Saturday, March 19, 2011

Is Inside Job correct about the corrupting influence of money on the economics profession?

I think it may be, but not in the way implied by the movie.  Charles Ferguson makes a big deal out of the fact that Glenn Hubbard, Frederic Mishkin, Larry Summers and Martin Feldstein were paid well by financial institutions and governments who wound up becoming major contributors to the crisis.  HIs implication is that all of these well-known economists ignored the danger signals arising from financial deregulation because they were well paid to do so.

I really doubt this is true.  I say this because I remember thinking at the time it was passed that Gramm-Leach-Bliley was on net good policy, because is was (1) necessary in order to allow New York to compete with London and (2) I thought people at places like Goldman Sachs (especially Goldman Sachs) were smart and competent and would protect their franchise.  I was, at the time, very impressed with Alan Greenspan and Robert Rubin.    I had no financial stake at all in any of these beliefs, other than the fact that I wanted my kids' college fund and my wife and my retirement fund to do well.

And by all indications, the economy was doing well.  Unemployment fell to historically low levels, the employment to adult population ratio hit its zenith, and low wage workers were seeing increases in income.  I even remember walking to work in Madison in 1999 or so, and thinking to myself, "could the economy get any better than it is?"  I am thus in no position at call to complain about others having the same view.  All this said, Ferguson was spot on when he called for economists to disclose financial interests that might in any way be related to their research.

But the problem, I think, is far more insidious.  For people who are both successful and reflective, there must often be an undercurrent of doubt as to whether the success is "deserved:" is it a product of virtue or of luck. The neoclassical paradigm allows successful people to feel good about themselves.  It is not much of a leap to infer from it the proposition that people in a neoclassical world can make their own choices, and that when they make "good"choices, they are rewarded, and when they make "bad" choices, they are not.  The number of important choices available to us are, however, limited.  I try to remember that I did not get to choose the country where I was born, I did not get to choose that I had loving, well-educated parents, I did not get to choose that I grew up in a safe community, and I did not get to choose that I have never been seriously ill.  The problem with economics, I think, is not the money people take from various countries and companies, but a broader lack of reflection on the circumstances that produce outcomes.

To me the most disturbing aspect of Inside Job is not the revelation of consulting relationships, but the fact that the economists interviewed by Ferguson seem not to have changed their view of the world even a little.      Feldstein's statement that he had "no regrets" about AIG was the ultimate expression of this.    


nick said...
This comment has been removed by the author.
Nick A. said...

I would have to agree that the lack of remorse is difficult to deduce. What is more disturbing is that not one of these vile, selfish, abashed when confronted men have been held legally accountable for the global economic collapse. I mean, we are all power and money hunger, but when does (if ever) the greed succumb to social well-being for these multimillionaires.

doc said...

Here are the 9 largest cities in Indiana (OK, so I'm obsessive; I live and work in Indiana). The 2010 estimate is based on the 2000 to 2009 estimates and assumes the same annual rate of growth between 2009 and 2010 as occurred between 2000 and 2009 in the estimates. The variance is the difference between the 2010 estimate and the 2010 Census:

2010 Estimate: 810,449
2010 Census: 829,718
Variance +2.4%

Fort Wayne:
2010 Estimate: 256,111
2010 Census: 253,691
Variance -0.9%

2010 Estimate: 121,582
2010 Census: 116,073
Variance: +4.7%

South Bend
2010 Estimate: 103,764
2010 Census: 101,168
Variance: -2.5%

2010 Estimate: 94,982
2010 Census: 80,294
Variance: -15.5%

2010 Estimate: 75,877
2010 Census: 80,830
Variance: +6.5%

2020 Estimate: 72,037
2010 Census: 80,405
Variance: +11.6%

2010 Estimate: 71,595
2010 Census: 79,191
Variance: +10.6%

2010 Estimate: 67,459
2010 Census: 70,085
Variance: 3.9%

Make of that what you will.