What Just Happened?

The emergency continues, a little less desperate than before. A remedy that works – direct government investment in threatened institutions in exchange for equity – seems to have been settled on in most industrial democracies.


A number of mysteries remain.  For instance:


How deep has been the opposition between the Federal Reserve Board and the US Treasury Department these last fifteen months? Fed chairman Ben Bernanke and Treasury Secretary Henry Paulson have presented a generally united front. But what goes on behind the scenes? What of their staffs? The sheer opacity of Paulson’s initial plan to buy and hold troubled securities, and the clumsiness with which it was presented, has yet to be explained. What was the process by which it was developed and internally reviewed?


And where did the ultimately successful plan come from, anyway?  Ten days ago it appeared that it was UK Prime Minister Gordon Brown’s idea (doubtless crafted for him by Bank of England Governor Mervyn King). True enough, Brown boldly and confidently tackled his banking crisis at its root. A cartoon in the Financial Times depicted leaders of other industrial nations following him along in a cheerful dance. There followed the standard paeans to John Maynard Keyes.


But the basic blueprints Brown adopted had been drawn up in Stockholm in late 1992, when central bankers in Sweden, Norway and Finland moved swiftly to rescue their big banks after the collapse of a property bubble. The rescue succeeded, though its aftermath lingered on for four years.


What were the channels through which Swedish influence flowed to London and Washington? This is an especially interesting question because of the experience of the early 1930s, when Gustav Cassel argued without success that overly restrictive American monetary policy was making matters worse, and Gunnar Myrdal devised budgetary policies implemented by the new Social Democratic government in 1933 that spared Sweden the worst of the Great Depression.


In other words, economists of the Stockholm School implemented successful macroeconomic policies several years before John Maynard Keynes published his General Theory of Employment, Interest and Money, even if they were unable to make the case for what they were doing to the wider world. The Swedes have taken economics very seriously ever since. Would they sit on their hands at a time when the world was threatened with another serious depression? What overtures would they make instead?


Closer to home, who can – plausibly – be said to be responsible for a mess made mainly on Wall Street?  Congress made Allen Greenspan kiss the knout last week, admitting that “I made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such that they were best capable of protecting their own shareholders.” So much for the ritual opening ceremonies. Congressional hearings will gather steam after the 111th Congress convenes in January – even if House Speaker Nancy Pelosi succeeds in persuading chairmen of the many committees with some claim to oversight to combine their investigations in a single select committee.


Many questions can be answered by standard news reporting. An avalanche of books will begin to tumble out next year from journalists who have covered the story. In December, Norton will publish Paul Krugman’s Depression Economics and the Crisis of 2008, a greatly expanded and revised edition of his 1999 The Return to Depression Economics. Many other economists will follow in his train. Then will come the historians.


One important modality is still missing – a bi-partisan national commission, with blue-ribbon leadership and a professional staff, on the model of the Brady Commission, which studied the 1987 market crash, or the 9/11 Commission. Fact-finding bodies like these, which combine low-key political authority and professional expertise, have performed important roles in the past, fashioning consensus where it might not otherwise develop, justifying American ways in the court of world opinion, permitting political conversation to move on.


Who would appoint such a commission? The next president, presumably. What might be its mandate? Here’s one way of framing the question: the frontier along which the most significant changes in US institutions have occurred during the past sixty years has been the extensive borderlands of law and economics. A kind of boundary commission, charged with surveying the  broad outlines of this territory and its history and making certain recommendations about its borders, might be suitably led by a pair of distinguished professors considered to be somehow miraculously above the fray, one of law and the other of economics.


Among economists, one possibility would be A. Michael Spence, former dean of the Stanford Business School (and a Nobel laureate in economics), who recently chaired a commission on global growth for the World Bank. A legal scholar of similar stature is former president of Stanford Gerhard Casper. Unbalanced towards Palo Alto, you say?  It’s just an example.  Besides, geography is not the point. What is most urgently needed now is repair – of institutions, of reputation, of consensus. A national commission could be an indispensable part of the process.




The month marks the silver anniversary of Economic Principals. EP started out in 1983 as a newspaper column for The Boston Globe, but for a quarter of these twenty-five years, it has appeared online – an independent weekly.


From the beginning, the idea was to provide beat coverage of technical economics – mainly university economics, since that’s where most of the serious ideas came from, but from various related discourses that compete for attention as well. In the beginning, I thought the pun might be useful.  The editor wanted to call it “Brief Lives.” The first few pieces set the tone:  economist Frank Fisher, sociologist Rosabeth Moss Kanter, informational graphics guru Edward Tufte, software provocateur Esther Dyson among them.


Twice a week would have been too rich a diet of economics for most newspaper readers, so, after a year, a second column added to serve as a kind of a counterbalance, was a mix of local and political topics. The column was successful in Boston, ran for some years in The Washington Post and the Chicago Tribune, and won a Loeb award. At the ten-year mark, The Free Press published a collection, Economic Principals:  Masters and Mavericks of Modern Economics. But when The New York Times Co., which had bought the Globe in 1993, took full control in 2001, the column was discontinued.


It was the second time I had been shut down. The first time was at Forbes.  Each time the editor had his reasons. But after eighteen years of covering economics, it didn’t make sense to retool – to return to magazine writing, for example. Besides, I was working on several good stories and a book.  So I quit the Globe and seven weeks later resumed doing the column on the Web.


Inevitably, I feel a certain tenderness for those first few online columns. Among others, they limned John McDonald, the legendary business journalist who discovered John von Neumann for Fortune magazine and ghosted My Life With General Motors for Alfred Sloan; Michael Dawson, of the University of Chicago, whose book Black Visions: The Roots of Contemporary African-American Political Ideologies was much the best thing on the subject on those pre-Barack Obama years; William Baumol, of New York University, an especially well-respected but relatively little-known member of economics’ “greatest generation” who was just then embarking on a new career as a student of entrepreneurial economics; and Yale economist Jean (Jenny) Lanjouw, whose scheme to encourage differential pricing of pharmaceutical products in global markets to aid poorer nations had stirred wide interest.  When she died unexpectedly in 2005, at 43, it was another of those weeks when EP was stretched too thin to note her passing.


In those days I thought another newspaper might pick up EP.  Before long it became apparent that the entire industry was about to go over a waterfall. Moreover, EP’s appearance coincided with the rise of the blogosphere, a spectacular new medium that in a few short years has become as powerful in its way as radio and television are in theirs, and every bit as competitive for mindshare. (I’m tired of explaining why EP is not a blog – only once a week, not interactive, etc.) So I battened down and looked for alternative means to keep the column going.  For a time, I tried a foundation, but discovered that foundations really can’t do news. If it was to continue, the weekly would have to stand on its own.


I have, I think, learned how to make it work. With its public broadcasting-like format on the Web – supported, that is, by a relatively small number of subscribers, who receive an early email “bulldog” edition – it now generates around $8,000 a year.  That’s not much; but along with income from books and talks, it’s enough to continue indefinitely, as long as renewals hold up and the base continues to grow. There’s no way to be comprehensive, or to compete with newspapers and magazines at what they do best, but EP still manages to maintain a baseline of coverage. (What’s really needed is some sort of a modest annual grant for a travel budget.)


EP’s readership grew 70 percent this year, to more than 22,000 unique sites this month (some of them with many readers) in 115 countries around the world. It benefits from the services of not one but two top-notch copy editors, before and after the bulldog moves. If there are similar successful migrations from newspapers to the web, I don’t know about them. (Robert Hodierne, of the University of Richmond, has begun a census.)


Everyone knows that the newspaper business is shrinking, but the implications haven’t been sufficiently examined. To cope, papers have been eliminating beats, outsourcing coverage, and, in EP’s field, relying increasingly on economists to write rotating columns. Websites such as VoxEU, The Economists’ Voice and Project Syndicate have sprung up to showcase short op-ed-like articles. Economists’ blogs, too, have emerged as important sources of commentary and news (and Economics Roundtable to keep track of them). I love economists’ columns and blogs, but not enough attention has been paid to the fundamental differences between them and news.


Economics is a profession; news is a trade. That is to say, economists go to school to learn their business. Those who teach in universities are hired by other economists. They depend only on each other’s good opinion for advancement, and, except for extraordinary cases, on the opinion of almost no one outside their field. Apart from a rigorous and jealously regarded system of anonymous refereeing and peer review, they recognize and obey an imperative not to speak ill of another member of the guild. Economists work for one another, as do molecular biologists, doctors, lawyers and all other professionals.


Editors and reporters, on the other hand, are said to work “for the reader.” (One editor I knew used to take newly-hired reporters to lunch after six months to ask them “who’s your boss?,” persisting until he got the answer he wanted.) Newsfolk learn mostly on the job; academic attainment ordinarily plays no part in their evaluation once they have begun. Top editors are hired and sometimes fired by publishers, reporters by editors. They all have “bosses,” and about their bosses’ decisions, those in the newsroom have much to say but little to do. Publishers worry (a lot) about advertisers, and seek to keep reporters and advertisers out of each others’ way.


Conflicting loyalties can lead to very different outcomes.


A case in point is the story of Harvard University’s Russia scandal of the 1990s. No column I ever wrote cost more than “The Thing’s a Mess,” the first installment, in 2002, of many columns over the last six years about the collapse in 1997 amid charges of corruption of Harvard University’s USAID-sponsored mission to advise the government of Boris Yeltsin. I knew I was damaging several longstanding relationships with economists whom I admired by calling attention to the details of the US Justice Department’s ultimately successful attempt to recover damages in Boston’s Federal District Court.


Since then I have gotten used to it, and in more than twenty pieces, I have given a pretty good account of how Harvard professor Andrei Shleifer was found to be investing in Russia, along with his wife, deputy, and deputy’s family, in violation of his contractual obligation to provide disinterested advice, and how his close friend and mentor Lawrence Summers sought unsuccessfully to distance himself from the lawsuit, but not from Shleifer, first as Treasury Secretary and then as president of Harvard, as the matter plowed on to its ignominious conclusion. The episode was widely covered in Russia, and became part of the rich lore of Russian resentment of US policy in the aftermath of the Cold War.


But you would never have a clue that any of this had happened from three of the most widely-read economists’ blogs, the Freakonomics site, J. Bradford Delong’s Semi-Daily Journal, or N. Gregory Mankiw’s blog. Why?  Because they are economists, and not committed to “without fear or favor” news, though they deliver plenty of interesting tidbits over the course of a week. Besides, Shleifer is on the board of directors of the Becker Center on Chicago Price Theory, where Freakonomics’ Steven Levitt teaches. DeLong, who worked under Summers at the Treasury Department, has been Shleifer’s friend since the two were college roommates. Mankiw regularly touts his colleague for a Nobel Prize.


But neither would you have known much about it from coverage in The New York Times, at least not until the bitter end; or from the Washington Post (except for a column by David Ignatius in 1999); and just barely from the Financial Times, where Summers now a star columnist; or, for that matter, would you have learned of it from Paul Krugman’s twice-weekly columns in the Times. Why the lack of interest in what was, after all, a pretty interesting story? Perhaps because newspapers are run at least partly for the benefit of their sources; editors are reluctant to bite the hand that feeds. (In contrast, The Wall Street Journal, which broke story, did an excellent job.)


The point is that EP operates in the interstices between the blogosphere and print journalism, and neither of these well-developed communities is predisposed to give it much notice. Indeed, when Institutional Investor devoted 25,000 words to the Harvard Russia story in 2006, EP wasn’t mentioned, though the weekly had reported some of its significant details first. That is not to say that EP lacks friends and allies in each community:  Mark Thoma, of the widely-read Economist’s View, frequently links it; so does William Parke’s influential Economics Roundtable; Martin Wolf of the FT recommends it as one among a dozen sites on his forum; so do Levitt and Stephen Dubner at Freakonomics. But working almost entirely for its readers, EP clearly needs to find ways to raise its profile in order to attract more of them.


An altogether happier story is that of the book that was interrupted when I left the Globe, which finally appeared in 2006 as Knowledge and the Wealth of Nations: A Story of Economic Discovery. It, too, is a story not told elsewhere, whose relevance is attested by the focus of this year’s Nobel Prize. But it did well enough, thanks to its editor, Drake McFeely; and to three persons to whom it chiefly owes its favorable reception: Krugman, of the Times; the late John McMillan, of Stanford University; and an anonymous reviewer for The Economist.

So, at twenty five, EP is okay, about to begin its next twenty-five years