Hundreds of Economists Urge Congress Not to Rush on Rescue Plan

Discussion in 'Economics' started by poyayan, Sep 26, 2008.

  1. poyayan


    Hundreds of Economists Urge Congress Not to Rush on Rescue Plan

    By Matthew Benjamin

    Sept. 25 (Bloomberg) -- More than 150 prominent U.S. economists, including three Nobel Prize winners, urged Congress to hold off on passing a $700 billion financial market rescue plan until it can be studied more closely.

    In a letter yesterday to congressional leaders, 166 academic economists said they oppose Treasury Secretary Henry Paulson's plan because it's a ``subsidy'' for business, it's ambiguous and it may have adverse market consequences in the long term. They also expressed alarm at the haste of lawmakers and the Bush administration to pass legislation.

    ``It doesn't seem to me that a lot decisions that we're going to have to live with for a long time have to be made by Friday,'' said Robert Lucas, a University of Chicago economist and 1995 Nobel Prize winner who signed the letter. ``The situation may get urgent, but it's not urgent right now. Right now it's a financial sector problem.''

    The economists who signed the letter represent various disciplines, including macroeconomics, microeconomics, behavioral and information economics, and game theory. They also span the political spectrum, from liberal to conservative to libertarian.

    Some lawmakers are already citing the letter as reason not to endorse the Paulson plan. Today Senator Richard Shelby, a Republican from Alabama, said he has ``five pages of the leading economists in America that wrote to me and the leadership saying the Paulson plan is a bad plan. It will not solve problems. It will create more problems.''

    `How Capitalism Works'

    The letter, initially conceived by economists at the University of Chicago, was signed by professors from dozens of American universities and several outside the U.S.

    David I. Levine, a professor of economics at University of California-Berkeley, says the current plan being discussed has the wrong structure.

    ``The structure is designed for the Treasury to be the first line of defense,'' said Levine, who studies organizations and incentives. ``A whole lot of people made money supposedly by putting their capital at risk, and those are supposed to be the first line of defense, that's how capitalism works.''

    Jeffrey Miron, a Harvard University professor and self- described libertarian, objects to what he says is `` a stunningly broad, aggressive government intervention without appropriate precedents.''

    He advocates allowing the normal process of business failure and bankruptcy to run its course. ``It's just nothing like the calamity the administration is making it out to be,'' he said.

    Unprecedented Power

    Erik Brynjolfsson, of the Massachusetts Institute of Technology's Sloan School, said his main objection ``is the breathtaking amount of unchecked discretion it gives to the Secretary of the Treasury. It is unprecedented in a modern democracy.''

    Advocates for a rescue plan this week point to a seizing up of credit markets, reflected in elevated inter-bank lending rates, as reason for action. Some economists are unconvinced.

    ``I suspect that part of what we're seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout,'' said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.

    To contact the reporters on this story: Matthew Benjamin at
  2. poyayan


    Now, let see if there are 150 economists + nobel prices winners come out and say "yes" to the bail out plan.
  3. Anybody remember those European prize winning professors, economists, money theorists that wrote papers and funded full page size ads in European financial newspapers against the introduction of the EUR in 1998/99. How the EUR would debase the value of European currencies, how it will lead to an economic collapse and civil unrest?

    Boy were they wrong.

    Whenever you make a radical economic intervention/changeover you will always have 150 economists (half of them Nobel prize winners) come out and tell you how their model shows your plan will fail.
  4. poyayan


    I can also equally show you how many times Ben and Henry said "everything is fine".

    Then one day, the sky is falling and give me $700B right now.

    Go ahead, show some link or reference to back up your claim.
  5. What claim?
  6. gucci


    Are you sure? Perhaps,they were just bad in timing?
  7. can also equally show you how many times Ben and Henry said "everything is fine".


    People in their position are not allowed to undermine the confidence of the economy with words.
  8. Sure like all those crash prophets that warn about an impending stock market crash dwarfing 1987 for the last 20 years and say eventually they will be right :)

    "Just bad timing."
  9. jjf


    Who is to say that they are wrong.
    There are many millions of Euros who want their own currency back and the jury is still out on ER