I'm glad some people get it.

I just noticed this list of economists against the Paulson bailout posted at Greg Mankiw's blog, with an explanation.

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

I was impressed with the big names on the list (3 Nobelists, Sam Peltzman), and the large number of Columbia professors on it. At the last meeting, we were discussing the distinction between being a libertarian and being free-market friendly. While most economists may be the latter and not the former, I still tend to think of them (there are exceptions of course) as people with genuine common sense who recognize the reality of unintended consequences.

Discuss this and more at our meeting!

Monday, September 29 @ 9:00 PM
315 Hamilton

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