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.
Indeed (paraphrasing Orwell...), time is high that smart people restated all these otherwise obvious things (at least within the Econworld...). I've already linked, in a previous post (last bullet point), to the letter where most serious US economists, including Shimer, are openly worried about the massive bailout plan.
PS. Rob Shimer will be the discussant of one of my co-authored papers in beginning November, within the conference on Structural Models of the Labour Market and Policy Analysis from IFS, in London. Already looking forward to the best possible comments (including toughest criticism...): given the letter mentioned above, Shimer looks clearly in top shape :-).
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