Dueling Economists: This Group Supports Bailout

Last week, a group of distinguished economists signed a letter in opposition to the bailout bill before Congress, which some lawmakers pointed to as a reason not to vote in favor.

Now, a second group of economists, led by Boston University's Laurence Kotlikoff, have signed a letter in support of the bailout bill.

One of them, I'm sure, is right.

--Sara Goo

October 1, 2008; 12:26 PM ET  | Category:  business
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It does the Presidential candidates no good to pretend that the origin of this problem is some kind of mystery and to act as though Congress did not have the most important role in it.

I only get angry all over again when I see the candidates aiding our government in pulling the wool over the people's eyes.

When you are given responsibility for the care of the people, you have been given a sacred trust. If you cannot put the welfare of the public above all else, then it is your sacred obligation to quit.

Somehow, the people responsible for this mess and this extortion-like attempt to force the public to pay for it -- think they are invisible.

No matter what happens from this point on, their astonishing indifference to moral rules so obvious, no one bothered to check on them...the basic difference between right and wrong --- make me nearly envy what must be their belief in their own immortality.

How does it feel to have no doubt whatsoever that one will never be held accountable for their actions? I'll never know.

You know, I haven't been inside a church for years, but allow me to say "May God have mercy on their souls". They're probably going to need it and I have a hunch He's been watching and listening.

Posted by: ThePoliticalStray.com | October 1, 2008 12:46 PM

Could you ask the economists to write a simplified explanation of why they are on opposite sides of the issue? It may help the public to understand.

Posted by: ShowMe - Missouri | October 1, 2008 1:00 PM

It appears Alan Blinder (Princeton) has changed his mind and is now supporting the plan. As time goes on and nothing is done, the situation is deteriorating. Restore the credit markets now and fix the mortgage issue next. Every delay pushes us further into trouble.

Posted by: EconGirl | October 1, 2008 1:16 PM

"The business of America," said President Calvin Coolidge, "is business."

He might have added that the business of American government, consistent with securing the rights to life, liberty and the pursuit of happiness, is to let business get on with America's business. But President Coolidge was renowned for not uttering more than one sentence, if that, at a time. It was of him that Dorothy Parker famously asked, when told he had died, "How can they tell?"

By the time he said the foregoing, government was most emphatically not minding its own business, and meddling shamelessly in everyone else's. It even prohibited its citizens from drinking alcoholic beverages. It meddled in business as such via the Federal Reserve, set up in 1913 in a de facto nationalisation of the banking system. Ostensibly independent of government, the Fed's informal mandate was well enough understood — to keep politicians popular by facilitating an endless boom with artificially easy credit. The normal market correctives that would have disciplined wayward investors were not allowed to apply — 'A' could be 'non-A' if the Fed decreed. Long before Alan Greenspan gave us the expression, "irrational exuberance" ruled.

To the inevitable Great Crash of 1929, the administration of Republican President Herbert Hoover and Congress responded by meddling even more and exacerbating everyone's pain in the process. They enacted the biggest tax hike in American history to date, with top earners pinged more than 70%; they raised taxes on corporations; they raised tariffs; they booted out Mexicans; they set up the Reconstructive Finance Corporation (RFC) to provide government-guaranteed loans (sound familiar?) to banks, railroads and farmers. Any notion that business was no business of government went well and truly out the window, although it had a seemingly unlikely champion at the time: Democratic presidential nominee Franklin D. Roosevelt lambasted Hoover for thinking “we ought to center control of everything in Washington as rapidly as possible," and for leading "the greatest spending administration in peacetime in all of history." Roosevelt's running-mate, John Nance Garner, accused the Republicans of "leading the country down the path of socialism."

On assuming power, of course, the Roosevelt Administration not only continued down the exact same path but pushed the accelerator to the floor, expanding the role of the RFC and implementing a number of statist measures that collectively made up the "New Deal."

Fast-forward to 2008. Republican President Bush announces the government will be bailing out failed financial institutions with 700 billion dollars it doesn't have. (In fact, it doesn't have a lot more than 700 billion dollars. 'A' can still be 'non-A' by government fiat, apparently, and in the infamous words of New Zealand statist Sir Robert Muldoon, "Most people wouldn't recognise a deficit if they fell over one.") In America's free enterprise system, the President declares, government intervenes only when "necessary," and in this instance intervention is "essential." Mr. Bush doesn't tell us what constitutes "necessary," but true free enterprisers would remind him that intervention is both necessary and essential only in the face of force or fraud. Then, and only then — and neither obtains in this instance! No one held a gun to the heads of stupid lenders and stupid borrowers and made them proceed with stupid loans. The nearest thing to that, actually, was government itself, from the bully pulpit, prattling on about "affordable housing" and urging untenable mortgages upon lenders.

Free marketeers have been quick to trace the proximate origin of the recent disconnect between the markets and reality to Democrat Jimmy Carter's Community Redevelopment Act, subsequently placed "on steroids," as one writer puts it, by the Clinton Administration. In truth, however, the fault doesn't lie just with one act by any particular administration, Republican or Democrat. For nearly a century now, politicians of both parties have encouraged the profoundly un-American view among voters that they, the politicians, are best qualified to make them, the voters, happy and prosperous — and that it's the politicians' exclusive prerogative to do so. They have twisted the individual's inalienable right to the pursuit of happiness to mean government-guaranteed affluence, with all the breaches of liberty such a socialist concept implies. They have turned elections, in H. L. Mencken's words, into "advance auction[s] of stolen goods." Voters, susceptible to bribes, have encouraged them in this delinquency. No politician can now afford to prick the bubble of good-times-without-the-goods; rather, he has to promise to keep inflating and reflating it.

President Bush says he wants to "address the root cause behind much of the instability in our markets." First, he must learn that markets are by their nature always more or less "unstable" — that's part of the fun and glory, the vibrancy and dynamism, of freedom. But if by "instability" he alludes to the kind of tectonic cataclysm that currently threatens, he must acknowledge that government is the immediate cause, and philosophical/ethical corruption is the root cause. Voters must learn anew what "inalienable rights ... to life, liberty and the pursuit of happiness" really means. They must stop expecting government to nanny them with Other People's Money, and government must stop trying to oblige them. Government bribery financed by theft must be illegitimized and outlawed, by constitutional amendment if necessary. Politicians and voters alike must let the corpse of socialism lie down.

In the short term, a painful reminder that 'A' is 'A' after all — the lesson the President is trying to spare us — might be precisely the spur-to-enlightenment that is needed ... and deserved.

Posted by: Tom | October 1, 2008 1:27 PM

What duel??? Binder of Princeton was on both lists, although there was no link for the first to facilitate a full comparison.

Posted by: FrankM | October 1, 2008 1:49 PM

The first list protested the Admin's original plan. The second overlapping list supports something more like the plan voted down narrowly on Monday. No duel.

Posted by: FrankM | October 1, 2008 1:51 PM

I am insulted by the response to how the people feel by the media and our politicians.

We are not a nation of primitive, uneducated people. We are a nation, when allowed to function without government underhandedness, that run the successful businesses that keep this nation afloat.

We do not consider morality a luxury. We work hard, give a decent product for a fair mark-up and we thrive. Thus, America thrives. When allowed to.

When we say that this bill reads like it was written by idiots, at least the part that is supposed to be looking after us, we know what we are talking about. This bill is a piece of garbage and we see that. The only thing those trying to sell it are accomplishing is to stoke our anger.

No. We don't trust Paulson. After seeing his performance in China, a obsequious, slithering persona that was so submissive in his behavior it was enough to both embarrass us and still achieve questionable results.

The lenders lived by so-called free market principles. Let them die by them as well. We can get by with less until more reliable lenders come forward to claim a market that could make them extraordinarily wealthy without them having to crawl through filth to do so.

They want us to pick up the worst loans out there, INCLUDING UNSECURED AUTO AND SCHOOL LOANS, and they want us to believe we'll benefit from them? What do they take us for? The lack of principles in some of these loans should be listed on their court papers.

How dare these people that want our money make any demands whatsoever. We have the money – we call the shots. Period. That means we'll take your "parachutes" and shove you off the bridge ourselves. That way you'll know how we've been feeling this last few years.

The next person that knocks, I hope will be carrying a badge.

Mind you, pay attention. If we give them this, they'll lend alright. At what rate? It makes no sense whatsoever. Do our politicians have life preservers of lead next to their pools too. They work for us. Not the lenders.

Let's take the money and help the people who's need their retirement funds soon and those losing or that have lost their homes. Then we'll find the assets of those responsible and take it out of that. Or their hide. We'll get people to chase down their offshore accounts too. Just like in Switzerland.

If one more wattled, polymer-coated idiot in a three-piece-suit gets on TV and tries to evoke sympathy from us, we should pursue them to find out what exactly their interest in it is. We already know what it's not. That's us.

Our leaders need to listen to us. You don't reward illegal and immoral behavior. You arrest.

You don't apply a bandage without first cleaning and stitching the wound.

And if you value your political life, you'll think very, very carefully before you defy us.

Posted by: ThePoliticalStray.com | October 1, 2008 2:45 PM

one of them might be right? but we don't know which one? seems to me that 700 billion dollars is a lot to gamble when we have NO IDEA whether it will do any good.

Posted by: jen | October 1, 2008 7:43 PM

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