Tuesday, November 13, 2012 10:27am

Bailouts: Banks and Automakers

Question A: Taking into account all of the economic consequences — including the incentives of banks to ensure their own liquidity and solvency in the future — the benefits of bailing out U.S. banks in 2008 will end up exceeding the costs.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question B: Because GM and Chrysler were bailed out in 2008-09, the U.S. unemployment rate was lower at the end of 2010 than it would it have been if Congress and the executive branch had not intervened.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question C: Taking into account all of the economic consequences — including effects on corporate managers' incentives and on creditors' expectations of how their claims will be treated in future bankruptcies — the benefits of bailing out GM and Chrysler will end up exceeding the costs.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Disagree 7
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Strongly Agree 8
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Disagree 3
Bio/Vote History
         
Autor David Autor MIT Agree 7
Long term unemployed workers are costly; many collect SSDI. Aiding GM was likely a cost effective welfare/employment program, all else aside
Bio/Vote History
         
Baicker Katherine Baicker Harvard Agree 3
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 8
The question is more whether there is a cheaper way in which the stabilization of the banking system could have been achieved.
 
Bertrand Marianne Bertrand Chicago Agree 3
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton --- ---
---
Bio/Vote History
Joined 11/2013 Agree 8
 
Chetty Raj Chetty Harvard Agree 3
Bio/Vote History
         
Chevalier Judith Chevalier Yale Uncertain 9
On net I agree, but the future costs are difficult to measure.
Bio/Vote History
         
Currie Janet Currie Princeton Agree 7
Bio/Vote History
         
Cutler David Cutler Harvard Agree 6
Bio/Vote History
         
Deaton Angus Deaton Princeton Strongly Agree 9
Bio/Vote History
         
Duffie Darrell Duffie Stanford Strongly Agree 10
Absent those bailouts, a depression was much more likely. The moral hazard is now being reduced by new rules, such as for capital.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Agree 6
The past bailout, by itself, won't ensure the next one, nor would a refusal to bail firms out set a binding precedent.
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 5
"Bailing out the banks" is not a very precise characterization of the policies of 2008-9.
Bio/Vote History
         
Einav Liran Einav Stanford --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 5
 
Fair Ray Fair Yale Uncertain 5
Too many possibilities, and hard to measure costs and benefits.
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT --- ---
---
Bio/Vote History
Joined 11/2013 Agree 4
 
Goldberg Pinelopi Goldberg Yale Agree 6
The consequenses (economic and social) of a potential financial collapse would have been immense.
Bio/Vote History
         
Goldin Claudia Goldin Harvard Agree 3
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Disagree 7
may not cost $ but was still an outrage we got to that point
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Strongly Agree 7
Yes. Credit markets were frozen and that was having a terrible impact on the economy. Check out a graph of the TED spread.
Bio/Vote History
         
Hall Robert Hall Stanford Disagree 5
Not compared to an ideal policy of an orderly reorganization imposing losses on creditors according to seniority. But better than chaotic.
Bio/Vote History
         
Hart Oliver Hart Harvard --- ---
---
Bio/Vote History
Joined 11/2013 Agree 6
The bail-out undermined people's belief in the fairness of the capitalist system. The costs may be enormous.
 
Holmström Bengt Holmström MIT Did Not Answer
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 10
Depends on future uncertainty and moral hazard.
 
Judd Kenneth Judd Stanford Agree 6
Bio/Vote History
         
Kaplan Steven Kaplan Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 10
We had a solvency crisis that TARP helped solve. Without TARP, the crisis and the economy would have been much worse.
 
Kashyap Anil Kashyap Chicago Uncertain 10
Bankruptcy and liquidation would have been worse, but could have nationalized a couple of the weakest ones, especially Citi.
-see background information here
Bio/Vote History
         
Klenow Pete Klenow Stanford Uncertain 5 Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 3
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 7
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 7
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Agree 5
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 5
Bio/Vote History
         
Samuelson Larry Samuelson Yale --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 6
I suspect we have little idea of what "all" of the economic consequences are, including especially the future incentive effects.
 
Scheinkman José Scheinkman Princeton Did Not Answer
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Agree 3
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Agree 4
The but-for world could have been terrible. The mistake was getting into the situation we faced in 9/08. Tougher bailouts would be better.
 
Shimer Robert Shimer Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 3
 
Shin Hyun Song Shin Princeton Uncertain 8
Bio/Vote History
         
Stokey Nancy Stokey Chicago Agree 8
Bio/Vote History
         
Thaler Richard Thaler Chicago Agree 6
Many details could have been improved but you could do nothing.
Bio/Vote History
         
Udry Christopher Udry Yale Did Not Answer
Bio/Vote History
         
Zingales Luigi Zingales Chicago Disagree 4
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Agree 8
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Strongly Agree 8
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Agree 5
Bio/Vote History
         
Autor David Autor MIT Agree 8
Putting costs aside, this is almost certainly true since many displaced workers would not have found reemployment by now in bad economy.
Bio/Vote History
         
Baicker Katherine Baicker Harvard Uncertain 4
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 7
i don't see where the multiplier would come from--the direct effects are not bog enough to matter.
 
Bertrand Marianne Bertrand Chicago Agree 3
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 7
 
Chetty Raj Chetty Harvard Agree 3
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 8
Bio/Vote History
         
Currie Janet Currie Princeton Agree 4
Bio/Vote History
         
Cutler David Cutler Harvard Strongly Agree 6
Bio/Vote History
         
Deaton Angus Deaton Princeton Strongly Agree 8
Bio/Vote History
         
Duffie Darrell Duffie Stanford Uncertain 2
To answer this would require a reliable and detailed quantitative macroeconomic model, or at least expert empirical knowledge.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Agree 6
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 5
While I agree, I would have preferred seeing the gov stand behind warantees and provide debtor in possession finance only.
Bio/Vote History
         
Einav Liran Einav Stanford --- ---
---
Bio/Vote History
Joined 11/2013 Agree 6
 
Fair Ray Fair Yale Uncertain 5
Probably yes, but a very small effect.
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT --- ---
---
Bio/Vote History
Joined 11/2013 Agree 4
 
Goldberg Pinelopi Goldberg Yale Agree 6
In the short run, it seems uncontroversial.
Bio/Vote History
         
Goldin Claudia Goldin Harvard Agree 3
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Strongly Agree 10
as with banks, even if true, outrageous we ever got to that position
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Agree 5
the strongest argument is US auto manufacturing would be better off in the long run, which may or may not be true, but v doubtful by 2010
Bio/Vote History
         
Hall Robert Hall Stanford Disagree 6
Again, it would have been better to reorganize with suitable losses on the junior creditors. This would not have resulted in higher unemp.
Bio/Vote History
         
Hart Oliver Hart Harvard --- ---
---
Bio/Vote History
Joined 11/2013 Agree 6
These companies might have been liquidated or reorganized in bankruptcy. Job losees would have been likely although maybe efficient.
 
Holmström Bengt Holmström MIT Did Not Answer
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Agree 8
 
Judd Kenneth Judd Stanford Agree 5
Bio/Vote History
         
Kaplan Steven Kaplan Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 10
It depends on the alternatives. GM could have gone into Chapter 11 with very different terms than those actually offered.
 
Kashyap Anil Kashyap Chicago Agree 7
But traditional bankruptcy and restructuring was an option too. Challenges for financial and non-financial firms are totally different.
-see background information here
Bio/Vote History
         
Klenow Pete Klenow Stanford Uncertain 5
Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 3
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 8
Bio/Vote History
         
Nordhaus William Nordhaus Yale Strongly Agree 7
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Agree 6
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 6
Bio/Vote History
         
Samuelson Larry Samuelson Yale --- ---
---
Bio/Vote History
Joined 11/2013 Agree 6
I suspect we have little idea what "all" the consequences, especially the future incentive effects, will be.
 
Scheinkman José Scheinkman Princeton Did Not Answer
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Strongly Agree 7
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Agree 3
This is a very weak test. Seems likely more assets would have been liquidated and/or slower bouncback without intervention.
 
Shimer Robert Shimer Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Agree 5
But little if any spillover effect beyond the jobs directly saved
 
Shin Hyun Song Shin Princeton Agree 7
Bio/Vote History
         
Stokey Nancy Stokey Chicago Agree 8
Bio/Vote History
         
Thaler Richard Thaler Chicago Agree 7
There was no private money available.
Bio/Vote History
         
Udry Christopher Udry Yale Did Not Answer
Bio/Vote History
         
Zingales Luigi Zingales Chicago Agree 1
Bio/Vote History
         

Question C Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Uncertain 7
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Agree 6
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Uncertain 3
Bio/Vote History
         
Autor David Autor MIT Agree 6
Bio/Vote History
         
Baicker Katherine Baicker Harvard Uncertain 4
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 6
 
Bertrand Marianne Bertrand Chicago Agree 3
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 10
 
Chetty Raj Chetty Harvard Agree 3
Bio/Vote History
         
Chevalier Judith Chevalier Yale Uncertain 8
Bio/Vote History
         
Currie Janet Currie Princeton Agree 5
Bio/Vote History
         
Cutler David Cutler Harvard Strongly Agree 6
Bio/Vote History
         
Deaton Angus Deaton Princeton Strongly Agree 9
Bio/Vote History
         
Duffie Darrell Duffie Stanford Disagree 7
The bankruptcy law was circumvented. Absent unstated exigent (e.g. systemic) reasons, upsetting creditor rights is inefficient.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Agree 1
Incentive effects are real. Incentive effects from a decision to bail out are overstated.
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 5
Bio/Vote History
         
Einav Liran Einav Stanford --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 6
 
Fair Ray Fair Yale Uncertain 5
Again, hard to measure costs and benefits.
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT --- ---
---
Bio/Vote History
Joined 11/2013 Agree 4
 
Goldberg Pinelopi Goldberg Yale Uncertain 6
Bio/Vote History
         
Goldin Claudia Goldin Harvard Uncertain 3
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Disagree 8
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Agree 5
Bio/Vote History
         
Hall Robert Hall Stanford Disagree 6
See previous answer
Bio/Vote History
         
Hart Oliver Hart Harvard --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 5
The intervention in these cases but not others may undermine confidence in the fairness of the system
 
Holmström Bengt Holmström MIT Did Not Answer
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 5
Again depends on uncertainty and moral hazard.
 
Judd Kenneth Judd Stanford Agree 5
Bio/Vote History
         
Kaplan Steven Kaplan Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 1
 
Kashyap Anil Kashyap Chicago Uncertain 7
Costs will appear in the next crisis; the precedent for a bailout is now set. Reduced incentives for the private sector to hold dry powder.
Bio/Vote History
         
Klenow Pete Klenow Stanford Uncertain 5 Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 2
Not at all obvious at the time decision was made, and I expect many would disagree now.
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 7
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 6
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Agree 6
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 3
Bio/Vote History
         
Samuelson Larry Samuelson Yale --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 1
 
Scheinkman José Scheinkman Princeton Did Not Answer
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Agree 6
Moral hazard seems less of a problem with non-financial corporations.
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 2
Hard to know about future incentive effects, and there were short-term benefits, but the precedent is worrisome
 
Shimer Robert Shimer Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 5
 
Shin Hyun Song Shin Princeton Agree 7
Bio/Vote History
         
Stokey Nancy Stokey Chicago Uncertain 7
Bio/Vote History
         
Thaler Richard Thaler Chicago Agree 6
Bio/Vote History
         
Udry Christopher Udry Yale Did Not Answer
Bio/Vote History
         
Zingales Luigi Zingales Chicago Disagree 5
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

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