Have Academic Economists Influenced The Bail-Out?

That's the question Nick Lembo asks over at Zeitgeist after the most recent proposal to respond to the financial crisis comes much closer to suggestions made by influential academic economists than Henry Paulson's TARP. It's hard to deny that academic economists have had some influence over the debate, but how much?

Personally, I'm skeptical. Once we move past the usual qualifications about correlation and causation, I think it is important to note that these economists have been proposing similar solutions for several weeks now, if not months. Krugman has argued that it was ideology which prevented Paulson from making proposals that would move America closer to a partially-nationalized banking sector, and it took action by the UK to snap them out of it. But the Economists' profile of the Treasury Secretary suggests he is more a pragmatist than an ideologue and that the TARP may have reflected both the realities of Congress and the fact that Paulson simply wanted to be free to take control.

The latest plan is probably an extension of that pragmatism. Policymakers on both sides of the Atlantic are now moving in the spirit of FDR's formula of "bold, persistent experimentation" to deal with economic crisis - albeit belatedly. Gordon Brown, for instance, is a big believer that politics should matter; this was a chance for him to prove it. No doubt the UK's plan - which was emulated by the US and the rest of Europe - was influenced by the government's in-house economists, but it was political leadership that drove it forward.

Moreover, Bernanke appears to have favoured this approach along. He's an accomplished academic in his own right, but, unlike the econ-bloggers, he's on the inside. (I'm also noticing that most of the photographs accompanying articles about the new plan feature Bernanke front and center, with Paulson in the background...).

So what does all this mean for the influence of academics on policy? I think that the explosion of blogs by pre-eminent economists has changed the nature of the policy discussion and has certainly made economic ideas more accessible to the general public. But when it comes to policy, those academics on the outside are going to have settle for, at best, indirect influence.