166 Economists: No to Bailout

A week ago, one hundred sixty six economists*, including three Nobel laureates and many at distinguished institutions, sent a letter to Congress insisting that Congress not bail out troubled financial institutions. With few exceptions, the MSM have more or less ignored it. (Economists! What would they know about this?)

They gave three reasons to sink the plan. It's hard to be sure whether the Senate version has all three features objected to, because the Senate is keeping their plan a secret until they are ready to spring it on us. (So much for transparency!) But I suspect strongly that it does have all three. Here are their objections:

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.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come

Note, especially, the part about appropriate hearings. The only hearings I have heard about that have happened so far consisted of Paulson and Bernanke telling the Senate Banking Committee why their bailout plan is a great idea. These 166 people are the sorts voices that have not been heard in this process. Congress is acting as if this were the first one hundred days of the New Deal, when their predecessors enacted unprecedented measures to deal with a national emergency that had already dragged on for three years. It is nothing of the sort. They are also acting as if a deep economic problem is merely a political one, like the size of the Pentagon's budget, to be solved entirely by politicians. It is not.

I urge you to email your Senators immediately and beg them to vote no and hold hearings, public hearings on this issue, which will affect your children and grandchildren in potentially very serious ways. [Added later: For the obvious reasons, I am now changing this to a plea that you write to your Representative. Come November, I hope you will use this handy list of the Senators and how they voted. I am very happy to report that one of "my" Senators, maverick Democrat Russ Feingold, voted no. ]
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* Ann in the comments section points out that the number of signers has now risen to around 230.
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Added later: It's Wednesday evening, waiting for the Senate vote, and I see that the Senate version of the bailout bill contains an extra one hundred billion dollars worth of "Christmas tree" items -- including items having to do with wool production, wind power, and mental health. These are all "sweeteners," added to make the package more attractive to members of Congress. In other words, in order to entice Congress to take $700,000,000,000 from us to reward people for making bad decisions, they are being offered, as an incentive, an opportunity to take another $100,000,000,000 from us to support their pet causes or give to their friends.