Four years after the US government bailed out banks and carmakers, the economy remains fragile. Unemployment is persistently high (if falling slowly), the stock market is underperforming, and growth is sluggish.
So were the bailouts worth the expense? Absolutely, according to most of America’s top academic economists, surveyed in the latest Initiative on Global Markets Economic Experts Panel, which polls several dozen economists weekly to get their views on public policy.
On the banks, 59% said the benefits of the bailouts will exceed the costs, but the percentage rose to 68% when responses were weighted by each expert’s confidence in his or her answer. Only 13% of the economists disagreed, while the balance said they were uncertain.
On the auto bailout, 71% of the economists polled said they prevented the unemployment rate from rising higher than it did at the end of 2010. Similarly, 78% of the economists surveyed in an IGM poll last March said banking bailouts prevented an even higher unemployment rate.
But the bailout question is far from settled: only 49% of the panel said the benefits of bailing out GM and Chrysler would ultimately exceed costs, for example.
And there was little consensus among professors at the University of Chicago Booth School of Business Marianne Bertrand and Richard Thaler agreed that the banking bailouts did more good than harm, while Luigi Zingales disagreed. Meanwhile Anil Kashyap, a Booth professor who has written a paper on how Japanese bank recapitalization holds lessons for U.S. regulators, was uncertain. “Bankruptcy and liquidation would have been worse, but [the U.S.] could have nationalized a couple of the weakest [banks], especially Citi.”
Kashyap drew a strong distinction between the bank and auto bailouts. On the GM/Chrysler rescue, he noted: “Traditional bankruptcy and restructuring was an option too. Challenges for financial and non-financial firms are totally different.”