Wednesday, January 26, 2011

Perceptions and Policy

We talked a bit in class about how perceptions of policy don’t always go deep enough to be fully informed.

A case in point is TARP (the Troubled Asset Relief Program). Out on the street people think this was a bad idea that failed miserably.

In fact, it was an idea that was in every macroeconomics textbook for as long as I can remember, that was put into practice when the texts said it should be.

And it worked. Fantastically.

But check out this survey:

How is that possible? GM has been a basket case for 20 years and everyone knew it. And Chrysler has been the LA Clippers of automakers since the 1960s.

Yes, it would’ve been better if TARP never had to be … but it did. Given that it did, the textbook explanation was that it wouldn’t lose much money in the long-run, and it didn’t.

Read “Bailout Ends, Not Anger” in the October 2, 2010 issue of The Wall Street Journal.

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