September 27, 2008

Pro Paulson Plan

By: Damir Marusic

Welcome aboard, Wall Street Journal:

Above all, the risk is that the current panic will damage the overall economy and lead to a deep recession that causes a further decline in housing values and continues a spiral to even greater financial problems. The libertarian blogs are full of tut-tutting that the economy has held up surprisingly well, and for a year we’ve been arguing the same thing. But there’s no guarantee this will continue, especially as unemployment climbs and as evidence grows that banking distress is squeezing credit to small and big business alike. Credit spreads over Treasurys are back at agonizing levels, as investors and lenders flee from even plain vanilla risks.

Nobel economics laureate Gary Becker is no alarmist, but this week he wrote on his blog, “I have reluctantly concluded that substantial intervention was justified to avoid a major short-term collapse of the financial system that could push the world economy in a major depression.” Anyone who thinks that capitalism will fare better after a crash should recall that the 1930s didn’t end politically until 1980.