Economists provide some material worth thinking about

Here is some grist for the thought-mill from economists who are responding to the situation in our financial markets and economy and to Sec. Paulson's proposed plan.

The first is James K. Galbraith who has a column in the Washington Post today. His points are well-made.

The second is a discussion with Paul Krugman, Eugene Ludwig and Alan Meltzer on The Newshour with Jim Lehrer. The video and transcript of the discussion is here. Click on the streaming video link - you get much more from that than from the transcript. Krugman is a centrist who leans left on some points. Meltzer is a conservative. Ludwig appears to be centrist.

Their discussion is enlightening.

Then finally there's this letter posted on the University of Chicago website signed by 200 economists

9/25/2008

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.

See the website for the list of signatures