Can 200 economists be wrong?

Here’s something that’s been little covered in the media: 200 economists signed a petition against the $700 billion bailout and sent it to the Congress on Sept. 24, 2008. It now merits a disclaimer: “This letter was sent to Congress on Wed Sept 24 2008 regarding the Treasury plan as outlined on that date. It does not reflect all signatories views on subesquent [sic] plans or modifications of the bill.” Nevertheless, it’s worth noting, especially now that the media is actively trying to convince the general public that Secretary Paulson’s plan is absolutely necessary:

To the Speaker of the House of Representatives and the President pro tempore of the Senate:

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.

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.

(Click the “Read the rest of this entry” link for signatures)

Signed (updated at 9/27/2008 6:00PM CT)

Acemoglu Daron (Massachussets Institute of Technology)
Ackerberg Daniel (UCLA)
Adler Michael (Columbia University)
Admati Anat R. (Stanford University)
Ales Laurence (Carnegie Mellon University)
Alexis Marcus (Northwestern University)
Alvarez Fernando (University of Chicago)
Andersen Torben (Northwestern University)
Baliga Sandeep (Northwestern University)
Banerjee Abhijit V. (Massachussets Institute of Technology)
Barankay Iwan (University of Pennsylvania)
Barry Brian (University of Chicago)
Bartkus James R. (Xavier University of Louisiana)
Becker Charles M. (Duke University)
Becker Robert A. (Indiana University)
Beim David (Columbia University)
Berk Jonathan (Stanford University)
Bisin Alberto (New York University)
Bittlingmayer George (University of Kansas)
Blank Emily (Howard University)
Boldrin Michele (Washington University)
Bollinger, Christopher R. (University of Kentucky)
Bossi, Luca (University of Miami)
Brooks Taggert J. (University of Wisconsin)
Brynjolfsson Erik (Massachusetts Institute of Technology)
Buera Francisco J.(UCLA)
Cabral Luis (New York University)
Camp Mary Elizabeth (Indiana University)
Carmel Jonathan (University of Michigan)
Carroll Christopher (Johns Hopkins University)
Cassar Gavin (University of Pennsylvania)
Chaney Thomas (University of Chicago)
Chari Varadarajan V. (University of Minnesota)
Chauvin Keith W. (University of Kansas)
Chintagunta Pradeep K. (University of Chicago)
Christiano Lawrence J. (Northwestern University)
Clementi, Gian Luca (New York University)
Cochrane John (University of Chicago)
Coleman John (Duke University)
Constantinides George M. (University of Chicago)
Cooley, Thomas (New York University)
Crain Robert (UC Berkeley)
Culp Christopher (University of Chicago)
Da Zhi (University of Notre Dame)
Darity, William (Duke University)
Davis Morris (University of Wisconsin)
De Marzo Peter (Stanford University)
Dubé Jean-Pierre H. (University of Chicago)
Edlin Aaron (UC Berkeley)
Eichenbaum Martin (Northwestern University)
Ely Jeffrey (Northwestern University)
Eraslan Hülya K. K.(Johns Hopkins University)
Fair Ray (Yale University)
Faulhaber Gerald (University of Pennsylvania)
Feldmann Sven (University of Melbourne)
Fernandez, Raquel (New York University)
Fernandez-Villaverde Jesus (University of Pennsylvania)
Fohlin Caroline (Johns Hopkins University)
Fox Jeremy T. (University of Chicago)
Frank Murray Z.(University of Minnesota)
Frenzen Jonathan (University of Chicago)
Fuchs William (University of Chicago)
Fudenberg Drew (Harvard University)
Gabaix Xavier (New York University)
Gao Paul (Notre Dame University)
Garicano Luis (University of Chicago)
Gerakos Joseph J. (University of Chicago)
Gibbs Michael (University of Chicago)
Glomm Gerhard (Indiana University)
Goettler Ron (University of Chicago)
Goldin Claudia (Harvard University)
Gordon Robert J. (Northwestern University)
Greenstone Michael (Massachusetts Institute of Technology)
Gregory, Karl D. (Oakland University)
Guadalupe Maria (Columbia University)
Guerrieri Veronica (University of Chicago)
Hagerty Kathleen (Northwestern University)
Hamada Robert S. (University of Chicago)
Hansen Lars (University of Chicago)
Harris Milton (University of Chicago)
Hart Oliver (Harvard University)
Hazlett Thomas W. (George Mason University)
Heaton John (University of Chicago)
Heckman James (University of Chicago – Nobel Laureate)
Henderson David R. (Hoover Institution)
Henisz, Witold (University of Pennsylvania)
Hertzberg Andrew (Columbia University)
Hite Gailen (Columbia University)
Hitsch Günter J. (University of Chicago)
Hodrick Robert J. (Columbia University)
Hollifield Burton (Carnegie Mellon University)
Hopenhayn Hugo (UCLA)
Hurst Erik (University of Chicago)
Imrohoroglu Ayse (University of Southern California)
Isakson Hans (University of Northern Iowa)
Israel Ronen (London Business School)
Jaffee Dwight M. (UC Berkeley)
Jagannathan Ravi (Northwestern University)
Jenter Dirk (Stanford University)
Jones Charles M. (Columbia Business School)
Jovanovic Boyan (New York University)
Kaboski Joseph P. (Ohio State University)
Kahn Matthew (UCLA)
Kaplan Ethan (Stockholm University)
Karaivanov Alexander (Simon Fraser University)
Karolyi, Andrew (Ohio State University)
Kashyap Anil (University of Chicago)
Keim Donald B (University of Pennsylvania)
Ketkar Suhas L (Vanderbilt University)
Kiesling Lynne (Northwestern University)
Klenow Pete (Stanford University)
Koch Paul (University of Kansas)
Kocherlakota Narayana (University of Minnesota)
Koijen Ralph S.J. (University of Chicago)
Kondo Jiro (Northwestern University)
Korteweg Arthur (Stanford University)
Kortum Samuel (University of Chicago)
Krueger Dirk (University of Pennsylvania)
Ledesma Patricia (Northwestern University)
Lee Lung-fei (Ohio State University)
Leeper Eric M. (Indiana University)
Letson David (University of Miami)
Leuz Christian (University of Chicago)
Levine David I.(UC Berkeley)
Levine David K.(Washington University)
Levy David M. (George Mason University)
Linnainmaa Juhani (University of Chicago)
Lott John R. Jr. (University of Maryland)
Lucas Robert (University of Chicago – Nobel Laureate)
Ludvigson, Sydney C. (New York University)
Luttmer Erzo G.J. (University of Minnesota)
Manski Charles F. (Northwestern University)
Martin Ian (Stanford University)
Mayer Christopher (Columbia University)
Mazzeo Michael (Northwestern University)
McDonald Robert (Northwestern University)
Meadow Scott F. (University of Chicago)
Meeropol, Michael (Western New England College)
Mehra Rajnish (UC Santa Barbara)
Mian Atif (University of Chicago)
Middlebrook Art (University of Chicago)
Miguel Edward (UC Berkeley)
Miravete Eugenio J. (University of Texas at Austin)
Miron Jeffrey (Harvard University)
Moeller, Thomas (Texas Christian University)
Moretti Enrico (UC Berkeley)
Moriguchi Chiaki (Northwestern University)
Moro Andrea (Vanderbilt University)
Morse Adair (University of Chicago)
Mortensen Dale T. (Northwestern University)
Mortimer Julie Holland (Harvard University)
Moskowitz, Tobias J. (University of Chicago)
Munger Michael C. (Duke University)
Muralidharan Karthik (UC San Diego)
Nair Harikesh (Stanford University)
Nanda Dhananjay (University of Miami)
Nevo Aviv (Northwestern University)
Ohanian Lee (UCLA)
Pagliari Joseph (University of Chicago)
Papanikolaou Dimitris (Northwestern University)
Parker Jonathan (Northwestern University)
Paul Evans (Ohio State University)
Pearce David (New York University)
Pejovich Svetozar (Steve) (Texas A&M University)
Peltzman Sam (University of Chicago)
Perri Fabrizio (University of Minnesota)
Phelan Christopher (University of Minnesota)
Piazzesi Monika (Stanford University)
Pippenger, Michael K. (University of Alaska)
Piskorski Tomasz (Columbia University)
Platt Brennan C. (Brigham Young University)
Rampini Adriano (Duke University)
Ray, Debraj (New York University)
Reagan Patricia (Ohio State University)
Reich Michael (UC Berkeley)
Reuben Ernesto (Northwestern University)
Rizzo, Mario (New York University)
Roberts Michael (University of Pennsylvania)
Robinson David (Duke University)
Rogers Michele (Northwestern University)
Rotella Elyce (Indiana University)
Roussanov Nikolai (University of Pennsylvania)
Routledge Bryan R. (Carnegie Mellon University)
Ruud Paul (Vassar College)
Safford Sean (University of Chicago)
Samaniego Roberto (George Washington University)
Sandbu Martin E. (University of Pennsylvania)
Sapienza Paola (Northwestern University)
Savor Pavel (University of Pennsylvania)
Schaniel William C. (University of West Georgia)
Scharfstein David (Harvard University)
Seim Katja (University of Pennsylvania)
Seru Amit (University of Chicago)
Shang-Jin Wei (Columbia University)
Shimer Robert (University of Chicago)
Shore Stephen H. (Johns Hopkins University)
Siegel Ron (Northwestern University)
Smith David C. (University of Virginia)
Smith Vernon L.(Chapman University- Nobel Laureate)
Sorensen Morten (Columbia University)
Spatt Chester (Carnegie Mellon University)
Spear Stephen (Carnegie Mellon University)
Stevenson Betsey (University of Pennsylvania)
Stokey Nancy (University of Chicago)
Strahan Philip (Boston College)
Strebulaev Ilya (Stanford University)
Sufi Amir (University of Chicago)
Tabarrok Alex (George Mason University)
Taylor Alan M. (UC Davis)
Thompson Tim (Northwestern University)
Troske Kenneth (University of Kentucky)
Tschoegl Adrian E. (University of Pennsylvania)
Uhlig Harald (University of Chicago)
Ulrich, Maxim (Columbia University)
Van Buskirk Andrew (University of Chicago)
Vargas Hernan (University of Phoenix)
Veronesi Pietro (University of Chicago)
Vissing-Jorgensen Annette (Northwestern University)
Wacziarg Romain (UCLA)
Walker Douglas O. (Regent University)
Walker, Todd (Indiana University)
Weill Pierre-Olivier (UCLA)
Williamson Samuel H. (Miami University)
Witte Mark (Northwestern University)
Wolfenzon, Daniel (Columbia University)
Wolfers Justin (University of Pennsylvania)
Woutersen Tiemen (Johns Hopkins University)
Wu Yangru (Rutgers University)
Yue Vivian Z. (New York University)
Zingales Luigi (University of Chicago)
Zitzewitz Eric (Dartmouth College)

13 thoughts on “Can 200 economists be wrong?”

  1. I want to know where the candidates for Congress stands on this. LaHood isn’t going to lose any votes by supporting this foolish bill, because he isn’t running for reelection. What about Schock, Callihan and the others? I know it’s easy for them to say, since they don’t actually have to vote, and if something similar comes up for vote they can “change their mind,” (ie. break a campaign pledge), but they should still be required to state their position.

  2. According to this article:

    Both the Democrat and Republican candidates for the 18th District Congressional seat say they would have voted for the bailout bill.

    The Green Party candidate would not give a definitive answer only saying it made him nervous.

    Click on the link to see what the candidates had to say about it.

  3. Well, given that there are approximately 15,000 working economists in the United States (according to Bureau of Labor Statistics); I could easily argue that a petition signed by less than 2% of them is meaningless.

    Interesting that the only ones signing against this are in academia (though I will admit a prestigious list of higher education institutions listed) — I wonder if those employed in the private sector hold a different viewpoint.

  4. That list is what one of the Republicans had in his hand on the first meeting the Bushmeister had with Obama and McCain.The news media thought it was a breakthu when he was the first to come out of the meeting,then he held it up and announced what it was,a petition by leading economist against the bailout,the news media broke coverage of it quick.The lot of them have known about this petition from the day it was sent.If you want to know what the Banks themselves say, do what I did,I started in the yellow pages with the letter A an I stopped at P, because they all said the same thing.

  5. Well Peo, I could also easily argue that there are over 300,000,000 people in the US, and the only ones who seem to support a bailout are the 500+ members of congress, the President and his Treasury Secretary, and a few thousand ( let’s say 50,000 to make it interesting) who actually support this idea. That’s about .017% of the population.

    Seriously, elected officials are saying that they have received more phone calls, emails, and letters in opposition to this than anything in recent memory. Republicans AND Democrats, conservatives and liberals, academics and blue collared workers have all come together to oppose this “bailout”.

    The opposition to this measure is practically unheard of in the current political environment. But surprise, surprise, the people we elected think they know better.

  6. I do believe in personal and corporate responsibility, and I do not want to see firms that willingly made bad investments protected from ALL the consequences of such just so they can do it all over again someday.
    Nevertheless, one of Bookworm’s Undeniable Truths is that rich people, not poor people, are the ones who create the jobs that enable us to avoid being poor. So we can’t penalize them too much for being rich, lest we make ourselves poorer.
    The knee-jerk reaction against ANY kind of bailout on the grounds that “Hey, nobody’s going to bail me out if I default on my mortgage, car payment, etc. so why should I pay to bail out Wall Street?” is understandable, but shortsighted. I suspect this is where a lot of the phone calls to Congresscritters are coming from.
    Yes, I know it’s “not fair” to let Wall Street “get away” with bad decision making when ordinary schmoes can’t. But, life isn’t always fair. The original bailout bill may have been seriously flawed. Hopefully Congress will come up with a better one.
    But, they need to do something, because if they don’t, pretty soon none of us will be able to borrow money for anything because banks won’t have it to lend. Do we really want that to happen?

  7. 11Bravo…point taken – it’s why I love statistics 🙂

    We do (or should) elect people that we think will make the right decision and sometimes we need them to tell us things we don’t want to hear.

    It’s easy to be against something when you’re not seeing a benefit from it without regard to the REAL but intangible “negatives” that will occur if nothing is done. As a populace, it’s easy to be against this legislation and regulation but in the long run some action along this lines is exactly what we need to prevent a much larger impact. Because you know – as well as I do – that if it happens, we’ll fault them for not acting sooner to prevent it.

    My prediction is it will all pass with the new “sweeteners” added to “protect the population”. Like I have a need for $250,000 in deposit insurance – I’m not even close to using the first $100,000!

  8. Bookwork, just wrong. The idea that any company, or group of people in your case, are too big to be allowed to fail is the exact opposite of free market, capitalist economy. Otherwise lets just start borrowing against the national debt every time we start heading into a recession.

    This has nothing to do with being fair or creating jobs because making an end-around on the market is exactly the opposite of what should be done in an economy like ours. Everyone always resorts back to the “it’ll be bad for jobs” argument, but I have yet to hear anyone who has used it like Bookworm has. Either way, yes its unfortunate people will lose their jobs and yes it will probably be harder to create new ones for a little while but that’s capitalism.

  9. Perhaps so. But, be careful what you wish for, you might get it.

    I suppose you are not one of the “unfortunate” people who could lose their jobs? I suppose you will never be stuck trying to sell a virtually worthless home in a declining neighborhood or a dying town because all the jobs packed up and left? I suppose you have made all the right financial decisions in your life and you never, ever need to borrow money for any purpose?

    All I am saying is that no economic system is perfect — not even capitalism — because people are not perfect. There always needs to be a balance between a total free-market approach and a total socialist/government control approach.

    This balance may tilt in one direction or the other as economic needs and shifts require, but there should always be a balance, not completely one extreme or the other.

    I believe that those who insist on no bailout of any kind are going to an extreme which could be far more devastating to them and their future than they realize. Likewise those who would insist on protecting Wall Street from every possible consequence of their risk-taking are also going to an extreme. There’s no avoiding economic ups and downs and we can’t save every job, it’s true, but why make the situation worse?

  10. And since as a nation, we are already broke and in a pile of debt — putting the insurance sweeteners accomplishes what end? If / when the house of cards collapses, your money will be worthless and the insurance meaningless. Or am I missing something here?

  11. And by the way, I agree with what these economists did. All they are asking Congress to do is slow down and think before they act. Their suggestions sound entirely reasonable.

  12. You are right Karrie, they are trying to bribe us with worthless “guarantees”.
    The vast majority of the people in this country know in their gut this is a bad move, and it is. The taxpayers cannot finance this, so we will be borrowing from hostile foreign governments. We will end up being their serfs, or worse. God help us if it passes.

  13. Bookworm: I am only listening (reading) to this discussion because I am not confident enough of my own knowledge of economics, etc., to express a firm opinion about what I believe is right in this situation. However, all that you have written seems to make considerable sense to me. I generally do lean toward views that strike a balance between extremes.

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