Friday, September 26, 2008

If I were a member of Congress...

An economics professor I know who teaches at a leading business school (who prefers anonymity, as he is still untenured) sends me a critique of our profession and a plea:

Dear Greg,

This is a strange email, but these are strange times.

I saw that your name was absent from the Shimer/Kashyap/etc initiated "letter" to the speaker and senate pro tempore. I don't know if that is reflective of your view about the appropriate course of action or not. But as a person with a very large microphone at your disposal I wanted to share the following, which is informed by my experience in the private sector prior to graduate school.

Let me preface this by saying that my personal view is that Ben Bernanke and Hank Paulson are very, very smart people who have better information than anyone who signed that letter, and that questioning their view to the point where it is used by senators to justify inaction is reckless at best--and ideologically driven white-anting at worst.

But I digress. A LOT of payrolls get paid at the end of the month. The next for many companies is September 30. Three different people with hugely relevant knowledge said to me today words to the effect of: "Why don't your economist buddies want [insert fortune 100 company/companies here] to be able to pay their employees on Tuesday. If Washington doesn't do something now, they won't be able to". That just scared the hell out of me. I can go into more details if you like, but all of them involve the four horsemen of the apocalypse.

As I say, I don't know what your view is. And if it is that the problems with the "bailout" exceed the benefits then I obviously respect that.

But I am terrified about the consequences of inaction--and our profession seems to be advocating just that. If you do favor action then please avail yourself of your microphone. If not, free disposal!


[name withheld]

What is my opinion about all this? I am of two minds about the complex situation we find ourselves in.

On the one hand, I share many of the concerns of the letter signers and other critics of the Treasury plan.

On the other hand, I know Ben Bernanke well. Ben is at least as smart as any of the economists who signed that letter or are complaining on blogs and editorial pages about the proposed policy. Moreover, Ben is far better informed than the critics. The Fed staff includes some of the best policy economists around. In his capacity as Fed chair, Ben understands the situation, as well as the pros, cons, and feasibility of the alternative policy options, better than any professor sitting alone in his office possibly could.

If I were a member of Congress, I would sit down with Ben, privately, to get his candid view. If he thinks this is the right thing to do, I would put my qualms aside and follow his advice.