As Adam Smith famously said, "It is not from the self-interest of the macroeconomist, the professor, or the central banker that we expect our economic policies, but from their benevolence."
But one economist once disagreed. It's informative to learn how economists as a whole responded to this insinuation at their national convention.
As I mentioned yesterday, an even more highly credentialed economist than Stanley Fischer, the Bates- and "Nobel"-winner Joseph Stiglitz, pointed out in 2002 that Fischer was richly rewarded by Citigroup immediately after spending seven years at the International Monetary Fund doing things Citigroup generally approved of.
(By the way, you can read the entire contract Fischer signed in 2001 with Robert Rubin and Sandy Weill here. There is no Smoking Gun, but it's just interesting to see the actual text of an incentive agreement among the Big Boys.)
"Incentives matter" and all that, right?
Not to economists, apparently. I found this old Brad DeLong post from 2003 that documents just how much economists hate the idea that anybody should ever imply that they might be self-interested:
Okay, but Brutus and his friends who now ruled Rome had just stabbed Marc Antony's boss Julius Caesar to death. Marc Antony was trying to incite the crowd to avenge this murder while maintain plausible deniability to save his own skin in case it didn't work. Maybe America's economists would have thought it more seemly if nobody had ever mentioned the assassination again?
Because Stiglitz wasn't addressing a bunch of nobodies, he was talking to the professional equivalent of the Roman senators.
Seriously, the economists of America decided to interpret Stiglitz's point in the most obtuse, literal-minded fashion imaginable.
Of course Fischer didn't have a formal quid-pro-quo with Citigroup while he was at the IMF. But, surely, someone as astute as Fischer understood the incentive structure he faced in his post-IMF employment search? Did this have the slightest, perhaps unconscious influence upon his decision-making? No doubt he was totally sincere in his beliefs that doing the kinds of things that Citigroup approved of was in the best interests of ... well, of whomever it is that Fischer sees himself as part of. But, as Upton Sinclair might have said, "It is difficult to get a man to understand something, when his [future] salary depends on his not understanding it."
Now, let me reiterate that by all the accounts of other economists (except for Stiglitz) and of source-greasing journalists (except Grant F. Smith), Stanley Fischer is the kindest, bravest, warmest, most wonderful human being they've ever known in their lives. Sure, this whole Israeli government to American government transfer might strike yokels as a little dubious, but we're talking about Stanley Fischer here, not some mere mortal. The rules don't apply to people of the quality of Stanley Fischer.
Of course, once the Fischer Precedent is on the books, then it will be used to justify ... well, who knows what? But I'm sure we'll find out.
But one economist once disagreed. It's informative to learn how economists as a whole responded to this insinuation at their national convention.
As I mentioned yesterday, an even more highly credentialed economist than Stanley Fischer, the Bates- and "Nobel"-winner Joseph Stiglitz, pointed out in 2002 that Fischer was richly rewarded by Citigroup immediately after spending seven years at the International Monetary Fund doing things Citigroup generally approved of.
(By the way, you can read the entire contract Fischer signed in 2001 with Robert Rubin and Sandy Weill here. There is no Smoking Gun, but it's just interesting to see the actual text of an incentive agreement among the Big Boys.)
"Incentives matter" and all that, right?
Not to economists, apparently. I found this old Brad DeLong post from 2003 that documents just how much economists hate the idea that anybody should ever imply that they might be self-interested:
January 13, 2003
Joe Stiglitz is Losing His Argument
Two of the things I learned at the American Economic Association meeting was that Joe Stiglitz is losing his argument over the desirability of international capital mobility, and why he is losing his argument.
Now I think that Joe should lose the argument. ... But I will not deny that Joe has a strong case: financial panics, financial crises, irrational booms, irrational busts--economic catastrophe threatens the unskillful and the simply unlucky as they try to dance to the tune played by the far-from-rational financiers of New York and London.
However, as I said, Joe is losing the argument. He is not losing the argument because rational debate shows that his is the worse cause (although I think that rational debate is likely to reach that conclusion). He is losing the argument because of something he wrote about former MIT Professor, then Principal Deputy Managing Director of the IMF, and current President of Citicorp (Group?) International Stanley Fischer:
Moreover, the IMF's behavior should come as no surprise: it approached the problems from the perspectives and ideology of the financial community, and these naturally were closely (though not perfectly) aligned with its interests. As we have noted before, many of its key personnel came from the financial community, and many of its key personnel, having served these interests well, left to well-paying jobs in the financial community. Stan Fischer, the deputy managing director who played such a role in the episodes described in this book, went directly from the IMF to become a vice chairman at Citigroup, the vast financial firm that includes Citibank. A chairman of Citigroup (chairman of the Executive Committee) was Robert Rubin, who, as secretary of [the] Treasury, had had a central role in IMF policies. One could only ask, Was Fischer being richly rewarded for having faithfully executed what he was told to do? (pp. 207-208 of Globalization and Its Discontents)
It is the sentence that I have highlighted in bold that was Stiglitz's complete and total disaster. I have met nobody who knows Stanley Fischer who believes that the answer to Stiglitz's question is, "Yes." Everybody I have met who knows Stanley Fischer sees Stiglitz's question as a knowingly-false and malevolently-intended act of slander. The implication that Fischer was rewarded for slanting IMF policy in a pro-Citigroup direction in return for a future fat private-sector paycheck is universally rejected as totally false.
And as a result, every day at the AEA, it seemed that there were at least 300 friends of Stanley Fischer who woke up in the morning thinking, "I have to defend Stan against Joe." And they did so, quite effectively.
Indeed, it is hard to know whether Stiglitz himself regards his question as anything more than an attempt at character assassination. For in the very next paragraph he explains that IMF policy is completely explained by other factors--that there is no need or room to resort to the personal venality of high IMF officials to understand why it did what it did:
But one does not need to look for venality. The IMF... believed that capital market liberalization would lead to faster growth for the developing countries, believed it so strongly that it... gave little credence to any evidence that suggested otherwise.
In the two paragraphs I have quoted from Globalization and Its Discontents, Stiglitz engaged in the same rhetorical strategy that Mark Antony engages in in his "Friends, Romans, Countrymen" speech in Shakespeare's Julius Caesar. You raise a question ("Brutus hath said that Caesar was ambitious... [but] ambition should be made of sterner stuff" or "Was Fischer being richly rewarded for having faithfully executed what he was told to do?"). You then assert that the answer to the question is "No." ("Brutus is an honorable man" or "one does not need to look for venality"). But the possibility that the answer to the question is really "Yes" (or that the question is open) remains in the listeners' and readers' minds.
Okay, but Brutus and his friends who now ruled Rome had just stabbed Marc Antony's boss Julius Caesar to death. Marc Antony was trying to incite the crowd to avenge this murder while maintain plausible deniability to save his own skin in case it didn't work. Maybe America's economists would have thought it more seemly if nobody had ever mentioned the assassination again?
In this case, however, Stiglitz's rhetorical strategy has backfired disastrously.
Because Stiglitz wasn't addressing a bunch of nobodies, he was talking to the professional equivalent of the Roman senators.
This leaves me with mixed feelings. I think that the side of the debate that ought to win has won. I am too old and cynical to believe that the force of intellectual argument in some approximation to an ideal speech situation invariably carries the day.
But this is really not how my particular branch of the human race's Long-Term Planning Group is supposed to work...
Seriously, the economists of America decided to interpret Stiglitz's point in the most obtuse, literal-minded fashion imaginable.
Of course Fischer didn't have a formal quid-pro-quo with Citigroup while he was at the IMF. But, surely, someone as astute as Fischer understood the incentive structure he faced in his post-IMF employment search? Did this have the slightest, perhaps unconscious influence upon his decision-making? No doubt he was totally sincere in his beliefs that doing the kinds of things that Citigroup approved of was in the best interests of ... well, of whomever it is that Fischer sees himself as part of. But, as Upton Sinclair might have said, "It is difficult to get a man to understand something, when his [future] salary depends on his not understanding it."
Now, let me reiterate that by all the accounts of other economists (except for Stiglitz) and of source-greasing journalists (except Grant F. Smith), Stanley Fischer is the kindest, bravest, warmest, most wonderful human being they've ever known in their lives. Sure, this whole Israeli government to American government transfer might strike yokels as a little dubious, but we're talking about Stanley Fischer here, not some mere mortal. The rules don't apply to people of the quality of Stanley Fischer.
Of course, once the Fischer Precedent is on the books, then it will be used to justify ... well, who knows what? But I'm sure we'll find out.