My sense is that the Washington economics establishment (that is, Paulson and Bernanke and the teams they lead) is losing the intellectual debate. Many, perhaps most, serious thinkers about financial matters are opposed to, or at least skeptical of, the plans the Treasury and Fed are pursuing.Mankiw argues one reason that they are losing the debate is simply that they are not fully engaged in it. Mankiw goes on to say,
There appears to be a sense in Treasury and the Fed that they needed to convince Congress, which could be done behind closed doors, and that there was no need to address the legions of economics professors out there.In one sense this has to be right, it's Congress who gets to vote, not the general economics profession. But as Mankiw also notes,
But as a longer-term strategy, the case for this new Washington consensus needs to be made. The general public is largely opposed to recent moves to rescue the financial system. If Washington crowd cannot bring along the intellectual elite as a first step toward convincing a broader audience, they will end up pretty much alone, which does not seem sustainable.To deal with this Mankiw wants Bernanke to come out and make a serious, academic case for the path the Washington establishment has chosen.
Of course another possible reason the "Washington crowd" are losing the debate is that their critics are right. The Paulson plan may be the wrong move, which will ultimately fail. There may not be a serious, academic case to support what the Washington has done. But it would be good to see Bernanke at least attempt to justify path that has been taken.