Bryan Caplan  

Economists' Bipartisan Bailout Opposition

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A new op-ed by John Lott finds that elite economists join the general public in opposing the Paulson bailout:

Interviews conducted with a dozen prominent academic economists, Obama supporters as well as McCain supporters, found little support for the bailout bill. Indeed, even the one economist who supported the proposal passed by the Senate Wednesday night had serious reservations.

The economists' list of objections to the bailout proposals is long, but the most common was that the aid should be targeted to those financially troubled enterprises and that the Federal Reserve already has its traditional power to act as a lender of last resort. As Fair notes, "a lot of things could be done that are much smaller than what is being proposed."

Cochrane pointed out a major contradiction in the bailout bill. The legislation promises the "minimization of long-term costs and maximization of benefits for taxpayers," while it also promises that the Treasury Secretary "shall implement a plan that seeks to maximize assistance for homeowners . . . the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures." As Cochrane makes clear, "you can bail out homeowners or you can make money on their mortgages, but you can't do both."

It's hard to be sure, but it's easy to believe that economists are more opposed to the bailout than the general public.  I will say, however, that Daniel McFadden's views seem crazy enough to bring down the average of the rest of the profession:

I think that the U.S. is in the same position as the Soviet Union in 1988. We are about a year behind them when they collapsed. We are one year away from when our economy could not function, that we could not keep order in the country.

Now that's bet I'll take at 50:1.

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Twitter: Bryan Caplan @bryan_caplan

COMMENTS (4 to date)
Mark Seecof writes:

Please bring back the wider format or offer an alternate stylesheet. The new format requires a lot of vertical scrolling. (While it's true that text is hard to scan when lines are more than, say, 30 picas wide, it's equally true that narrow newspaper-style columns are uncongenial on web pages, mostly seen on computer displays much wider than they are tall. More than half my screen is blank while you're asking me to wear out my fingers and patience vertically scrolling the tiny strip of text you're presently allotting to your posts. Consider please that the modal display resolution now is around 1024px wide, not 480px or 800px, and widening all the time.)

Jack writes:

Daniel McFadden has said a number of odd things recently. Funny thing about Nobel laureates who are past their prime.

stanfo writes:

It seems to me that the bailout kills two birds with one stone. It takes the MBS's off of banks books, as well gets a priceon them. Hedge funds could sell them to banks, who would sell them to the Treasury.

The most pressing challenge at this point is to keep the yield curve from inverting. This is the worst of all possible scenarios, and it will happen if too many banks start to fail. The bailout will stem the flow of bank failures.

That is why it is a good idea.

David J. Balan writes:

Your bet offer implies that you think there is a 2% chance that the whole country will go down the crapper. Even that's a catastrophe!

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