President Harry Truman once mused that his fondest wish would be to meet a one handed economist! Why are we pretending that Hank Paulson, and the nefarious Chairman of the Federal Reserve System, Benjamin Bernanke, are one hundred percent right about our financial position and the immanence of a depression? Is it prudent to assume Bernanke is right that if we don’t fork over a trillion bucks, that we don’t have, to an unelected man, who will distribute it as he sees fit, because it’s just to complicated to explain to us? Why is even questioning the wisdom of this stunt, I can’t bring myself to call it a policy, being demonized and vilified as if they were golf partners with Satan? The politians are on board at great risk to their careers according to the nearly unanomouse public disapproval of the bill but there are growing ranks of economists who think the whole thing is absurd. Consider some quotes from Fox News: http://www.foxnews.com/printer_friendly_story/0,3566,431645,00.html
There is little agreement on how serious the current problems are. Take the statements from three of the economists. John Cochrane, a professor at the University of Chicago Business School, worried that the solution was out of all proportion to the problem.
The legislation is like this: some boats are sinking, so rather than bailing those boats out, you blow up the dam and drain the whole lake.
Robert Hansen, senior associate dean and professor at the Tuck School of Business at Dartmouth College, summed up his view this way:
Does this justify some government intervention to jumpstart the market? Yes. Is this the best way to solve the problem? I don’t know. Does this justify this level of intervention? No.
At the other extreme is Daniel McFadden, a professor at the University of California at Berkeley and a Nobel Prize winner. McFadden could not paint the situation in more dire terms:
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.
The Congress has added a lot to the bill since the time the Treasury Secretary Hank Paulson delivered a 2.5 page bill to congress a couple of Saturdays ago. It’s a lot more expensive and a lot more “trendy” than the 101 page bill the house rejected last week. Now it’s a 300-400 page “monstrosity” that adds whatever it takes to get both parties to sign on to a BAD bill. Opponents of the bill maintain that you can achieve the same results by changing some thinks like “mark to market” accounting rules that were not designed for this type of situation and cuts to the corporate tax rates, to insurance programs that would take nowhere near as much taxpayer loot to implement. Unfortunately the prestige of the entire Washington political establishment, Congress and the Administration, Republicans and Democrats alike has bet all their credibility on the new rescue plan. If the rescue plan is never passed and there’s no financial Armageddon than most of Washington is going to look either very foolish or as having tried to pull a fast one on us all.
Many of the economists objected to the provisions in the bailout bill, as Cochrane noted, that were “completely unrelated” to financial markets. The bill has grown from three pages when first proposed by Treasury Secretary Henry Paulson to 102 pages when the House rejected it on Monday to 451 pages when it was passed in the Senate.
Evans was concerned about the “Christmas lights being added to buy support and get the proposal through.” The legislation now contains mandated mental health care and addiction coverage in private insurance to attract liberal Democratic votes, and undoing the Alternative Minimum Tax as a way of appealing to conservative Republicans in the House. Other provisions are provided to help out groups such as those who use wool products, tax breaks to disaster victims, and promote renewable energy. Hansen called the bill a “monstrosity.”
Economists might be known for disagreeing with each other, but there is surprising agreement regarding the bailout and the causes for the current financial problems. There was no support for the broad bailout being discussed in Washington, and the economists believed that the same outcome could be achieved at much lower cost to the taxpayers.
There’s something deeply troubling about this bill and the manner in which everyone tried to ram it through the congress. I doubt that the people will ever be told the whole unvarnished story of how and why this all came about but I find myself being opposed to this bill and very much in the corner of the opponents of the bill. This whole unsavory mess stinks, big time, and I’m to the point of risking a depression rather than come up with a trillion bucks without even trying corperate tax rate cuts and accounting rules changes. There’s other ways we could handle this but the powers that be are determined to follow this bailout plan. I hope one day we’ll know the real reasons for all this but I’m not going to hold my breath. How about you?