Knowledge and the political economy of TARP

Abstract

PurposeThe purpose of this paper is to establish the consensus about the tremendous economic success of the Troubled Asset Relief Program (TARP) and explore theories of popular disapproval of TARP.Design/methodology/approachThe analytical approach in this paper is a multivariate survey logit based on two Pew Research Center surveys that include questions on knowledge of and views on TARP. One survey is used to estimate a knowledge index of TARP that is applied to another survey to estimate the impact of knowledge on opinions of TARP.FindingsThe author finds that knowledge of TARP is dependent in particular on education, party affiliation, and sex. Controlling for partisan effects, views on TARP's effectiveness are distorted by limited knowledge of TARP in magnitudes that are politically significant.Practical implicationsDespite the severity and dramatic spillovers associated with banking crises, decisive interventions may prove difficult to defend in retrospect in light of ignorance and an inability to conceptualize the nature of the counterfactual.Originality/valueThis paper contributes to our understanding of the political economy of an important and controversial economic policy, in particular the roles of ideology and knowledge in accounting for public opposition to TARP. TARP is largely misunderstood. The author estimates a model of TARP knowledge based on this misconception, and shows that education, party affiliation/leaning, and sex are important predictors of TARP knowledge. By applying this model of TARP knowledge to a separate survey dataset, the author demonstrates that knowledge of TARP (along with political ideology) is an important predictor of support for TARP. By integrating two different surveys, he is able to better identify the role played by knowledge of TARP, rather than simply demographic characteristics.