Economists against the bailout

200 economists are weighing in against the proposed $700 billion financial bailout, saying it’ll take a generation to pay it off, and they don’t believe the situation is as dire as Treasury Secretary Paulson and Fed Chairman Ben Bernanke claim it is.

If there’s a lack of liquidity, the government can make loans to banks, but I still believe it should remain neutral on the worth of the bad investments that have everyone spooked, and let investors figure it out for themselves. Apart from the staggering costs of the proposed bailout — trillions of dollars, really, when you consider the amount of interest we’ll end up paying — the long-term economic consequences of rewarding people who made unsound investments and punishing everyone who didn’t will be bad.

What do Paulson and Bernanke have to say about the moral hazard argument — what’ll happen if the government keeps encouraging people to invest in excessively risky or underperforming assets?