars) from $163.6 billion in 1929 to $56.4 billion in 1933;
  • unemployment rose from 3.2% in 1929 to 24.9% in 1933;
  • the Dow Jones Industrial Average fell from 381.17 in September, 1929 to 41.22 in July, 1932; and
  • thousands of homeless in every major city as described by T.H. Watkins in "The Great Depression" as sleeping "on park benches, under park shrubbery and bridge abutments, in doorways, packing crates, concrete pipes, culverts, construction sites, and abandoned automobiles."


This procession of frightening historical economic data may have been on the mind of Senator John Thune when he wrote in the Wall Street Journal on October 5, 2009, that a year earlier that they way a "very real danger credit markets would freeze and the economy would grind to a halt." Or as the Bangor Daily News editorialized on February 25, 2009, that without TARP other major banks would have followed Lehman Brothers into bankruptcy precipitating the collapse of the entire banking system and an "economic collapse on the scale of the Great Depression would have followed." Indeed, the lurking economic danger called both Minnesota Senators, Amy Klobuchar and Norm Coleman, to unite in favor of the TARP.

The national work-out from the Great Recession, though, is only one unknown in the multivariable equation of our country's economic concerns. The Great Recession followed a decade of little economic gain for most Americans. Paul Krugman noted in his December 28, 2009, New York Times column, "The Big Zero," these statistics:

  • median household income, adjusted for inflation, is lower than it was in 1999;
  • housing prices, adjusted for inflation, are roughly back to 1999 levels; and
  • the Dow Jones industrial average will be approximately 8.25% below its December 31, 1999, close


Rising healthcare and education costs compound the problems of a decade of economic stagnation for most Americans.

On top of it all, the retirement of baby boomers with allocated Social Security and Medicare costs means a significant increase in entitlement spending for a nation currently with a serious budget deficit and recent expansion of the national debt. The implementation of the TARP may have averted an economic free fall, but even more serious economic questions are to follow.

Most fascinating is the way arguments over the TARP asserting encroachment of federal authority over local or individual prerogatives reflect our 225 year national discussion over the proper division of federal and state power. Joseph Ellis' book "American Creation" contains a description of a Congressional debate which could have been lifted from the pages of the Congressional Record reporting the TARP debate. The issue in 1791 was the chartering of the national bank. Thomas Jefferson and James Madison were on one side. Alexander Hamilton was on the other side. The Virginians, Jefferson and Madison, argued the bank was unconstitutional because Congress possessed only certain enumerated powers and the power to create a corporation was not one of them. Hamilton, citing Federalist 44 (ironically the work of James Madison), argued that the "necessary and proper" clause of the Constitution (Article I, Section 8) provided Congress with implied powers to effectuate its authority, which was inherent in the Constitution's separation of powers ("No axiom is more clearly established in law, or in reason, than that wherever the end is required, the means are authorized; wherever a general power to do a thing is given, every particular power necessary for doing it, is included.").

On October 3, 2008, Alexander Hamilton had the better of the TARP debate, but the pressing economic issues of the country will require a blend of Hamiltonian, Jeffersonian, and Madisonian principles to solve from the perspective of creativity and legitimacy.