Team of Allies

Whatever hope Wall Street had of getting the Treasury Secretary it wanted – former Sen. Bill Bradley – ended with the fiscal cliff negotiations.

Once the Administration concluded there was no chance of accommodation with Congressional Republicans over the next two years, Jack Lew’s nomination to succeed Tim Geithner was assured.  A team of allies will replace the team of rivals.

That doesn’t mean tax bill negotiations are necessarily at a standstill. Tax experts, including some in the Treasury, will continue to confer, as they have since the days of Richard Nixon, on measures to streamline the tax code and supply the federal government with sufficient revenue to pay its bills.

Eventually, these will probably take the form of some taxation of consumption (including, especially, carbon). For details, follow Bruce Bartlett.

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Nobel laureate James M.  Buchanan, the author of  “Better than Plowing,” and other essays about his life as an economist, died last week, at 93. He was, as he sometimes said, an old-fashioned Tennessee populist, but he learned teamwork as a junior officer on the staff of Admiral Chester Nimitz during World War II.

After the war, Buchanan studied with Frank Knight at the University of Chicago.  At the University of Virginia, he founded, with Gordon Tullock, a skeptic’s view of public finance known as public choice (for a time they called their angle of vision “non-market economics”).  A conservative Camelot had assembled in Charlottesville during those years, one that included Ronald Coase, Leland Yeager, Alexandre Kafka, William Breit and G. Warren Nutter, an adviser to presidential candidate Barry Goldwater.

When the Virginia administration declined to defend the department against faculty criticism and raiders’ offers, Buchanan and Tullock moved in 1969 to Virginia Polytechnic Institute, in Blacksburg, at the far western end of the state.  Throughout the 1970s their influence steadily grew. When George Mason University, in Fairfax, Virginia, beckoned in 1983 (originally a satellite campus, it had hived off from the University of Virginia ten years before), Buchanan shifted his flag to suburban Washington, D.C. He continued to live in Blacksburg.

In 1986, Buchanan was awarded the Nobel Prize for economics.  Three very different men might have shared it with him. Until the morning of the final vote, Tullock expected to be named. Janos Kornai, a Hungarian economist who, somewhat symmetrically, pioneered the analysis of government failures under communism, had hoped to be cited.  And Richard Musgrave, of Harvard University (emeritus), who brought public finance into the modern era in the ’50s and ’60s, might have been honored with Buchanan. That Musgrave should have been included is probably the consensus view today.

In 1998, an epic five-day exchange of views between Buchanan and Musgrave at  the University of Munich produced Public Finance and Public Choice:  Two Contrasting Visions of the State — an outstanding example, according to Daniel Kahneman, of “adversarial collaboration,”. Behavioral economics may eventually narrow the gap somewhat between romance and realism in citizenship. In the meantime, that volume remains an especially illuminating study of the tension between individual liberty and communal values.

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The American Economic Association meetings in San Diego last week were organized by President-elect Claudia Goldin, of Harvard University. To deliver the plenary Richard Ely lecture, she chose Edward Glaeser, her Harvard colleague, author of Triumph of the City:  How Our Greatest Invention Made Us Richer, Smarter, Greener, Healthier and Happier . He didn’t disappoint.

Talking at times faster than an announcer reading the warning label in a pharmaceutical commercial, Glaeser described three historic waves of land speculation in the US since its founding.  He concluded that the episode of the 1990s and early ’00s was a fundamentally different phenomenon. “A Nation of Gamblers: Real Estate Bubbles and America’s Urban History.”  More about that when his lecture is ready for print.

The tenor of the meetings is always hard to characterize.  It varies with the interests of the organizer and ebb and flow of global events. The financial crisis of 2007-08 remained the subject of the most interesting sessions.

Janet Yellen, vice chair of the Federal Reserve Board (and a leading candidate to replace Ben Bernanke as chair when he is likely to step down in 2014 after eight years) gave a luncheon address, Interconnectedness and Systemic Risk: Lessons from the Financial Crisis and Policy Implications, describing a wide array of precautions that regulators are putting into place in anticipation of the next bout of over-exuberance.

The Fed, she noted, would mark its centenary in December.  You can expect to hear lots more about the central bank in the coming year.

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