Last week, a debate erupted about whether the government’s massive Troubled Asset Relief Program (TARP) made or lost taxpayers money. Assistant Secretary for Financial Stability Timothy Massad and his colleagues at the Treasury Department argue that TARP is going to end up costing a lot less than originally expected and may even end up turning a profit for taxpayers. Breakingviews Washington columnist Daniel Indiviglio scoffs at this, arguing that TARP “looks more like a loss of at least $230 billion.”

While the two sides are miles apart on their calculations (and it is important to examine why), their disagreement reflects a broader philosophical dilemma that deserves more attention. It concerns whether the U.S. government should be held to the same standards as private investors. Put another way, should policymakers adopt the same analytical approach that private-market participants use to evaluate or measure the prospective return on new investments? The answer has important consequences for defining the roles for the public sector and private enterprise – and particularly how the U.S. government accounts for all of its trillions in direct loan programs and loan guarantees.

Let’s start by using TARP as a case study. The calculation Treasury uses is simple: If a bank that received a TARP capital injection pays back the original amount, then the taxpayer broke even. If some interest or dividend income (i.e., on the government’s ownership stake from the injection) is generated, then the taxpayer likely made a profit on the investment.

Indiviglio takes a different approach, arguing that Treasury’s “fuzzy math wouldn’t fly with any sensible portfolio manager.” He insists that government needs to factor in the cost of money and its value over time.

The crux of this argument is about whether the government’s investment strategy should be evaluated in the same way that a private investor would evaluate a potential investment. Massad confronted this head on in his rebuttal to Indiviglio (delivered through Politico’s Morning Money):