Dissident vs Mainstream Tension at New Economic Thinking Conference

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adair turner inet.jpg
(Lord Adair Turner, Chief, UK Financial Services Authority; photo credit: Institute for New Economics)
I’ve been spending a lot of time with a variety of economists — mainstream and dissident — at the Bretton Woods forum organized this week by the Institute for New Economic Thinking.
I think that the conference and discussion are first rate. The UK’s Financial Services Authority chief Lord Adair Turner gave a real tour de force last night (will post video soon) on the key economic questions that need to be rethought. The most important question he put on the table is whether economic growth is always good, particularly growth that doesn’t generate jobs, happiness or enhance quality of life.
INET founding sponsor George Soros commented to me that Turner is impressive because he keeps probing, keeps wrestling with the tough questions. Soros also said that if there is a John Maynard Keynes of our time, it is Adair Turner, and I’d agree.
But there is a constructive tension in this meeting. There are mainstreamers like former Treasury Secretary Lawrence Summers and former UK Prime Minister Gordon Brown who have been part of the system that created the conditions for the great financial meltdown — and yet many feel that they have not admitted their responsibility or given a full self-critique of themselves and their governments. In part, I think that this is true — though I felt that both the Summers and Gordon Brown presentations were important, revealing, and very valuable.
But after one panel session yesterday afternoon, University of Texas at Austin/LBJ School of Public Affairs economist James K. Galbraith broke through some of the feeling of officialdom here and asked “the fraud” question.
He said:
james k galbraith scc.jpg

I’m James Galbraith. I find it striking — even astonishing — that at this late date, after the publication of the Financial Crisis Inquiry Commission Report and many other studies, that we could have a session dealing with “supervision of large complex financial institutions” and that in an hour and a half of discussions, including the passionate interventions of two discussants [including Simon Johnson], the word “fraud” would not be mentioned even once.
My point bears especially on the Basel process, in that the toxic infection of German and Swiss banks, mentioned earlier, was by US assets rated AAA by entities known as Nationally Recognized Statistical Rating Organizations, yet these assets were overwhelmingly rooted in fraud. And capital buffers, however well-meaning, are worthless in the presence of pervasive accounting fraud, which was the case here.
My question is, how do you propose to deal with this fact?

Galbraith didn’t get a full-on answer, but it was an important question that got a lot of folks talking in the back halls. There is an important dissident vs. mainstream dynamic here that I think is a valuable part of what the Institute for New Economic Thinking is doing in trying to change the course of contemporary economic modeling, teaching, and thinking.
– Steve Clemons

Comments

20 comments on “Dissident vs Mainstream Tension at New Economic Thinking Conference

  1. Connie Fernandez says:

    Is this guy Olbermann’s long lost cousin?

    Reply

  2. DonS says:

    Talk about ‘dissident”, Steve will return to a Washington where the mayor and several council members have just been arrested by Capitol police for violating a permit while protesting Obamas sellout/use of Washington, DC as a pawn in his delusional budget ‘negotiations’.
    Via TPM
    http://www.nbcwashington.com/news/local/Mayor-Council-Members-Arrested-in-Budget-Protest-119634139.html
    I mean, they’re only women’s bodies after all. Right?

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  3. Linda says:

    “Of course the Democratic Party has been big spenders so Obama got a a lot of help. Now, as a result of their profligacy, their quality of life will decrease.” (Don B.)
    I don’t think the quality of life will decrease for most of the elected Democrats in Congress or in the Executive Branch (elected and political appointees)or most tenured economics profs at major research univerisities, or those who go to think tanks instead of universities.”
    They may not think of themselves as “wealthy.” but almost all of them are in the top income tax bracket–so their quality of life will improve while it will decrease for everybody else.

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  4. Linda says:

    Don,you ended by writing “Now, as a result of their profligacy, their quality of life will decrease.”
    One of the main problems is that THEIR quality of life will not decrease. Every member of Congress, the President, VP, and high level Executive Branch political appointee, as well as all full professors in major research universities, those who hang out in think tanks when their party is out of power—all those people earn in the top tax bracket.
    Everybody else’s quality of life will decrease, but theirs will not.

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  5. DakotabornKansan says:

    Why do The Tea Parties Matter?

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  6. DakotabornKansan says:

    Time to bring back Hoovernomics?
    Slashing government spending is good for economic growth! The fiscal stimulus package cost us jobs!
    So let

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  7. non-hater says:

    “It seems to me that QE2 was a flop” –Kervick
    It didn’t do much, but then again it wasn’t exactly a massive purchasing program. You are right that fiscal policy would be the best way to got about improving the economy and reducing unemployment. But fiscal policy is about to become a drag, so there really needs to be a QE3 and QE4 and on and on until inflation hits 4% or U-3 hits 6%.

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  8. erichwwk says:

    “Of course economic growth beyond a certain point is not good, whether or not it brings happiness or increases quality of life.”
    If one does not define “good” in terms of whether the quality of life is increased, how are we to define it?
    Determine what that “certain point” is?

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  9. erichwwk says:

    Of course economic growth beyond a certain point is not good, whether or not it brings happiness or increases quality of life.
    If one does not define “good” in terms of whether the quality of life is increased, how are we to define it?
    Determine what that “certain point” is?

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  10. DonS says:

    “Of course economic growth beyond a certain point is not good, whether or not it brings happiness or increases quality of life.” (Don B)
    It is interesting to note, though no doubt it would be disputed by many if not most Americans, that neither the standard of living nor the happiness quotient enjoyed by “the US” is definably the best. Or should we say it is the best because we define it as such?
    When governments and the private sector, especially in the US, get serious about addressing investment in sustainability, environmental quality and lifestyle products and activity promotion that is not just a straight line projection from our current profligate and destructive ways . . . then maybe we can have a discussion about the dynamics of economic growth. Until then it’s just wallowing in the M/I complex-corporate pig trough and Katy bar the door.
    Not just economists, politicians and businesspeople seem totally ill-equipped to face the magnitude of this challenge. No powerful force seems able to think in non-linear ways.

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  11. Don Bacon says:

    Of course economic growth beyond a certain point is not good, whether or not it brings happiness or increases quality of life.
    The world cannot sustain a standard living for a growing population comparable to that currently enjoyed by Americans, and even they are now self-correcting. In any case, economists should not be the ones deciding such things. They seem to have their hands full just understanding economics.
    As for the Tea party, is it a part of the self-correction currently underway in the U.S. It wasn’t Obama’s commission that brought it on, it was his profligate spending — increasing national debt 34% by doubling war spending, bailing out Wall Street, etc. Of course the Democratic Party has been big spenders so Obama got a a lot of help. Now, as a result of their profligacy, their quality of life will decrease.

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  12. Dan Kervick says:

    What do the folks in Bretton Woods think about the end of QE2? It seems to me that QE2 was a flop, and has demonstrated the impotence of monetary policy in a situation like the one we are facing. It seems to me the ball is back in the White House court, and only a return to fiscal activism can keep us out of a double dip and a “new normal” of extremely high and persisting unemployment.

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  13. erichwwk says:

    “The most important question he [Lord Turner] put on the table is whether economic growth is always good, particularly growth that doesn’t generate jobs, happiness or enhance quality of life. ”
    Steve, just the fact that a so called “expert” economist could phrase a question in this way should give you reason to pause.
    Does ANYONE other than these “so called expert” think that an activity (growth) that doesn’t enhance quality of life think is EVER (much less always”) good?
    Their was a time (I am thinking back to when Kenneth Boulding was president of the American Economic Association, when economics made sense to me, and I regarded it as an effective and meaningful discipline. At that time, whether or not an activity was “good” depended SOLELY on comparison of the STATE of things, whether the quality of life in state “a” was better than the quality of life in state “b”. Now the discussion is all about metrics that have no relationship to those things that matter, and economics for many has become a fools errand.
    Note: I left out “jobs” deliberately, so those that perceive states where people have more jobs (work more) without enhancing the state of well being, might more easily recognize how foolish it is to “create” jobs/ work if that effort does not enhance the quality of life.
    Erich Fromm, in his “Sane Society”, suggests that it is possible for societies, as well as individuals, to become insane.
    I am grateful that James Galbraith offers some slim hope for economists out of this insanity.
    While economists may not fully comprehend or wish to acknowledge their complicity, the rest of the world (and, unlike this group of “thinkers”, it includes people of color) is very well aware that this group is essentially hanging out with crooks.
    http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?print=true

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  14. questions says:

    I’d not term it “dissident vs. mainstream”. I’d probably use something like “idealist vs. look, this is the way the world is and we’re stuck with it” instead.
    I say this largely because every human enterprise has fraud as a feature, not as a bug. Where do your paperclips come from? Rubber bands? Do you really use your home office and computer SOLELY for business purposes? When you hired your cousin, was he really the best candidate? Do you really not discriminate? Does the winning bid always merit winning? Do scholarships never go to the families of trustees or relatives of the political elite?
    Now, most of this stuff is small potatoes compared to the WHOLE of the financial sector which is completely fraud-ridden.
    But every moment of fraud in the financial sector is merely one moment, one instance, one instantiation of fraud within a larger entity.
    As individual, the fraud is meaningless. It’s only in the aggregate that we’re all in trouble, and it’s only when the aggregate of the sector is TBTF that we’re in the proverbial creek without the proverbial utensil to provide the proverbial motive force.
    So what would it mean to discuss systemic fraud when the entire sector is pretty thoroughly incentivized to commit fraud (thar be game theory lurking here), and when the entire sector is still made up of individual actors?
    The regulatory construct we need to oversee the kind of money that flows through the financial industry, and the effects that such regulation might have on the flow of money might, and I say might quite carefully, be problematic.
    I don’t think the traditionalists love fraud, nor do I think they are unaware. These are some smart people, and they have been around.
    But, for example, when you crack down on rent-to own, or paycheck or tax refund places, you may end up restricting credit to low income people and you may end up empowering loan sharks and the concomitant bone setters and trauma surgeons.
    If we’re going to crack down on fraud in the financial sector, we need to know in advance what some of the likely reactions will be. Will we tighten the credit market even more? Will there be substitutes? If we no longer allow the financials the wondrous power of externalization and profiteering (great stuff that is!) how does the sector react and what do we who depend on the sector do?
    And, what really are the chances of doing away with the various levels of conflict of interest that Yves Smith is WONDERFUL at chronicling?
    Outraged, to be sure, we should be. But after outrage must come very carefully considered policy.
    What will Congress tolerate in the age of the Tea Party? What will Rupert Murdoch broadcast? What political party will get the money from the sector, and what policy/regulatory climate do we have then?
    Outraged and full of curses, stuck, and carefully trying to incentivize better behavior among people who are, after all, doing the moral equivalent of grabbing an extra doughnut and not putting a buck into the caddy.
    What gets normed in the world of huge money is the unkind moving of vast sums. What gets normed in the regular world is the extra photocopying — it’s tax time — where are you copying your forms?
    And why is the first Monday after Thanksgiving now a great internet shopping day? Because people use their work computers, their work time, and their work-provided high speed internet to gaze at presents, to submit credit card numbers, and to have stuff shipped home — private, non-work-related STUFF for people who don’t even work with them.
    We all commit fraud. Most of us don’t have billions with which to do it. We just take paper clips instead.

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  15. Linda says:

    There was a lot about this in “Inside Job” including how ecnomics professors don’t seem to think they have conflicts of interest when they consult for banks and financial institutions too big to fail–and BTW, even before earnings from that are also in the group of high income people who are getting tax cuts at the expense of everyone else.
    We have more people in jail at great expense to government than almost any other country—mostly minority men who with drug or theft convictions. The poor go to jail, don’t pass go or collect anything. The rich go to Park Avenue, the Hamptons, and Breton Woods!
    Charles Ferguson said it all in his Oscar acceptance speech.

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  16. DakotabornKansan says:

    Roger Ebert speaks for many of us when he asks,

    Reply

  17. Dan Kervick says:

    I’ve posted this here before, but I want to re-post the link to James Galbraith’s 2010 testimony before the Bowles-Simpson Deficit Reduction Commission, because it is just so profoundly excellent and on point:
    http://www.newdeal20.org/wp-content/uploads/2010/06/deficitcommissionrv.pdf
    Appointing that commission was perhaps the single, worst decision Barack Obama ever made. It turned his own administration into a captive of tea party rhetoric; set in motion a political current that is reversing and undermining everything that the administration actually did right in 2009; and established a set of dominant themes that are conveying to the public a deeply mistaken diagnosis and prognosis for our economy.

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  18. JohnH says:

    Thank goodness for Jamie Galbraith! It’s astounding how rampant the criminality has become in the highest levels of the financial system and military procurement processes. Also astounding is the eagerness of our “esteemed leadership” and their media organs to turn a blind eye to it all.
    I hope someone gets to pose the question of fraud and corruption point blank to “esteemed leaders” like Larry Summers and Gordon Brown.

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  19. DakotabornKansan says:

    Kudos to James Galbraith for bringing up the key role that financial fraud by elite bankers played in driving our economic crisis.
    William Black on how the financial fraudsters are beating the criminal justice system:
    http://www.newdeal20.org/2010/12/28/in-2011-watch-for-more-de-facto-decriminalization-of-elite-financial-fraud-31135/

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  20. brigid says:

    “cui bono” Who benefits? From the rules of economic governance, made by and for the people who perpetrate the fraud that brought down the capital markets. The ruling elites don’t even have enough enlightened self interest to know that fouling their own nest, and destroying the middle class that is their best and biggest market will in the end bring them down along with everyone else.

    Reply

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