Hundreds of Economists Urge
Congress Not to Rush on Rescue Plan
By Matthew Benjamin
Sept. 25 (Bloomberg)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNKGD.bJwmRA&refer=home
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 Americathat 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 Universityof 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 HarvardUniversityprofessor 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 SloanSchool, 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 [EMAIL PROTECTED]
Last Updated: September 25, 200817:48 EDT
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