Wednesday, March 28th, 2012 8:06 pm

Too Big to Fail

Question A: The average size of the 19 financial firms that just completed the Federal Reserve stress tests (i.e. the CCAR) would be substantially smaller if they did not have implicit government support.

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: The 19 financial firms that just completed the Federal Reserve stress tests (i.e. the CCAR) are big primarily because of economies of scale and scope, rather than because of implicit government support.

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 Strongly Agree 8
Bio/Vote History
         
Alesina Alberto Alesina Harvard No Opinion
Bio/Vote History
         
Altonji Joseph Altonji Yale Uncertain 1
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley No Opinion
Bio/Vote History
         
Autor David Autor MIT Agree 5
Bio/Vote History
         
Baicker Katherine Baicker Harvard Agree 2
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Uncertain 3
Bio/Vote History
         
Chetty Raj Chetty Harvard No Opinion
Bio/Vote History
         
Chevalier Judith Chevalier Yale Uncertain 7
Bio/Vote History
         
Currie Janet Currie Princeton Uncertain 1
Bio/Vote History
         
Cutler David Cutler Harvard Uncertain 5
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 3
Bio/Vote History
         
Duffie Darrell Duffie Stanford Agree 9
Tbtf implies cheap debt financing of assets. There are other reasons to be big. Big clients often want large deals or one-stop shopping.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley No Opinion
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Uncertain 5
Bio/Vote History
         
Fair Ray Fair Yale Uncertain 5
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Uncertain 4
Bio/Vote History
         
Goldin Claudia Goldin Harvard No Opinion
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Disagree 4
not really about size, it's about interconnection
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Uncertain 1
Bio/Vote History
         
Hall Robert Hall Stanford Agree 7
Bio/Vote History
         
Holmström Bengt Holmström MIT Uncertain 4
Bailouts seem to increase skew in all countries, but I don't know of counterfactual evidence to answer question
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Agree 6
Bio/Vote History
         
Judd Kenneth Judd Stanford Disagree 3
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Uncertain 7
There are efficiency reasons for size & there is the implicit support. Regulatory burden is now higher. No telling how much they'd shrink.
Bio/Vote History
         
Klenow Pete Klenow Stanford Agree 3
Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford No Opinion
Bio/Vote History
         
Maskin Eric Maskin Harvard Disagree 5
Bio/Vote History
         
Nordhaus William Nordhaus Yale Strongly Agree 9
Some might not have survived 2008-2009, so pretty clearly correct.
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Uncertain 7
Certainly smaller, but "substantrially" smaller is unclear and subjective.
Bio/Vote History
         
Rouse Cecilia Rouse Princeton No Opinion
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Uncertain 2
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Agree 8
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Disagree 3
Bio/Vote History
         
Shin Hyun Song Shin Princeton Agree 8
Bio/Vote History
         
Stock James Stock Harvard Uncertain 1
Bio/Vote History
         
Stokey Nancy Stokey Chicago Agree 7
Presumably they are all competing to be in the TBTF group.
Bio/Vote History
         
Thaler Richard Thaler Chicago No Opinion
Bio/Vote History
         
Udry Christopher Udry Yale Did Not Answer
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Agree 3
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Uncertain 6
They are larger than they should be because of bailout guarantees and subsidies to leverage. There may also be economies of scale and scope.
Bio/Vote History
         
Alesina Alberto Alesina Harvard No Opinion
Bio/Vote History
         
Altonji Joseph Altonji Yale Uncertain 1
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley No Opinion
Bio/Vote History
         
Autor David Autor MIT Disagree 5
Bio/Vote History
         
Baicker Katherine Baicker Harvard Agree 2
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Uncertain 3
Bio/Vote History
         
Chetty Raj Chetty Harvard No Opinion
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 7
Bio/Vote History
         
Currie Janet Currie Princeton Uncertain 1
Bio/Vote History
         
Cutler David Cutler Harvard Uncertain 5
Bio/Vote History
         
Deaton Angus Deaton Princeton Uncertain 2
Bio/Vote History
         
Duffie Darrell Duffie Stanford Uncertain 9
Both factors are likely to be present, but we lack sufficient research on magnitudes.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley No Opinion
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Uncertain 5
Bio/Vote History
         
Fair Ray Fair Yale Uncertain 5
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Uncertain 4
Bio/Vote History
         
Goldin Claudia Goldin Harvard No Opinion
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Agree 1
explicit support like FDIC much more important than implict supports
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Uncertain 1
Bio/Vote History
         
Hall Robert Hall Stanford Uncertain 4
Bio/Vote History
         
Holmström Bengt Holmström MIT Uncertain 5
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Uncertain 6
This is not my area of expertise, so I would rather defer to the experts on this.
Bio/Vote History
         
Judd Kenneth Judd Stanford Agree 8
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Uncertain 7
Very uncertain about the size of either the efficiency advantages or the net subsidy. US firms usually are large relative global peers.
Bio/Vote History
         
Klenow Pete Klenow Stanford Agree 3 Bio/Vote History
         
Lazear Edward Lazear Stanford Did Not Answer
Bio/Vote History
         
Levin Jonathan Levin Stanford No Opinion
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 5
Bio/Vote History
         
Nordhaus William Nordhaus Yale Uncertain 6
Both are important but don't know of persuasive studies on relative importance of these two factors.
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Uncertain 7
Clearly there is a government subsidy element, but its size is hard to quantify, and therefore compare to other factors.
Bio/Vote History
         
Rouse Cecilia Rouse Princeton No Opinion
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Uncertain 1
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Disagree 8
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Agree 3
Bio/Vote History
         
Shin Hyun Song Shin Princeton Uncertain 8
Bio/Vote History
         
Stock James Stock Harvard Uncertain 1
Bio/Vote History
         
Stokey Nancy Stokey Chicago Uncertain 1
Difficult to know how to interpret "big" and "primarily."
Bio/Vote History
         
Thaler Richard Thaler Chicago No Opinion
Bio/Vote History
         
Udry Christopher Udry Yale Did Not Answer
Bio/Vote History
         
Zingales Luigi Zingales Chicago Uncertain 3
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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