King Larry
I first saw Larry Summers do a seminar presentation for my graduate department. He looked like a Hassid, sporting a beard, dark suit and tie. When he turned around to write on the blackboard, we spied a single shirt tail hanging below his jacket, giving rise to a suppressed titter in the assembled. But nobody laughed at his presentation, nor when he corrected misconceptions volunteered by assorted senior professors. At the time he was about 30 years old. My other Larry story is about a speech he gave to the National Tax Association, an assemblage of tax lawyers, accountants, economists, and technocratic government types. He offered tribute to the group as only he can, noting that the first professional economics journal he ever followed was the National Tax Journal. He modestly reported that it was the only one he could understand, since he was still in high school.
Bob Reich provdes an upbeat roundup on the Obama economic team, but it's missing the main character, the aforementioned Larry.
Summers is said to be slated as either a White House Senior Adviser or director of the National Economic Council. Putting him in a lower-profile position than Secretary of the Treasury avoids some of the flak that would be raised over his colorful history: the infamous 'send toxic waste to Africa' memo, the treatment of Cornel West, the women-in-science flap, and the lenient treatment of scammer Andrei Schleifer. (See also Mark Ames in The Nation.)
Prospective Treasury Secretary Tim Geithner was elevated from Treasury department obscurity by Summers. Top economist-apparachniks Jason Furman and Austan Goolsbee adhere to the mainstream school of economic thought of which Summers is king. It is impossible to think of them not deferring to him. The same goes for the brilliant Peter Orszag, on his way to the Office of Management and Budget.
As I've mentioned before, there is no ideological diversity in this team of rivals -- no industrial strength liberals. Don't we deserve at least one? Geithner's chief qualification is experience in managing the financial crisis, the success of which is by no means assured. He has no visible political orientation. He is not the one to initiate new thinking about economic policy. Furman, Goolsbee, and Orszag are moderates with economically correct views on free trade, deficit reduction, and monetary policy.
Governor Bill Richardson may become Secretary of Commerce, but a) he is an economic lightweight; and b) I can't remember a single thing any Secretary of Commerce has ever done. It's like one of those ambassadorships awarded to some bigfoot campaign donor.
So it's going to be all Larry, all the time, until his fabled people skills provoke denizens of the White House to gather before his office wielding torches and pitchforks. In the meantime, what can we expect? I'm actually of two minds. I would say something great or some awful.
There seems to be little doubt we will be treated to a crusade of job creation founded on government spending, which is all to the good. But what will be more crucial are the basic tenets of long-term economic policy, especially in financial regulation.
In this field, Larry's record is like Geithner's, only worse, since he was captain and TG was just first mate. Like his colleagues on "The Committee to Save the World," Bob "What meltdown?" Rubin and Alan Greenspan, he championed deregulation in international capital flows and finance. That hasn't worked out so well.
The glimmer of hope is that Larry is capable of thinking big about reform. The question is what sort of reform is in prospect. I have no idea, but these are desperate times.
The reforms of the 1930s seemed to work for 70 years, I recommend reinstating them.
November 23, 2008 1:51 PM | Reply | Permalink
Exactly. It was those reforms that Summers dismantled.
November 23, 2008 3:03 PM | Reply | Permalink
It is quite amusing to watch how people are flailing about for "new" answers to the problems that FDR's New Dealers and subsequent liberal administrations continued to manage so well. It seems like these folks who refuse to see that we have already solved these problems just don't want to acknowledge that the New Deal was one helluva successful approach. Wonder how long it will take them to finally admit it?
November 23, 2008 11:31 PM | Reply | Permalink
Who are these "industrial strength liberal" economists you would like to see Obama consider, Rotwang?
November 23, 2008 2:30 PM | Reply | Permalink
You tout how awesome Sommers is but yet acknowledge he is the king of deregulation which as we know was the core shift in banking tectonics that has resulted in this economic meltdown.
Why is Summers the right man for the job today?
Isn't he more like the classic, 'you don't solve the problem with the same thinking that created it'?
November 23, 2008 3:01 PM | Reply | Permalink
Bwakfat -- James Galbraith is the obvious option. Others include Joe Stiglitz & Jane D'Arista. Dean Baker is another, though he has written a lot of kool stuff that would cause David Broder to pee in his pants. (More here and here.
whiterosebuddy -- your point is well-taken. Problem here is, the only people with 'experience' are people who are implicated in the sh*t. I'm hardly endorsing Summers. Maybe he has the capacity to learn from mistakes.
November 23, 2008 3:12 PM | Reply | Permalink
Did you hear the replay of the Monday WSJ forum on CSPAN radio today after 10AM? It was Paulson, Rubin and Summers. I could hardly believe my ears.
CEO Council
"Lock horns" describes it about right. Rubin was more deferential. Larry repeatedly refused to accept Hank's premises.
Teaching at Harvard for five years has at least changed Larry's rhetoric. Now, I am a woman in science, so I have already discounted that episode.
Larry was having none of Hank's supply side schtick. I was impressed.
Economist = math geek meets sociologist. Sparks ensue.
November 23, 2008 7:15 PM | Reply | Permalink
Good Lord!! This trio, Rubin, Summers & Paulson are like the monkeys that use to promote Red Rose Tea....!!!
We just learned that Rubin is at the core shift in CitiCorps problems that has resulted in them going under, Summers was the King of deRegulation and Paulson, doesn't know shyt from shinola...other than he wants to save GoldmanSachs since that is where his golden parachute is while he makes the auto retirees twist in the wind worrying about their pensions.
I think it is becoming very clear that these three esoteric theorists who uses math&physics models to govern the financial markets are just as wrong as Greenspan!
Unbelievable. They have learned nothing!!
November 23, 2008 8:38 PM | Reply | Permalink
Well, we may get Larry I-have-people-skills-problems Summers as head of the Economic Council.
Here's to Larry having an Alan I-was-wrong-for-forty-years Greenspan moment.
Everybody gets presents at on 6 January in my family.
November 23, 2008 10:19 PM | Reply | Permalink
Thank you.
November 24, 2008 2:09 AM | Reply | Permalink
Rotwang,
what does it say about Obama that none of the people you mentioned.........are being mentioned?
Maybe Obama can find a spot for Greenspan or Phil Gramm.
On another note, it seems Bernanke is doing a Greenspan who claimed his model needs work;
NEW YORK (Associated Press) - Federal Reserve Chairman Ben Bernanke acknowledges he was wrong in believing that there would be limited fallout to financial markets from risky mortgages that soured after the housing market's collapse.
November 24, 2008 8:46 AM | Reply | Permalink
My recollection (and I can't find the news item, today) is that when this "financial crisis" first raised its head -- 15 months ago in July 2007 -- Bernanke had little if any understanding of CDSs or how they'd been employed to control bank balance sheet "risk."
It was this lack of knowledge which caused Bernanke to believe that the subprime problem would/could be "contained" -- which, in the absence of CDSs and CDOs, it could have been.
The New York bankers actually met with him one weekend to give him a tutorial and introduce him to the world of structured finance.
November 24, 2008 9:55 AM | Reply | Permalink
This is like when an arsonist stays on the scene, and TIME Magazine puts the arsonist on the cover with the headline "Committee to Put out the Fire"
November 23, 2008 3:43 PM | Reply | Permalink
Blasts from the past:
http://query.nytimes.com/gst/fullpage.html?res=9A03E6DF143DF930A25752C1A96F958260
The New York Times, November 13, 1999:
President Clinton signed into law today a sweeping overhaul of Depression-era banking laws. The measure lifts barriers in the industry and allows banks, securities firms and insurance companies to merge and to sell each other's products.
''This legislation is truly historic,'' President Clinton told a packed audience of lawmakers and top financial regulators. ''We have done right by the American people.''
The bill repeals parts of the 1933 Glass-Steagall Act and the 1956 Bank Holding Company Act...
''The world changes, and Congress and the laws have to change with it,'' said Senator Phil Gramm...
''With this bill,'' Treasury Secretary Lawrence H. Summers said, ''the American financial system takes a major step forward toward the 21st Century -- one that will benefit American consumers, business and the national economy.''
Meanwhile, recognizing the arson:
http://www.thenation.com/archive/detail/14239331
The Nation Magazine / Nov 15, 1999 edition:
For their money, the finance industry bought not only the end of the Glass-Steagall Act but also the partial repeal of the Bank Holding Company Act. These landmark pieces of legislation, recognizing the inherent dangers of too great a concentration of financial power, barred common ownership of banks, insurance companies, and securities firms... the misnamed Financial Services Modernization Act will usher in another round of record breaking mergers... PAVING THE WAY FOR FUTURE TAXPAYER BAILOUTS OF TOO-BIG-TO-FAIL FINANCIAL CORPORATIONS.
How do we score that?
The Nation 1, Establishment 0.
November 23, 2008 3:47 PM | Reply | Permalink
Nice catch, tts.
If you're in a car going in a direction that makes Phil Gramm happy, it's time to turn around.
November 23, 2008 7:38 PM | Reply | Permalink
WOW. The Nation is officially the greatest magazine ever invented.
November 23, 2008 8:19 PM | Reply | Permalink
OK, this all begs the question, why is Obama listening to Summers? If we had a responsible press, this would be a key question at any economic summit or even on MONDAY when the economic team is announced.
It is complete BS that Sommers should have any leadership role. He may be a guru, he may have a brilliant economic mind...but what we know for sure is that his ideas, strategies and tactics are EFFED UP!!...All it has taken is ONE decade for his theories and projections to have been demonstrated to be demonstrable WORSE than Voo-Doo economics.
Point of fact, the only reason we did not pay sooner for Voo-Doo Economics is because GH Bush raised taxes!
Sommers now wants to run endless deficits like they had under Reagan.
Bill Clinton needs to be called to the carpet as well and asked why the hell he listened to Summers and Gramm...they are the architects of the Enron meltdown as well.
November 23, 2008 8:56 PM | Reply | Permalink
Only Obama can answer as to why he (Obama) listens to Larry Summers.
Obama is clearly smart enough to know this stuff. Unlike Bush or Palin, he undoubtedly reads. [The Nation regularly runs an ad with a picture of FDR reading The Nation and a quote from FDR about that -- I believe it says FDR didn't always agree]
Obama knows who helped kill Glass-Steagall. He knows who helped kill usury laws and why they did it (that started under Jimmy Carter, as did the first chip at Glass-Steagall... the second chip happened under Reagan... it took three Presidents to destroy Glass-Steagall completely)
My guess is that Presidents expect to listen to Wall Street bankers because that's where the real power is in the USA. And they expect to be able to gloss over the past inaccurate predictions of Wall St bankers because America has a 2-nanosecond attention span. They expect you and me not to care, to take the corporate media's word for it that these smart guys are going to fix things.
The corporate mass media isn't going to do it for us. Until there is a loud citizens movement that is well informed and on the case, that is the situation we are in.
November 23, 2008 10:12 PM | Reply | Permalink
re summers, you wrote:
Putting him in a lower-profile position than Secretary of the Treasury avoids some of the flak that would be raised over his colorful history: the infamous 'send toxic waste to Africa' memo, the treatment of Cornel West, the women-in-science flap, and the lenient treatment of scammer Andrei Schleifer.
to me none of that is nearly as important as summers' role in eliminating glass-steagel and in signing off on phil gramm's deregulation of derivatives, including th enron exception. as far as i'm concerned, that means he shouldn't have any role in this administration. he should go back to whatever university will take him, enjoy showing off about how smart he is, and annoying a lot of people.
November 23, 2008 6:45 PM | Reply | Permalink
Yes!
Maybe this is a memo to send to Campbell Brown, for her no bias no bull rant session. This is important stuff. Summers is the toxic waste that should be sent to Africa. He needs to be as far away as possible from economic policy making and from having any say so over what direction the nation goes in. Let him, Gramm and Greenspan along with Rubin rot somewhere in Dubai.
November 23, 2008 9:15 PM | Reply | Permalink
Campbell Brown is terrified Summers will drink her blood. If she were to overcome her Sanguivoriphobia, her hubby's business interests would probably preclude from her mixing it up with ol' Larry.
Last I heard Larry Summers "won't accept" a post with Obama. Then again that's exactly what a guy who doesn't need plug himself for a gig would do.
Breathe babies. Breathe.
-AF
Andrew Sullivan Is A Fraud
November 23, 2008 11:46 PM | Reply | Permalink
Personally if I was searching for a progressive heavyweight I might study up more on The Tobin Project.
Geithner worked at Kissinger and Associates (Governor Richardson worked for Kissinger/McClarty)... my warning lights and sirens for "same old, same old" are flashing and honking.
November 23, 2008 7:11 PM | Reply | Permalink
Geithner was a Republican turned Independent, last i heard.
November 23, 2008 7:22 PM | Reply | Permalink
Larry can be a broken faucet..Barack, a steady wrench. Lets hope Barack knows when to tighten up and make the turn!
November 23, 2008 7:24 PM | Reply | Permalink
Dr. Summers, meet Brooksley Born.
http://cobb.typepad.com/cobb/2008/11/brooksley-born.html
Oh, you have already been introduced? I'll leave you two then to chat about what's happened in the last 4 months.
November 23, 2008 7:58 PM | Reply | Permalink
"Oh, and there's Rubin over in the corner..HEY! Bob! here's somebody you should meet!....
Funny, he just looked and ran out the door...
I'm sorry Brooksley, he must have had some pressing business somewhere, I'm sure he wouldn't want to be rude..."
http://financialservices.house.gov/banking/72498ftc.htm
November 23, 2008 8:17 PM | Reply | Permalink
Lux Umbra Dei, a disconcerting link. There are stories of baseball pitchers who extended their careers by learning new pitches. Is it possible to believe that Larry Summers can learn from his mistakes or are these "geniuses" more apt to totally destroy economy in an attempt to defend their errors? In short, will egos prevail or are they capable of using their knowledge of what went wrong to fix it.
November 23, 2008 8:19 PM | Reply | Permalink
They haven't made any errors; it's the economy that failed to come up to their expectations.
Or to say it differently these DSGE'rs and macroeconomists model and teach and advise all within a paradigm accepted by their profession which does not reflect reality. Since their "pseudoscience" has only an accidental relationship to the real economy to ask whether their claims are "wrong" is meaningless. In their abstracted, Platonic universe they are always right.
As with any pseudoscience, their conclusions and predictions are "Not even wrong."
November 23, 2008 8:42 PM | Reply | Permalink
Light and Dark, Matter and Anti-Matter, Ellen and Lux....
Well we're in the same outfield this time Ellen.
And it is an outfield. The infield is filled with all the star "efficient marketplace" dreamers.
Nick, Sure Dr Summers is very bright (at least a heck of a lot smarter than me) and no one can say he's not a quick study. I just would rather have the people who were even smarter, like Brooksley, have some input in the process, but as far as I can see those people are locked out.
November 23, 2008 9:18 PM | Reply | Permalink
Well, I expressed my reservations, but I am going to sound like a true believer and say, Larry Summers aint so bad, and same for Geithner. Obama could have picked a lot worse I suppose and I note that maybe its the guys who took us to the bankruptcy dance will know how to escort us out of the dance hall.
Still I wish some of the pessimists who were alarmed about the derivatives overhang would be allowed a place at the table also.
November 24, 2008 1:07 PM | Reply | Permalink
So, if this was healthcare...the therapy works it's just a bad patient?
Lord help us!!
November 23, 2008 9:47 PM | Reply | Permalink
Bertrand Russell famously asked of the sentence 'the present king of France is bald' whether it is true or false or is it a peculiar example of one of those things that cannot be either true or false. You see that if you say that it is false then you are affirming the sentence "the present kind of France is not bald" to be true which is not warranted. Russell solved the problem by pointing out that language was not created by some crafty scientist with perfect logic but actually evolved as man evolved from the ape to what he is today. So he proposed to "fix" the sentence to read "there is a present king of France and he is bald" which is clearly false and solves the problem. And it does not seem to be unreasonable to say that the two versions of the proposition are equivalent in meaning.
But you allude to the notorious Logical Positivist of the Vienna Circle who wanted to banish metaphysics and all other non-empirically verifiable (or falsifiable) sentences on the ground that they are—as they claimed-- "meaningless". An economic model--no matter how esoteric and removed from empirical data is not meaningless: it is false. It predicted certain outcomes and those outcomes did not obtain. That means it was actually falsified so it is not meaningless, simply false.
I would ask you please to leave Plato out of this discussion since at least in some realm (mathematics) his theory of Forms has adherents.
November 25, 2008 1:54 AM | Reply | Permalink
I follow Vico.
As long as the economists have done the math correctly, they're not wrong. Now, whether the math represents reality is a whole 'nother question.
November 25, 2008 11:34 AM | Reply | Permalink
"Eykhoff (1974) defined a mathematical model as 'a representation of the essential aspects of an existing system (or a system to be constructed) which presents knowledge of that system in usable form'."
The model either succeeds in representing the system or it does not. If it does not, or to the extent it does not it is false. If it represents it accurately or to the extent it represents it accurately it is a true model.
As for Vico, I must plead ignorance as to his relevance here.
November 25, 2008 11:52 PM | Reply | Permalink
. . . or a system to be constructed . . . .
Namely, dynamic stochastic general equilibrium models which unless one believes the financial world is sufficiently static to permit back-testing and robust conclusions drawn therefrom, can only be tested over time.
And since significant booms and busts may take 40+ years to develop, whole careers can be enjoyed before the future arrives and experience tells us which it is. Until then, the modeler and the mathematician who follow the rules of the excepted paradigm cannot be "wrong."
November 26, 2008 5:32 AM | Reply | Permalink
it is true we might not know until 40 years hence if the thing is wrong. epistemology is NOT metaphysics, however, my dear Ellen, and I think we have had versions of this conversation before.
November 27, 2008 6:19 PM | Reply | Permalink
Heck put Reich in their and I bet all if not most progressives will be happy with him on the team.
November 23, 2008 8:21 PM | Reply | Permalink
I agree. Too bad Brooksley Born has retired...maybe she can just call Obama about this interview she gave in 2003 especially regarding the roles of Rubin & Greenspan:
I agree. Brooksley Born interview:
Is this an issue that you had taken with you to the commission, or something that you became aware of as a commissioner?
I became concerned about it once I got to the commission and began to learn about the OTC market. The more I learned, the more I realized we didn’t know. I realized there was a tremendous potential danger to the markets in the United States and to the international economy: Alan Greenspan said one of the reasons the Federal Reserve Board facilitated the bailout of Long-Term Capital Management was that they were afraid it would have profound worldwide economic repercussions.
Nominally and statutorily, OTC derivatives were under the CFTC’s jurisdiction, and the CFTC had exercised its discretion to partly exempt the market, but kept some powers and responsibilities that it had no ability or possibility of exercising or enforcing. Although I was willing to be persuaded otherwise, I felt strongly that while heavy regulation was not required, transparency was needed, and some federal regulator should have information before a disaster occurred rather than only afterwards.
How was the concept release received?
There was a firestorm of criticism from the large OTC derivatives dealers, and they were supported by other financial regulators.
What was the ultimate outcome of the regulatory effort?
It wasn’t a regulatory effort. We were just asking questions! The concept release didn’t propose any rules. Alan Greenspan, Arthur Levitt, and Robert Rubin all said that these questions should not be asked and urged Congress to pass a bill that would forbid the commission from taking any regulatory steps on over-the-counter derivatives. There were no hearings on that bill, but during a congressional conference committee meeting on an appropriations bill, an amendment was added preventing the commission from taking any action on over-the-counter derivatives for six months. This occurred within a month after Long-Term Capital Management’s collapse!
I thought it was very bad policy, but on the other hand it was Congress’s decision to make, and having made that decision Congress relieved the commission of its responsibility, so that Enron, for example, became the Congress’s responsibility, not the commission’s.
http://www.dcbar.org/for_lawyers/resources/legends_in_the_law/born.cfm
November 23, 2008 10:24 PM | Reply | Permalink
Maybe [Summers] has the capacity to learn from mistakes. C.A. Rotwang
Only if he recognizes that his entire career has been based upon a fallacy -- upon the belief, little differing from a religious belief, that "macroeconomics" is a "science" which can be mathematically modeled.
They've all, starting with Samuelson, gone off the rails, and there's no reason to expect that any of them, least of all Larry the Believer, is about to experience a damascene conversion.
November 23, 2008 8:24 PM | Reply | Permalink
Ellen, good point about macroeconomics not being any sort of "science." We do know with a fair certainty that people act in what they perceive to be their self interest. Let them do what they want, and they'll rip us off the first chance they get, the devil take the hindmost.
November 23, 2008 8:30 PM | Reply | Permalink
Ellen I agree with you about macroeconomics assessment. It is analogous to healthcare where the presumption is that the chemotherapy (macroeconomics) is effective, it's just the patient (economy) that is bad when the drug doesn't have the outcome and they ignore all the attendant side effects. In short, there is no magic bullet.
Recognizing your excellent point on macroeconomics, I became very disturbed reading this this morning. It means we are in for even more of a rocky rise, unless Obama figures out the models (therapy) only put the patient in remission for 6 months...it ain't no cure.
I read this with great concern:
President-elect Obama plans to name Christina Romer, an expert on tax cuts and recessions who is an economics professor at the University of California at Berkeley, to chair his Council of Economic Advisers, aides said. Romer and her husband David Romer, also a Berkeley economist, were both campaign economics advisers to Obama.
In March, National Journal had this précis on the couple: “As professors at the University of California (Berkeley), they are well-known macroeconomists -- experts on the workings of the U.S. economy -- who jointly hold one of six spots on the academic committee of economists that decides when recessions begin and end. They are both steeped in the history of the country's economy and have recently produced a series of papers looking at the causes and effects of most of the major changes in tax policy in the last 100 years.
http://www.politico.com/news/stories/1108/15909.html
O. My. we are in for the horrors of the macroeconomics theorists on their learning curve to hell...reminds me of Alchemy.
November 24, 2008 8:57 AM | Reply | Permalink
I am an ignoramus when it comes to economics (as my wife will verify), but I wondered whether anyone knowledgeable about the subject could comment as to which is more complicated in terms of mathematical models: macroeconomics or the weather? I was recently a driver for my son's class on a field trip to NOAA, which is in Boulder, where we live. NOAA has the most sophisticated computer modeling of the weather available. The guide stated that the ability to forecast weather is good, or accurate, up to a week in the future. After that period the models become less predictive due to the nature and number of variables involved. It is my hope that the subject of macroeconomics is less complex than the weather.
November 23, 2008 8:43 PM | Reply | Permalink
If they want to tackle some economic reform that would actually help a little, they should keep it front and center in their minds that consumers are still paying the credit card companies every month instead of paying somebody else. Why is this still news? The companies loan the dough out at one rate, then look for any excuse to raise the rate, charge fees, and so on. The financial people are blowing hot air all through the spring, summer, and fall of '08, and almost never does it dawn on them that sales are down everywhere because consumers are down and can't get up. The Obama team, Pelosi, whoever--they all need to wake up to the reality that the credit card rules are utterly stacked against the consumer. Until the rules change and people can get some room to breath, no amount of stimulus is going to help all that much because people will still owe and be trying to get out from under. It's right there on the balance sheet for all the world to see.
November 23, 2008 9:18 PM | Reply | Permalink
Yup. That balance sheet reflects a dislocation of trust between financiers and the consumer, and between elected representatives and ordinary people. It's a financial problem because there's money involved, but it goes deeper than that.
As ordinary people come to understand that their representatives not only helped tip the credit rules against them but also made it legal for financial types to bet against their ability to keep their homes (CDSs) you'll see even more anger, despair and refusal to spend or lend.
Ellen is correct that the economic models do not reflect reality--and the reality is that once you create an environment in which the only ways to get out of the hole are to screw other people or win the lottery, there's a good chance that the game will shut down.
Unless there's an economic model for screwing the pooch.
November 23, 2008 10:21 PM | Reply | Permalink
As ordinary people come to understand
Depending on that, are we?
In that case, let me state publicly that: "I, for one, welcome the suzereinty of our benevolent overlords from Goldman Sachs" (and I hope I can get a well compensated position kissing Larry Summers a$$.)
November 24, 2008 1:27 AM | Reply | Permalink
This may be a bit of a Red Herring but I wonder how much influence guys like Summers have being on the outside, rather than being on the inside? It appears from all that I have read, and I am not an economics student, that Summers, Rubin, Volcker and others shape policy in the business world regardless of whether they have positions in an American administration.
Over the last couple of years I have been reading some of the economic blogs written by guys like Mark Thoma, Krugman, and Galbraith. In many of these blogs there seems to be two camps from the past. Those like Galbraith and Volcker who were a part of administrations and the academics like Krugman and Thoma on the outside of it all. The insiders had Milton Friedman shaping their voice and the outside were vehemently against supply-side principles. Whichever the case, Volcker and others proved capable in many ways in pulling the US out of its late 70's slump. However I remember reading some Galbraith and Volcker reflecting on many of their measures as short-term solutions which in time would prove to have some blowback effect. I came away from all of this believing that the Friedman "supply-side" school although useful in a macro-economic sense and short term sense had some serious holes/flaws. It appeared that many in the Eco community were torn with how to move forward from the last 30+ years of Friedman dominated Economic policies back to the more tried and true Keynes models.
November 24, 2008 11:34 AM | Reply | Permalink
http://www.usatoday.com/money/economy/fed/2005-10-24-greenspan-successor_x.htm
"Bush called Bernanke, chairman of the White House Council of Economic Advisers and a former Federal Reserve governor, "the right man to build on the record Alan Greenspan has established," while citing Bernanke's sterling academic and international reputation"
Greenspan to Waxman - "There was a flaw in my model on how the financial world worked."
"Looking back on this period, Bernanke told me, “I and others were mistaken early on in saying that the subprime crisis would be contained."
heh heh, their "model" was get government out of the way and let the markets work. heh heh heh.
November 24, 2008 11:57 AM | Reply | Permalink
. . . the best and the brightest who will be joining the new president . . . [are] . . . as likely to find wisdom from reading political economists like Friedrich Hayek or Joseph Schumpeter, or Keynes himself, as from poring over the latest academic paper in a peer-refereed economics journal. Bill Kristol
Now, Ezra Klein, who graduate a few years ago with a B.A. in polisci from UCLA, takes Kristol to task for claiming that conventional economic theory is at the root of the "financial crisis" the markets are going through.
Klein says "the economics profession wasn't terribly aware of most sophisticated financial instruments." "Most economists didn't know what a mortgage-backed security was," Klein explains.
I'm amazed!
Without even pointing out that all these 20-year old Wall Street quants who invented these structured financial instruments were trained by M.I.T. and Harvard economics professors, does Klein really think it's a feather in the cap of conventional economics that its practitioners were out-to-lunch on the most important economic issues in the past half century?
And he's recommending that we trust their theories, now? Waaa!
November 24, 2008 12:09 PM | Reply | Permalink
Here's the slideshow from Chris Whalen's presentation at the RMA meeting Friday last.
http://www.rcwhalen.com/pdf/GSENation.pdf
November 24, 2008 3:04 PM | Reply | Permalink
"Are Economists to Blame for the Crisis?"
Try Stiglitz for one answer.
November 24, 2008 3:33 PM | Reply | Permalink
"the model works, if you believe in schizophrenia."
I like Stiglitz.
November 24, 2008 5:12 PM | Reply | Permalink
really recommend this video highly. Its long but well worth it.
November 24, 2008 6:15 PM | Reply | Permalink
I'm comfortable, for the moment, with the idea that you put technocrats in the management slots because they actually know how to run things. There are lots of really brilliant economists out there who would just suck horribly horribly horribly at managing a cabinet-level department. So you put them on the councile of economic advisors or in other positions where they can figure out what to do without having to get bogged down in the crazy.
Look at the Manhattan Project, for example: buttloads of brilliant people involved in doing it, but some relatively mediocre intellects involved in running it.
(Of course in a year I may agree that I was entirely wrong.)
November 24, 2008 1:43 PM | Reply | Permalink
Technocrats only "know how to run things" when there exist plans and protocols which tell them what to do in a particular situation.
We are, they say, in "uncharted territory" -- that is, there are no plans and protocols to be picked up and run with by "technocrats in the management slots."
Note: There may be really brilliant minds who have chosen, for many different reasons, to become economists but that doesn't make those minds "brilliant economists": indeed, "brilliant economists" is an oxymoron.
November 24, 2008 3:46 PM | Reply | Permalink
Ellen, I think you make a good point. As I remember it, the really brillant went into Math and Physics. (Remember those guys who couldn't remember whether it was wrong to wear a stiped shirt with checkered pants or vice versa?) Nobody that was really brillant became an economist.
Ask an accountant for a phone number and he will give you a phone book. Ask an economist and he will give you an estimate.
November 24, 2008 7:09 PM | Reply | Permalink
Q: How many Chicago School economists does it take to change a light bulb?
A: None. If the light bulb needed changing the market would have already done it.
November 24, 2008 7:20 PM | Reply | Permalink
"Your idea may be fine in practice," the senior professor sneers at his junior colleague. "But it will never work in theory."
Economists' joke quoted in a nice little critique of economists' assumptions about human behavior which their theories (and not the real world) require them to maintain.
November 24, 2008 8:15 PM | Reply | Permalink