The Bailout or TARP is incredibly unpopular among voters. I understand that. As far as they can tell money is being taken away from them and given to people who are much richer than them. To make matters worse those rich people got rich by destroying the economy and jeopardizing the tax payers job.

What surprises me is that the TARP seems to be unpopular among intellectuals and economists. Tyler Cowen offers a half-hearted defense:

Maybe you think that the bailouts will have disastrous long-run consequences.  And maybe they will, I worry about this too.  But if anyone should know that modern politics can only stand so much short-run panic, it is libertarians and fans of Bryan Caplan’s book.  If we had not done the bailouts we did, we would, within a few months’ or weeks’ time have received a much worse and costlier bailout run by Congress and Nancy Pelosi.  How does that sound?

There would have been a worse bailout – that’s the defense?

How about the fact that we stopped the second Great Depression. We prevented untold human suffering and a destabilization of governments in developing countries that could have lead to a vastly more dangerous world.

In my mind the entire point of macroeconomics was that when it happened again — when the forces that created the Great Depression materialized again — we would stop it.

It happened again and we stopped it. That’s success.

Megan McArdle worries about moral hazard.

The bailouts have probably substantially increased moral hazard, and perversely, arguably undermined the political will for regulation that might reign in that moral hazard. 

Yes, moral hazard exists but it is not the end of the world. If the bailouts reduced the incentive for more regulation or tighter self-control because they reduced the actual systemic damage to financial crises then that is good thing. The world is a safer place.

And, specifically it makes no sense at all to worry about moral hazard in reference to preventing wholesale catastrophes. The ultimate problem with moral hazard is that it will make bad realizations more likely. However, if the worst realization is coming true and you don’t stop it then it happens with probability one. You can’t get worse than that.

I think people latch on so tightly to moral hazard because it conforms to their moral intuition. Throughout the rest economics people are constantly told that economics is not a morality play, the virtuous are not rewarded nor the wicked punished. But, here under the guise of moral hazard is finally a chance to punish the wicked and people are not going to let that go without a fight.