Sunday marks the two-year anniversary of President Bush signing the “Emergency Economic Stabilization Act,” better known as TARP (the Troubled Assets Relief Program).

I suspect the occasion will bring forth a loud chorus proclaiming that TARP saved Western Civilization as we know it, or at least prevented another Great Depression. Just as economists still debate the impact of the New Deal, it is a safe bet that economists will be debating the effect of TARP for years to come.

Any honest discussion of TARP’s impact should recognize that it is simply impossible to give a definitive answer to “did TARP save our economy?” Economics lacks the sophistication to empirically provide an answer to that question. Economics does not have the luxury of running a controlled experiment on the macroeconomy. There was a lot going on at the time. Parsing out the various impacts is quite difficult. For instance, I believe it is clear that the stock price received by the Treasury for various TARP banks is inflated by a “too big to fail” premium. So while we see the benefit of this guarantee, its costs are much harder to capture. And of course any discussion of benefits without an accounting of costs is at best misleading, if not outright dishonest.

An admittedly unscientific but useful first approximation of any government program is to ask, did such program change an underlying trend? One of the rationales offered for TARP was that it would “re-start” our credit markets. If TARP did help the credit markets, then its impact should show up in the amount of credit outstanding.

However, consumer credit peaked several months before the creation of TARP and seemingly continued a relatively smooth trend downward. Would that trend have been worse without TARP? Maybe. But since it appears that the trend did not change much at all, I believe the burden is on the program’s proponents to prove it did.

Another objective of TARP was to “restore confidence.” The idea was that if the American public and the financial markets saw that the government would do and spend whatever was necessary, calm would return. Interestingly enough, the first consumer confidence reading after TARP passed was lower than the measure taken just before its signing. While consumer confidence did start to improve in the beginning of 2009, one would have expected TARP’s impact on confidence to have been felt sooner rather than later.

The statutory language of TARP repeated talk about protecting homeownership, home values, and jobs. One need not reproduce charts for these variables. We all know how weak they have been. This of course should not really be a surprise. TARP did nothing to change the fundamentals of supply and demand in the housing market, or in the labor market.

Some will also say that TARP has been a success because we are getting most of the money back. I wonder if TARP’s proponents are willing to apply that same logic to the rescue of Fannie and Freddie. If these bank stocks were such a great buy, though, why was it the government that had to buy them? Worse still, the original design of TARP was not to buy stock; indeed, it is a stretch to read the statute as even allowing equity purchases. The purpose was to remove bad assets off of bank balance sheets. That was not done. Delinquent loans, as either a percent of assets or at absolute levels, are still near record highs and have increased since passage of TARP. That’s correct; despite TARP’s goal of cleaning the banking system of bank assets, there are more bad assets than ever. While TARP, of course, did not cause those bad assets, it was supposed to reduce them.

The real costs of TARP are likely not going to be felt for years, until the next financial crisis. In rescuing the financial system, TARP has created the expectation that in a moment of crisis, the government will throw money at the problem, reducing the incentive of market participants to reduce their own risk exposures. Simply because the costs of moral hazard are not easy to measure, does not mean they do not exist.

If TARP can be claimed as a success, it is only in the sense that it helped to focus the American public on Washington’s mismanagement.