This surprising result -- that the failure to eat chicken leads to starvation -- would be shown true using the same methodology of a new study on the impact of the TARP. The study, by Princeton University Professor Alan Blinder and Mark Zandi, the chief economist at Moody's Analytics, examines the impact of the TARP and the stimulus on economic growth and unemployment. It finds that GDP would be 11.5 percent lower in 2010 had it not been for these two policies, with about three quarters of the benefits attributable to the TARP and various Fed/Treasury/FDIC policies that provides aid to the financial sector.

While the analysis of the stimulus is pretty standard and very much in keeping with other estimates, this is not the case with the analysis of the financial sector policies. The problem with the study is the implicit counterfactual. It effectively assumes that if we did not do the TARP and related policies, that we would have done nothing even as the financial sector melted down.

This is comparable to doing an analysis of the benefits of eating chicken where the counterfactual is that people eat nothing. Needless to say, we would find very large benefits to eating chicken in such a study.

Suppose as an alternative counterfactual, we let the market do its work. Citigroup, Goldman Sachs, Bank of America, Morgan Stanley would be out of business, with their highly paid CEOs walking the unemployment lines. Rather than doing nothing, we could have the Fed flooding the system with liquidity (much as it did), without having to worry about money being siphoned off by bonuses for the honchos who led these banks to ruin.

It would be difficult to fully flesh out the counterfactual in this scenario, but it is certainly more plausible than the one described by Blinder and Zandi. If we need a study to make us feel good about the fact that the Wall Street is rich while the rest of the country is poor, it fits the bill, but it is not serious analysis and the media should not treat it as such.