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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

What to do with the extra bailout money?

Today at the Brookings Institution in Washington, President Obama is giving a speech that will propose some measures for easing the national unemployment rate, which now stands at 10 percent.

Everyone wants to get the unemployment rate back down to where it normally is in prosperous times -- in the 4 to 5 percent range. But there's wild disagreement over how to do it.

At the heart of this argument lies this question: What should be done with the extra bailout money?

Of the $700 billion in bailout money -- the Troubled Asset Relief Program, or TARP -- quickly pushed through Congress last year, about $139 billion remains unspent. About $71 billion has been returned and another $15 billion has been paid back to Treasury in the form of dividend payments.

So that creates a pot of $225 billion. What should be done with the money is being hotly debated in Washington.

Fiscal conservatives argue that it's not really a pot of money at all. It's money that was authorized by Congress to be spent by the Treasury. In this sense, it's money that belongs to the taxpayer. So, fiscal conservatives ask, why not give us all a check for our share of the bailout money? That's a bit flip, but it gets at the heart of the free-market plan for creating jobs: Put money back in the hands of individuals and they will spend, which creates jobs via consumption; put it in the hands of business owners, and they will hire new workers.

Deficit hawks say: Take the unspent TARP money and use it to pay down the staggering national debt, which now stands at $12 trillion and rising, goosed upward by the $787 billion stimulus plan passed this year. Even before this crisis, deficit hawks were worried about the rising national debt and yearly budget deficits, and they argue the numbers are even higher because they don't take into account unfunded liabilities, such as Social Security and Medicare. Here's an interview I recently did with deficit hawk Dave Walker, who sounded the debt warnings even before the crisis. And here's a piece The Post's Joel Achenbach wrote today on how national debt works.

On the other side, there are those -- typically Democrats and other left-leaners who believe in the power of government to do things -- who say that the unspent bailout money should be used to create a jobs program. Literally, to use taxpayer money to hire the jobless for government jobs.

During the Great Depression, this was tried on a massive scale with the Works Progress Administration, or WPA. FDR's government hired millions of jobless Americans to do everything from building bridges and parks to putting on plays. Folk singer Woody Guthrie was famously paid by the WPA for one month to write songs.

If all you want to do is put people to work, government programs like the big-scale WPA and whatever smaller-scale jobs program Congress may try to pass will do it. And there is no doubt that there are plenty of things that need to be done in this country, starting with fixing the oft-publicized crumbling infrastructure.

But they can have crippling long-term effects simply because they create a situation where a centralized government entity is creating jobs rather than a diffuse market-based private sector. These consequences are detailed in Amity Shlaes's "The Forgotten Man," in which she argues the FDR programs created what she calls an "entitlement trap."

Whichever way this administration and Congress go, one thing is certain: As long as unemployment stays up around 10 percent, voters are going to be pushing lawmakers to do something about it.

-- Frank Ahrens
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By Frank Ahrens  |  December 8, 2009; 11:30 AM ET
Categories:  The Ticker  | Tags: Amity Shales, TARP, bailout, unemployment  
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