Bailout

Tyson and Hubbard, blithe technocrats

By Felix Salmon

Chrystia Freeland interviewed Laura Tyson and Glenn Hubbard here at Reuters this morning, and the whole thing was surprisingly friendly: the Davos-centric elite talking constructively about what ought to be done, and spending a lot of time agreeing with each other.

The whole interview took the classic form of a journalist asking experts what their opinion is about what should be done: here’s where the two sides agree, and here’s where they disagree. But from my point of view, all three of the people on camera are very much on one side of the much bigger, much more heated, and much more important debate — call it the technocrats versus the populists.

Laura Tyson, for instance, early on talked with an upturned nose about “the political atmosphere in the United States”. These people running for Congress, they oppose TARP, which we members of the elite all agreed was absolutely necessary. There’s “a poisonous atmosphere in terms of how one looks at the financial services industry or the business sector in general”. And she even uses the third person plural:

The population is furious with the leaders of government and the leaders of the business community, both the real business community, quote-unquote, and the financial markets, for getting us into this mess.  That’s how they see it.

Of course, that’s not how we see it. We don’t feel the need to make the distinction between the financial markets and the real business community. And the Obama administration — they’re good guys! They’re reaching out to the business community!

While Tyson looked out of touch, Hubbard was doing his best reasonable-Republican impression, agreeing frequently with what Tyson was saying while still pushing hard for the Bush tax cuts on the rich to be extended. Not to do so, he said, would constitute punishment of the rich, and we don’t want that. When Chrystia pushed him on that point, his mask slipped a bit:

But the bit we were all waiting for was for Chrystia to ask Tyson and Hubbard about Inside Job, the film where they both come off very badly. The film’s director, Charles Ferguson, contributed a pointed blog entry to Reuters about the two of them, saying that they “exemplify the disturbing, opaque conflicts of interest that pervade the economics discipline”. Certainly it’s odd that the two economists, whose entire profession is based upon the premise that incentives matter, should be so resistant to the idea that the millions of dollars they’ve earned from the financial-services industry might in any way color their actions or beliefs.

Chrystia put the question in the gentlest possible way, talking about

the idea that one of the things that created the financial crisis was that experts, policymakers, people like you, became too close to business, not because you’re bad, but because those are the people you hang out with, those are the people on whose boards you serve. And you started to see the interests of the collective — of the state, of the country — and the interests of business as being the same.

Ferguson’s thesis is much harsher, of course: he doesn’t just blame people like Tyson and Hubbard for the financial crisis; he blames these two individuals personally. (Among others.) And yes, he thinks that all that money has corrupted them, made them bad. Ferguson knew how Tyson would respond: “she has confined her remarks on the financial crisis to extremely vague statements about ‘greed,’ ‘human nature,’ etc.” he writes, and that’s exactly what she did, taking advantage of the way that Chrystia phrased the question to answer a theoretical question rather than a personal one.

But Hubbard’s response is more interesting:

I know in my own case, as somebody who’s advocated more regulation and a wholesale mortgage refinancing, I’m kind of a strange bedfellow with the financial services industry, if that’s Mr. Ferguson’s accusation.

Of course this is silly: insofar as Hubbard has advocated more regulation, he’s advocated exactly the kind of more regulation that the financial services industry would be perfectly happy with. And the financial services industry in general would love lots more mortgage refinancing, or any other kind of consumption of its services. Indeed, Pimco’s Bill Gross has been pushing that very idea quite loudly.

After watching the whole thing, I can’t imagine that it did Tyson any favors if she’s angling to replace Larry Summers at the NEC. She was good at talking about “the President’s policies” a lot, but she doesn’t represent the kind of change that the public is clamoring for — she’s happiest talking about economic theory in the abstract, and she’s much less good at relating it to the real lives of real Americans living on mere five-figure salaries. And, of course, there’s no indication at all that the public wants a board member of Morgan Stanley ($350,000 a year for turning up to a few board meetings) to replace Summers in the White House. We’ve had enough of bankers running the country, especially when they’re as out of touch as this, and when they refuse to answer hard questions from the likes of Charles Ferguson.

Full post as published by Macroprudential on October 12, 2010 (boomark / email).