October 1, 2008, 8:00 am
Dueling Economists: Experts Voice Support for Bailout
Bill
Last week, a large group of prominent economists sent a letter to lawmakers opposing the
Treasury’s plan to purchase troubled assets. Today, a separate group of economists have
come out in support of the plan. Full text of the letter follows:
September 30, 2008
To the Speaker of the House of Representatives and the President pro tempore of the Senate:
As economists, we write to support the plan before Congress dealing with the financial crisis.
We are well aware that the proposed intervention entails very large sums and considerable
risk for American taxpayers, albeit upside as well as downside risk.
Ours is a mixed, private-public economic system. Even in normal times, our government is
heavily involved in the economy and holds a considerable claim on the private sector via the
tax system. That said, none of us would counsel government arrangements of the proposed
type in normal times. Today’s situation is far from normal. Nor, unfortunately, is it
unprecedented.
Our country has weathered significant financial crises over the years. It will weather this one
as well. The main lesson learned from prior crises is that timely and aggressive government
intervention can restore confidence and galvanize the private sector to take mutually
reinforcing and economically beneficial actions. This ability of the government to set the
economy on a healthy path makes the proposed intervention much less risky than would
otherwise seem to be the case.
We call upon all members of Congress to support this important legislation knowing full well
that doing so is neither easy nor guaranteed of success. *
Signed by*
Richard J Arnould, University of Illinois
Henry Aaron, The Brookings Institution
Bahram Adrangi, University of Portland
Lanny Arvan, University of Illiniois
Alan Auerbach, University of California at Berkeley
Lawrence Ausubel, University of Maryland
Kathy Baylis, University of Illinois
Valerie R. Bencivenga, University of Texas, Austin
Douglas Bernheim, Stanford University
Dan Bernhardt, University of Illinois
John Bigelow, The Princeton Economics Group
Douglas Blair, Rutgers University
Alan Blinder, Princeton University
Emily J. Blanchard, University of Virginia
Michael Boskin, Stanford University
Ricardo Caballero, MIT
Domingo Cavallo, Fundación Mediterránea, Argentina
Christophe Chamley, Boston University
Joaquin Cottani, LECG, LLC.
Peter Cramton, University of Maryland
Robert H. Dugger, Tudor Investment Corporation
Todd Easton, University of Portland
Everett Ehrlich, ESC Company
Niall Ferguson, Harvard University
Jeffrey Frankel Harvard University
Daniel Friedman, University of California, Santa Cruz
Donald Fullerton, University of Illinois
K.C. Fung, University of California
Eric Furstenberg, University of Virginia
Robert Hall, Stanford University and the Hoover Institution
Daniel S. Hamermesh, University of Texas at Austin
James Harrigan, University of Virginia
James Henry, Sag Harbor Group, Inc.
Firouz Gahvari, University of Illinois
Richard Gilbert, Compass Lexecon
John Goodman, National Center for Policy Analysis
Lawrence H. Goulder, Stanford University
Seung-Hyun Hong, University of Illinois, Urbana-Champaign
William Johnson, University of Virginia
Joseph Kasputys, Global Insight, Inc.
Justine Kilpatrick, retired
Roger Koenker, University of Illinois
Laurence J. Kotlikoff, Boston University
Howard Kunreuther, University of Pennsylvania
Arvind Krishnamurthy, Northwestern University
Kevin Lang, Boston University
Barton Lipman, Boston University
Michael Manove, Boston University
Preston Mcafee, Caltech Robert Margo, Boston University
Walter W. McMahon, University of Illinois
David G. Mathiasen, United States Senior Executive Service
Joe Minarik, Committee for Economic Development
Len M. Nichols, New American Foundation
Van Doorn Ooms, Committee for Economic Development (retired)
Jon Orsag, University of Southern California
Christina Paxson, Princeton University
Thomas J. Prusa, Rutgers University
Salim Rashid, University of Illinois
Bruce Reynolds, University of Virginia
Hugh Rockoff, Rutgers University
Alice M. Rivlin, The Brookings Institution
Isabel Sawhill, Brookings Institution
Elliot Schwartz, Committee for Economic Development
Neil Sheflin, Rutgers University
George P. Shultz, Stanford University
Hal Sider, Compass Lexecon
Alan Spearot, University of California, Santa Cruz
Eric Toder, The Urban Institute
Eric Van Wincoop, University of Virginia
Luis M. Viceira, Harvard University
Ingo Vogelsang, Boston University
Eugene N. White, Rutgers University
Roberton C. Williams III, University of Texas at Austin
Robert Willig, Princeton University
Sidney G. Winter, University of Pennsylvania
* We are signing as individuals and not as representatives of our organizations, which are
mentioned for identification purposes only.
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Those economists think that a recession can be avoided?
They should know better. This bailout just extends the agony. Let the markets suffer, and to
purge ALL those malinvestment.
If the bailout passes, the dollar will be destroyed.
Comment by null - October 1, 2008 at 9:03 am
Even all these Economists don’t understand what they are asking for in this proposed Bill or
as amended.
The FDIC already has the financial power to deal with this problem as they have with others
in the past that were also considered unprecendented.
Comment by Donald Mullins - October 1, 2008 at 9:13 am
BS!, none among them is from Chicago
Comment by fanofchicago - October 1, 2008 at 9:15 am
The recession can be avoided.
Just massage the numbers.
Comment by Anonymous - October 1, 2008 at 9:15 am
As economists, these men and women should know better. The situation is, as they say, not
unprecedented. So, why not use the tools and techniques that have been used and worked in
countries around the globe?
This bill gives unprecedented (and unnecessary) discretionary power to the Treasury
secretary. This hasn’t been done in most other banking crises. Maybe there’s a reason —
maybe it’s not a good idea!
This bill also provides for solvent banks to sell bad assets to the Treasury. Again, this hasn’t
been done in most other banking crises. Maybe there’s a reason — maybe it’s not a good
idea!
Let’s use the right tools: let the Fed lend, give banks a holiday from mark-to-market,etc.
Comment by Ghost - October 1, 2008 at 9:18 am
The bailout bill is one of the worst proposals Congress has considered–much less passed–in
reason years.
The proposed legislation does not focus on the right problem. The critical underlying problem
in our economy is the growing number of foreclosures and associated decline in the US real
estate market. This bill will not address the core problem in any meaningful way.
The proposed legislation is inadequate to the task it is intended to tackle. Although $700
billion dollars is huge sum, the Treasury and Federal Reserve have already extended over a
half-trillion dollars in direct aid or guarantees to Wall Street—and credit conditions have
worsened.
The proposed legislation will not result in significantly expanded credit available from Wall
Street to Main Street. Because of their huge leverage—20-30 times their capital—the banks
will need virtually every sent to shore up their capital reserves. The half-trillion dollars
already extended to Wall Street has accomplished nothing in easing credit conditions.
The proposed legislation will ultimately leave the US taxpayer with hundreds of billions of
dollars in losses added to the national debt and our taxes. To make any sense at all in
achieving its intended goal, Treasury will have to pay a premium for this toxic financial
waste. The taxpayer will ultimately eat this waste no matter what warrants, equity, or other
arrangements are introduced.
Comment by Terry - October 1, 2008 at 9:21 am
There are a number socialists in the economic departments at some universities.
Comment by TTT - October 1, 2008 at 9:21 am
hmmmmmm what is Domingo Cavallo from Fundación Mediterránea, Argentina doing on
this list?? How about Eric Toder from the The Urban Institute?? And Len M. Nichols from
the New American Foundation - what exactly is the New American foundation. Looks like
they are padding the list with a couple of bodies. Vote No on the bailout - Pain we need today
for a better tomorrow….
Comment by TC - October 1, 2008 at 9:27 am
What a pathetically worded letter. Left me with the impression these economists are totally
ignorant concerning the details of the bailout plan.
Comment by simplenothing - October 1, 2008 at 9:30 am
Not nearly as many as are against the bailout. What good are principles if you don’t follow
them during tough times? Why have them at all?
Comment by Wise Up! - October 1, 2008 at 9:30 am
I took a survey of the early migration of waterfowl flying South & they disapprove of the
bailout 50 to 1. Inc. FDIC to 250K. What garbage is this? An incentive?
A list of economists? Does this assume knowledge? Bull. Seems to me that legal competence
is at best dubious, certainly questionable. Cheap tricks. Just like the FDIC increase to 250K is this an omen of the Yellowstone fire of inflation to come? Sure seems clear to me. Some
bait & support measure this IS - NOT. How about this again: FACTS, TRUTH,
ACCOUNTABILITY, INTEGRITY AND JUSTICE. The urgency of Paulson & Bernanke
scares the hell out of me. Pitchmen who have failed. These days ahead: who are the traitors?
Comment by 2socks - October 1, 2008 at 9:31 am
I just hope that there is one senator that has the guts to filibuster this monstrosity of a bailout.
This is the biggest corporate welfare plan in the history of the world.
Comment by Joe - October 1, 2008 at 9:33 am
“BS!, none among them is from Chicago.” — fanofChicago
That’s because the economists from the University of Chicago all signed the other letter —
the letter telling lawmakers NOT to sign the bailout.
Comment by John - October 1, 2008 at 9:34 am
Where have this smart A’s been in the last 12 years; why would we believe that they got it
now? You can not solve a problem with the same people that created it, Einstein said, the
problem with politics is that the system created is to complicatd to be governed, computer up
or down, the uncertainty of human behavior can not be calculated never, so therefore make
the system less complicated and transparent. It is better to have a dollar in a week then
eradicate millions instantly. Downsize and diversify, kick free trade for fair trade and if
nations do not comply with fair trade drop em. Tell Obama, go shopping Main Street if you
can find a store, and drive buy WalMart, say Wall Street.
Comment by Tony - October 1, 2008 at 9:37 am
PS
I am a fiscal conservative, social liberal (meaning a fierce advocate of the Bill of Rigths). Ask
not what you can do for your country but ask what those with private agendas can do for
themselves (those who will AGAIN reap a heap). Any honest politicians in the house I guess
literally? Ironically the rebel young Republicans of all people got the picture? Pelosi & Reid:
poor leadership. But them IMPEACHMENT fits the lame ducks. And TREASON awaits
those favoring throwing 700 billion to the wind which is the ultimate betrayal with or without
stupid gimmicks like increased FDIC.
I now feel compelled to run for public office - to speak the TRUTH & run the villains out of
DC.
Comment by 2socks - October 1, 2008 at 9:40 am
John,
Are you lazy or just ignorant?
If you actually looked at the other letter (link at top of page) you would see that 41 University
of Chicago economists, including 2 Nobel Laureates sign the letter saying the bailout is a bad
idea. This list is a joke, intellectually speaking, versus the other one.
Comment by Chris - October 1, 2008 at 9:45 am
Can anyone say ‘Inflation’?
Comment by xxx - October 1, 2008 at 9:46 am
Economists? There are college professors, at best. Those who can’t do - teach. Well, and give
ill advices.
Comment by Alternate Reality - October 1, 2008 at 9:58 am
The Senate version takes a bad idea and hangs a bunch of sweeteners on it to try to pick up
votes. I agree with the suggestions of Ghost at 9:18 am.
Comment by JoeP - October 1, 2008 at 10:01 am
A little inflation might be just the elixir the housing market needs. Where were you “free
market” guys when the GI bill was passed or the mortgage-interest deduction? Our legislators
have always told us where and how to invest via the tax code. Evolve boys and girls.
Comment by I'm Smarter Than You - October 1, 2008 at 10:04 am
As an economist myself, I have mixed feelings about this deal.
If it doesn’t pass, we will experience a significant decline in retirement accounts, jobs, house
prices, credit availability, and business and household confidence. This will ultimately lead us
into a deep recession. How deep? I don’t know. While this recession will make us all suffer, it
will help the economy build new fundamentals that will ultimately get us out of recession
with a stronger base. We will resurface with a stronger dollar, low-price commodities, lower
inflation, new-built confidence, and a stronger financial system, mostly due to stricter
regulation. However, this will require us to stop diverting our money to unnecessary conflicts
abroad and invest it domestically and restore our image worldwide. This sounds as the best
choice, but are we ready to suffer??
If the bill passes, Wall Street firms will get rid of their toxic investments, a deep recession
“may be” averted, credit markets will open up, the value of the dollar will go to historic lows,
further job losses may be prevented, confidence will be restore, and foreign countries may
stop buying our debt. All of these sound unpleasant, but if the plan actually works and the
government is able to recoup most of the money, we can avoid having to suffer.
So, what do you prefer?
Comment by Jay - October 1, 2008 at 10:04 am
A lot of them from Harvard, Wharton, Stanford, Boston University, Princeton. Can anyone
guess Wall Street core schools for recruitment? Supporting your alumni, eh? I am sure the
endowment funds would reach a new high after the bailouts.
Comment by Cynical - October 1, 2008 at 10:20 am
Chris, read John’s comment again.
Comment by Jonny - October 1, 2008 at 10:22 am
As a Chicago GSB grad, I applaud my alma mater for opposing the bill and for none of the
professors to sign on to it. Let the chips fall where they may. In the long run, we are all better
off.
Comment by SueDonim - October 1, 2008 at 10:23 am
George Schultz, now at Stanford, is formerly associate with University of Chicago. One-time
Dean of the Chicago Business School.
Comment by Mick - October 1, 2008 at 10:24 am
I’m sure the Keynsians (much like this list of ‘economists”) back in 1971 thought it was about
“today” when we left the gold standard. I’m sure the “experts” thought it was about “today”
when we signed the CRA or flooded the world with credit (ala Fed Reserve) because it was
about “today.” Well now its the “long run” and we are not dead and stuck with this stupidity.
If these guys were so smart why didnt’ they warn us about this mess years ago?
No bailout, close down the Fed, repeal the CRA but no bailout.
Comment by In the long run we are all dead...well maybe - October 1, 2008 at 10:25 am
“Ours is a mixed private-public economic system?” What? Just because the left has sold the
working class in this country on it being the solution to all societies ills, and intends to tax
those of us who actually create wealth in this society to death to do it, doesn’t mean that we
have a “private-public” economy. How can any serious economist equate tax policy with
direct intervention in capital markets?
It’s very clear that there is a systemic problem in the credit markets. The only way to ward off
a cascade of bankruptcies, bank runs and failures is to bolster the balance sheets of key
financial entities. There is no magic bullet.
Comment by Glenn - October 1, 2008 at 10:26 am
I’m afraid some form of this bailout will pass (email your reps and senators to vote no). But
all these fans of a bailout approach will be exposed as frauds (or criminals - Paulson) or just
ignorent when the insolvencies continue and losses move into the trillions of dollars
(Wachovia alone will soak up billions). But of course that will be after the elections.
I think in a few years (after the Keynesians wreck the economy), people will finally begin
asking why the Austrian school of economics was ignored all these years.
Comment by CATMAN - October 1, 2008 at 10:29 am
Wait a minute. Are they saying Bush and Paulson are liars? This is not unprecedented? Then
the bankers don’t need the cash. You say tomato, I say tomahto. Let’s call the whole economy
off.
Comment by stockwatch - October 1, 2008 at 10:34 am