The more I read the more I’m persuaded against the bailout–in pretty much any form. Greg Mankiw posted a letter from an economist who is opposed to the bailout. The entire letter bears reading because its author, Robert Shimer, does an excellent job explaining the economic ins & outs of the current crisis.
But to my mind, the most compelling graph was the last one. It reads:
In closing, let me mention one other issue that I take very seriously. I recognize that this might not matter much to my Congressman, but in my view it may be the most important issue for global welfare. The U.S. has long been a beacon of free markets. When economic conditions turn sour in Argentina or Indonesia, we give very clear instructions on what to do: balance the budget, cut government employment, maintain free trade and the rule of law, and do not prop up failing enterprises. Opponents of free markets argue that this advice benefits international financiers, not the domestic market. I have always believed (at least since I began to understand economics) that the U.S. approach was correct. But when the U.S. ignores its own advice in this situation, it reduces the credibility of this stance. Rewriting the rules of the game at this stage will therefore have serious ramifications not only for people in this country but for the future of global capitalism. The social cost of that is far, far greater than $700 billion.
I’m a free market/free trade true believer. As such, I cannot support an anti-market solution to a problem that is, to my mind, a government-caused problem. In my opinion, such action will have lasting negative consequences.
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