Charles Ferguson has made a documentary that must be seen if you want to understand why the same people who let the housing bubble and the 2008 financial meltdown happen are still in charge. But if you can’t go out and see Inside Job right away (it opened in New York and Los Angeles Friday), read Ferguson’s article, “Larry Summers and the Subversion of Economics,” summarizing his case in the Chronicle of Higher Education.
The thesis of Ferguson’s film (a trailer is available here; a New York Times review is here) is simple, and astonishingly obvious: economics, as a profession, has been subverted by its proximity to power and money.
Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby.
Ferguson dwells most on the example of Larry Summers, the whiz-kid who went on to be Treasury Secretary, president of Harvard University, and then President Obama’s chief economic advisor. Summers has also made a fortune in the financial services industry, mainly as a hedge fund advisor.
But perhaps the most important example offered in Ferguson’s article is Martin Feldstein, another Harvard professor who for 30 years ran the prestigious National Bureau of Economic Research. The NBER is not a government agency, despite the name. But it’s the gateway to a high-level career in economics for bright young scholars. Feldstein used his position at the NBER to promote a menu of conservative economic policies, including cutting back and privatizing Social Security, deregulating the financial sector, and removing barriers to “free trade” that hinder corporate expansion. . . .
For decades, if you wanted to reach the pinnacles of the economics profession – top academic posts, Treasury Secretary, chair of the president’s Council of Economic Advisers – the surest route was to publish papers early and often with the NBER. But of course, Feldstein was merely pursuing what he considered to be the truth, right?
Feldstein [was] for 20 years on the boards of directors of both AIG, which paid him more than $6-million, and AIG Financial Products, whose derivatives deals destroyed the company. Feldstein has written several hundred papers, on many subjects; none of them address the dangers of unregulated financial derivatives or financial-industry compensation.
Summers was a Clinton and Obama counselor. Other examples Ferguson offers taint the Bush administration.
Glenn Hubbard, chairman of the Council of Economic Advisers in the first George W. Bush administration, [is] dean of Columbia Business School, adviser to many financial firms, on the board of Metropolitan Life ($250,000 per year), and formerly on the board of Capmark, a major commercial mortgage lender, from which he resigned shortly before its bankruptcy, in 2009. In 2004, Hubbard wrote a paper with William C. Dudley, then chief economist of Goldman Sachs, praising securitization and derivatives as improving the stability of both financial markets and the wider economy.
The top ranks of the economics profession are a rarefied and exclusive world. The people who make it there are bright if not brilliant. But they also display a knack for bolstering rather than questioning the conventional wisdom. This is why equally accomplished academics like Paul Krugman and Peter Diamond don’t get the politically powerful jobs – or, in Diamond’s case (he’s now waiting to be confirmed as a governor of the Federal Reserve) have to wait decades for such recognition. This is one of the reasons that bad ideas like phasing out social insurance systems like Social Security and Medicare keep coming back, year after year: because there are always plenty of prestigious economists who are ready to chime in with research that presses the interests of the people who provide their pocket money.
Money, then, is one of the main reasons that the thinking of the people at the top of the profession is so uniform, despite party differences. It’s safe to say that the misbegotten bailout that Ben Bernanke, Tim Geithner, and Hank Paulson engineered in the fall of 2008 would have taken essentially the same form whether the administration at the time had been Republican or Democrat.
It’s clear, too, why none of the people who got us where we are today – Summers, Geithner, Bernanke, to name a few – have been punished for their actions, either legally or in the context of their career paths. Instead, they’ve been rewarded. (I doubt even Alan Greenspan has seen much diminution of his speaker fees he collects on the rubber chicken circuit.) At the time Bernanke was reconfirmed as Fed chair and Geithner was confirmed as Treasury secretary, the mantra in the corporate media was that these actions of the Obama White House would reassure the financial markets that the new administration would do nothing “disruptive.”
This is always the case: No one who doesn’t accept the conventional wisdom need apply. And the surest way to a successful economics career is still to ingratiate oneself with the NBER.
My only quibble with Ferguson’s presentation is his chronology.
Over the past 30 years, the economics profession—in economics departments, and in business, public policy, and law schools—has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy.
Actually, it didn’t start in the 1980s. It started as far back as the late 19th century, when the Robber Barons endowed what are now the leading business schools and economics departments and stocked them with economists who hugged the neoclassical (as it was then known) line. The poster boy back then was John Bates Clark, for whom a prestigious medal is now named. Larry Summers’ name first made it onto the map when he won the J.B. Clark medal early in his career.
So the confluence of top-tier economics and money goes back much further than Summers. For instance, one of the original academic boosters of neoclassical economics was Earl Rolph, who earned his Ph.D. at Cornell University (founded by Ezra Cornell of the Western Union fortune), then ran the economics department at the University of California, Berkeley, for many years. There, he trained George Break, who in turn taught Michael Boskin. Boskin was George H.W. Bush’s chair of the Council of Economic Advisers and later, under Bill Clinton, headed a commission that attempted to revise the Consumer Price Index for the transparent reason of slowing the growth of Social Security benefits.
For a detailed account of this evolution, see Mason Gaffney, “Neoclassical Economics as a Stratagem against Henry George,” in Mason Gaffney and Fred Harrison, eds., The Corruption of Economics (London: Shepheard-Walwyn (Publishers) Ltd, 1994). But the essential point is made in Inside Job. Like the rich in the famous exchange between Ernest Hemingway and Mary Colum, bigfoot economists are different from us in this way: they have more money.
[Eric Laursen is an independent journalist who’s been covering political and financial news for more than a quarter-century. He's been studying and writing about Social Security for more than 15 years, and recently completed a history of the Social Security debate, The People’s Pension: The War Against Social Security from Reagan to Obama. You can find Eric at his blog, The People's Pension, and follow him on Twitter.]



29 Comments




am very much looking forward to seeing this, thank you for this report.
thank you for the recommendation, will definitely look for this flick, it would be nice if we could get this a must see flick, let’s hope this thread goes to the main page3
Cannot wait for this.
Thanks for the report. I rarely go to movies, but I may have to go see this one.
Karl Denninger has been just hammering this topic lately. He explains this mess in clear and easy (even for me) to understand manner:
http://market-ticker.org/
My take – it is absolutely imperative that we get rid of the failed Wall St and TBTF banks. Until we do that – we cannot control our government, and we will not have an economic recovery.
Agreed..the congress recognized that TBTF is a problem and so after the crash the big banks got even bigger.
I’m getting an error on the vid, don’t know if it’s the same one but a trailer is available here.
Yes, that trailer is the same one.
Try clearing your caches if you want inline youtube video to play.
/~~~
Adding insult to injury, the TBTF banks have doubled down with their 100% fraudulent effort to foreclose on millions of mortgages with forged and fraudulent loan and security documents.
Could this bomb crash the world economy?
It damn well might.
Larry Summers was part of the wrecking crew we sent to dismantle and sell off the Ex-Soviet Union in the early 90′s. He’s since been hired to do the same to the American Gov’t from inside twice. The 1st time was as Billy Clinton’s Treasury Sect. and he was behind the deregulation effort that gave us today’s world-wide economic disaster or as he sees it World wide buying opportunity for the ultra Rich. When Obama picked him for his present position and his flunky butt boy Timmy Geitner everyone knew we were royally fucked. Summers doesn’t give a flying f*ck about the “little people.”
just discovered Denninger this week via Dylan Ratigan
am working on a diary :D
Given:
IF you make an argument AND use 5 or more symbols from 2nd year high school Algebra,
THEN over 90% of the population will tune out / be lost / quit.
Isn’t the most rational use of your “Brilliance” to justify the rich pigs at the top being richer pigs and being on top?
Economics is just like Psychology in that both areas of study come up with good insights, AND, both then employ lots of people building sand castles and houses of cards and mountains of bullshit.
rmm.
(Math B.A.)
Welcome Mr Laursen
a concept not lost on these firedogs – we had a Book Salon guest: Dr David Michaels who had written a book Doubt Is Their Product – about scientists being employed by Corporations in much the same way as Ferguson’s economists- Dr Michaels eventually resurfaced as an EPA spokesperson at the outset of the BP catastrophe – apparently co opted enough to deny the need for respirators and other safety equipment for clean up workers
WRONG!
Without “little people”, who is gonna lick his boots, and kiss his ass, and be his doormat, and wash his clothes, and cook his meals, and raise his kids, and … be his serfs?
In the 80′s I was fine dining cook in Boston. While I’ve always known that those running the repukes were fascists … since I was 12 in ’72? … with elitist scum “friends” like summers, who needs enemies?
rmm.
Homeless street people have doubled. The comfy places to camp out are taken. Groups are forming to protect those safer territories where they have saftey, cover and the cops don’t roust them. The under educated are now joined by college educated with no job or daylight at the end of the tunnel. It is getting much worse CA just cut the safety net by a billion dollars.
The rich get richer and the poor get poorer, They own congress, the WH and K street as well as the media. They have created a permanent under class and the middle class has to live with a jobless recovery. Employers can pick and chose and make bid demands on employees. Hope and change is slavery.
Scarecrow is upstairs!
Wish We Had Something to Vote For
Maybe, u misunderstood what I said, Summers and his kind don’t give a shit about all of us just as long as there are lots of us he can use cheaply. Were the disposable people or as the ex- Colonel I used to work for at Big Corp. Inc. called us the “worker bees.” He cares nothing for our misery in fact the more miserable the better because we’ll work for next to nothing.
No, courtliness (favoring the policy or party of the court) is the word that matches your definition. Brilliance involves the making of significant contributions that have a positive impact on the lives of others.
By my definition, economists can never be considered brilliant people. They are courtiers.
Speaking of inside jobs…
Just saying.
My surmise is that Obama initially brought some of these folk into his administration in 2008 because he is following a bit of Lyndon Johnson’s rule of thumb, Better to have them on the inside of the tent pissing out, than outside pissing in.
Sometimes it is better to flatter the ego’s of the Clinton era a little with a little reprise of their glory days, and then just get the real new staff and all in order, so once organized, you can move in a different direction. Know it doesn’t please to look at it this way, but we need to comprehend how complex it all is.
I agree with Seaglass — Summers doesn’t give a fig. Never really did.
That book, Wrecking Crew of a couple years back, shows the scam that was being pulled. If you read Thomas Frank’s work you had another picture, How could people be persuaded to vote against, indeed sin against, their own best economic and social interests. Understanding it all is about understanding the Maddness of Crowds. We have had it in front of us for years — we just don’t focus on how to deliver the message outside this circle.
America’s Fiscal Choices: Strengthening the Economy and Building for the Future
Jan Hatzius, Goldman Sachs; Paul Krugman, New York Times; Martin Feldstein, Harvard. Moderated by Jackie Calmes, New York Times
Two Friedmaniacs and one Keynesian. Typical.
Can’t argue with that but Obama didn’t bother to put a leash on ‘em. They’ve wreaked havoc as a result.
David Dayen is upstairs!
PA-Sen: Joe Sestak Goes for the Jugular Against Pat Toomey
Thanks for the enlightening & good blog Eric.
Seaglass, thanks for a good summary. We need to save Social Security ( A first time in the humanity concept and a smart solution to fix future non-recurrence of Great Depression with peoples savings itself by FDR) and bring back Glass Steagall Act another byproduct of Great Depression to prevent Great Recessions by FDR as soon as possible.
The time honored model is the same. The real value of a conflict is in the debt that it creates. If you control the debt, you control everything.
I was being sarcastic. :)
summers and his ivy scum friends don’t give a fuck about us.
rmm.
Can’t we just(ly) demand ones who cherish Jobs and COUNTRY?!
they wreaked exactly what they were hired to wreak, simple as that. As Matt Taibbi says, Wall Street has more influence when Democrats are in power.
Voting (D) just makes you little foot-soldiers for Goldman-Sachs.
I don’t think many people understand what Larry&friends did to Russia in the 1990′s.
These “top tier” economists simply go along with economic conventional wisdom because that of course will continue to further the interests of the already powerful. They are not bright or brilliant, but they are cunning enough to secure their own interests. They don’t deserve credit for brilliance.
Paul Krugman is brilliant and has integrity as well. So of course he wouldn’t have an opportunity for a politically powerful position.