Author: Heske van Doornen

Rob Johnson, President of the Institute for New Economic Thinking, is not your average economist. He’s got heart and soul, or if you’ll have it, the blues! With his deep connection to the arts and humanities, Rob leads the new economic thinking not just with a sharp mind, but also with sensibility.

This article is part of an ongoing series in which Rob shares his life experiences, and biggest lessons learned. If you’re an aspiring expert in economics or a related field, this is for you. It might mitigate the depth and duration of your mid-life crisis. Earlier articles in this series can be found here.

---

9 – On Reviving the Arts

When I left the hedge fund industry and started working in music, I walked into a different world.  

Right after acquiring a label, I got together with one of the artists in Chicago. I said, hey there’s no proper contract here, let’s set this up. So he said “well listen to me play this set and come to the stage and we’ll talk.” So I came up with a contract; it basically said he’d get a check for three thousand dollars advance, and then royalties quarterly. And he goes “you see that A.T.M? I will play this next set, and you will pull out three hundred dollars. You don’t have to be doing this in his contract, because nobody ever pays that stuff anyway.” That was a surprise; in the hedge fund industry, I used to trade five hundred million dollars based on word, and now this!  

The thing I loved most, by far, was being a producer in the studio–because of the emotional context. When people play music, they can be very vibrant, free and creative. But when they are recording music, that doesn’t always come out. Often there is a dread to be putting down something that people can hear for all time. There’s a fear around that. So as a producer, the question is how do you get past that? How do you unleash the genius that’s within them? I wanted to help them realize that which they’d be most proud of. But I had to get them into the right state of mind. They had to feel that there was no downside to really go for it. That’s hard to do, but I found creative ways. 

With this one artist, while we were in the studio, his ex-wife called him and he got in a fight. He was really pissed and he just kept on talking to her. I was getting annoyed because I was paying $400/hour for the studio while he was fighting. But he had a song called “I Gave You What You Wanted, Too Damn Bad You Didn’t Like What You Got” which was about them splitting up. So I said “I think we gotta try I Gave You What You Wanted” tonight, and everybody started grinning. When he took the mic it was like a leopard came out; he just crushed it. 

Other times, we’d be in a juke joint, doing a performance and I’d be keeping an eye out for songs to be recorded live. I knew if the band leader had a certain fondness for a lady in the audience. So sometimes,  rather than going up and asking him if he would play a certain song, I’d write it on a piece of paper and give it to her, so she could ask him to do it. That worked! He played with so much more passion because it wasn’t me, the producer, coercing him. It was the people he wanted to energize who came with the request.  

So in that environment, the currency of motivation was different than logic. Music is an expression of the spirit; it’s not quite as literal as math and models and sense of proportion and all those other things. I think both are valuable. Your question is just in what place do you employ which methods to get the results you’re looking for.  

Later on, music also opened a door to documentary film. It started because PBS wanted to make a series on the Blues. Martin Scorsese was involved and he hired a man named Alex Gibney to run with it. At that point, Bob Dylan’s manager, Jeff Rosen, who is a good friend of mine, told me about the series because I had a number of blues artists that were active that could be featured. So, Jeff made sure Alex and I got together. 

Not only did we end up working together for the series, but over time we really developed a kinship. I ended up moving my offices in with his offices and started working on documentary film. About this time was the Iraq War and the notion of financial issues. He was making a movie called Enron The Smartest Guys in the Room based on a very well known book. I could advise him because I knew some of the stories about how Enron was discovered; one of the members of INET’s Global Partners Council was one of the short sellers who’d seen it coming.  

Then, Alex and I got interested in this torture film. The journalist Bill Moyers used to work with Alex’s father, and I knew Bill very well. There was this group called the Democracy Alliance and Bill and I had talked about torture. Alex’s father had been an interrogator not using torture under General Douglas MacArthur after the Japanese were apprehended, so he was very interested. I went out, put some money in, got some money from other people, and we built a film called Taxi to the Dark Side. It won the Oscar for best feature documentary for 2007! It was a very grim film, obviously. We used to tease each other and say, you know, you come home, you say to your wife, “hey, honey, let’s get some sushi, go to the torture movie!” 

I learned a lot about film editing, camera work, and story development from Alex Gibney and his team; it was great. But in the meantime, the global economy was headed for a cliff… 

---

Earlier articles in this series can be found here.

Subscribe to receive the next article directly to your inbox! And in the meantime, take a look at Rob’s podcast Economics and Beyond, available wherever you get your podcasts.

Rob Johnson, President of the Institute for New Economic Thinking, is not your average economist. He’s got heart and soul, or if you’ll have it, the blues! With his deep connection to the arts and humanities, Rob leads the new economic thinking not just with a sharp mind, but also with sensibility.

This article is part of an ongoing series in which Rob shares his life experiences, and biggest lessons learned. If you’re an aspiring expert in economics or a related field, this is for you. It might mitigate the depth and duration of your mid-life crisis. Earlier articles in this series can be found here.

---

8 – On Shedding a Wall Street Ego

When I worked with Soros on the famous British pound evaluation, I lived in Greenwich, Connecticut. This was the time of Newt Gingrich, the Republican Speaker of the House at the time. And because I was a financier, everybody thought I loved Newt Gingrich. But I really didn’t! I kept thinking “these people all act like they know me, but they don’t know me at all.”

That discomfort was amplified by the fact that everyone wanted to do business deals all the time, wherever I’d go. I’d go to my son’s soccer games, and I’d just want to watch the match. But everyone would come up to me trying to talk business. Thankfully my neighbor was Diana Ross, the famous mo-town artist. She had two sons the same age as mine, who played soccer, too. So I’d go talk to her during the matches. Because with her being so famous, people would keep their distance. Next to her, I could hide, and just watch soccer.

But the discomfort lingered. You have to imagine what it was like being in this position. People were always wanting to meet me, to visit my home, to talk. They’d come from New Zealand and Australia and France, you name it. They always wanted to be around me. When I would walk out of the office, our nanny at home knew I was on the way because the minute I would shut down my office phone, everyone would start calling the house. There was all this activity, but it was weirdly lonely. I often went kayaking by myself just so no one could bug me.

Eventually, with the help of a life coach, I ended up deciding that I needed to make the hedge fund era a chapter in my life, not the book. But I knew that breaking out of it would mean a part of me would have to die. Not physically, of course. But I had to shed a personality.

At some point I was ready to do it. I broke away and began building my own sailboat, in a nearby town called Larchmont, NY. That was about a 13 mile bike ride; I called that my methadone clinic. By going up and down to Larchmont and working on the boat, I was getting rid of the addiction to Wall Street and was reconnecting with wanting to be a naval architect; reconnecting with old interests, old friends, and old passions.

I also volunteered in a nursing home, anonymously. I went in every day, and wiped people’s bottoms and set up beds and scooped ice cream and wore a green suit. Nobody including the directors had any idea who I was. There’s two things I got from the experience. One is that I saw people dying. While at the same time I was processing the death of a personality. So I had some really beautiful conversations taking care of these folks. The second thing is that instead of all this false adulation, I could go in there and if I fucked up something, these seniors would yell at me. “I don’t want vanilla ice cream, I want lemon sherbet!” And you try to serve them, comfort them, get them into a wheelchair, and there was one night we did a concert there. It helped me process the transition, and be reborn as something more authentic. Such change is not easy. But if you maintain faith in your ability to regenerate yourself, you can do it. And you can have a very satisfying life.

It may also have helped that during my youth in Detroit, I had some exposure to 1960s alternative culture hippies, along with Indian philosophy, meditation, Taoism, etc. Detroit was very tuned in to that, and the turmoil I saw there made me, too, search for a better philosophy. The stuff I looked for then, from the East, was about breaking with your ego; about breaking your clinging to things. That also means breaking with the sources of comfort that you seek when you’re afraid and anxious. You have to feel the fear and do it anyway. You have to realize that what you let yourself perceive, and what you do about it, are different things. You’re in control.

All that led me to a whole new chapter. I got back in touch with my interest in music. And I came to set up a record label…”

---

---

Earlier articles in this series can be found here.

Subscribe to receive the next article directly to your inbox! And in the meantime, take a look at Rob’s podcast Economics and Beyond, available wherever you get your podcasts.

Rob Johnson, President of the Institute for New Economic Thinking, is not your average economist. He’s got heart and soul, or if you’ll have it, the blues! With his deep connection to the arts and humanities, Rob leads the new economic thinking not just with a sharp mind, but also with sensibility.

This article is part of an ongoing series in which Rob shares his life experiences, and biggest lessons learned. If you’re an aspiring expert in economics or a related field, this is for you. It might mitigate the depth and duration of your mid-life crisis. Earlier articles in this series can be found here.

---

7 – On Doing Structural Analysis Before the Internet 

My time as a trader taught me a few important lessons.   

One, economics can show you where the questions and opportunities are. But, two, you got to get on an airplane and go see it with the whites of your eyes, because it’s about timing. If you short the Spanish peseta and you’re three months early, then you’re paying twenty-four percent interest and earning five; you’ll lose a lot! You have to be mindful of timing, and in those days, that meant being close to things.   

Back then, there were very few people who did real, structural analysis, especially of the intra-Asian economy. So, when I was working on that region, we looked at the commodity composition of the economies; the exports and imports of each of the Asian countries, and the geographic composition of who their trading partners were. So, if, say, the Japanese economy is going up and the U.S. is decelerating, you could see that one country would be affected more negatively than another. Or when the terms of trade would change in a particular sector, you could tell who would get hurt or benefit.  

During my time at Bankers Trust, I met a guy named Rodney Jones, who understood this well. He was based in Malaysia, and I had taken a position against the Malaysian ringgit. When we first got talking, he was at an equity firm.  He asked me “are you actually interested in this macro stuff?” And I said, yes, let’s talk. So over cocktails, Rodney told me that what he does is he gets on an airplane every month and he goes around twelve different countries, collects all the data on budgets and central bank reserves, and builds his own structural database! I hired him, first to Bankers Trust and then I brought him with me to Soros. He now runs a major consulting firm based out of Beijing. He’s brilliant.   

In the end, speculation is about knowing what the world thinks, seeing something that’s different, and then: timing. You have to know when the world will come around and see what you’re seeing; you have to know what the catalyst for that will be.   

When I was in this business, with Rodney and others, we knew that the insights we produced with our own models were not yet reflected in the prices. And a significant part of it was about being well-connected and having access to the information. I used to have a foreign exchange dealer I relied on in New Zealand because they’d open on Sunday morning. I could call them and find out what everyone is lining up to do that week. They’d have their finger on the pulse.   

At times, it almost felt like taking candy from a baby. Because you could just see it. You could work with a handful of people very quietly, and figure out the insights you needed to make a profitable trade. But the times did change, and the world did catch up. 

Already when ERM blew up, Reuters came to focus on that, which made me lose my edge in Europe a bit. So that’s what made me think, let me go into Asia, and build that out. That was great. But then the Asian crisis rolled around, and with that, I lost my edge there, too. At that point, I’d joke, saying, “I try to go where other people don’t understand what’s going on. I guess I wish they had asset prices on Mars because it seems like Earth was running out of places.”  

Now, things are different. You can set up spreadsheets in Bloomberg, and when you wake up in the morning, there’s all this new data, updated for you, and the communication flows go everywhere. In my days, we had a fax machine. It was more about fieldwork. 

And for me, personally, I never really thought of myself as an investor. I was focused on deepening my understanding of planet earth. But all of a sudden, people did put me on first-class airplanes,  bought me electronic machines, and wanted to make deals left and right. I was meeting everybody all over the world.   

It was a hell of a learning platform. But at some point, it was exhausting, and stressful for my family. So, ultimately,  I chose to make the hedge-fund industry a chapter of my life, not the book…  

---

Earlier articles in this series can be found here.

Subscribe to receive the next article directly to your inbox! And in the meantime, take a look at Rob’s podcast Economics and Beyond, available wherever you get your podcasts.

Rob Johnson, President of the Institute for New Economic Thinking, is not your average economist. He’s got heart and soul, or if you’ll have it, the blues! With his deep connection to the arts and humanities, Rob leads the new economic thinking not just with a sharp mind, but also with sensibility.

This article is part of an ongoing series in which Rob shares his life experiences, and biggest lessons learned. If you’re an aspiring expert in economics or a related field, this is for you. It might mitigate the depth and duration of your mid-life crisis. Earlier articles in this series can be found here.

---

6 – On Working with George Soros, and Breaking the British Pound

As I began working with the Soros equity team in 1992, I was watching the British economy. They had floating rate mortgages, a highly leveraged economy, and lots of people with exposure to the stock market. You could see that if the Germans wouldn’t cut rates, then Britain would be in trouble. They’d either have to devalue or raise rates. With an election coming up, they were in a tough spot.   

As they got under more stress, Britain’s Prime Minister, John Major, tried to restore confidence. He said the British pound would remain the reserve currency of Europe for the foreseeable future. That was like putting a red flag in front of a German bull. We had a consultant friend, David Smith, who was very well-connected in Germany, who knew from the German central bank that they’d never cut rates to let the UK out of turmoil. So, we had our hypothesis for the ERM, and the British pound.  

Because I was leaving Bankers Trust to Soros in the midst of this, I tried to help Bankers Trust understand the same strategy; I felt some responsibility to them.  

Things progressed quickly. When Italy devalued, the Germans cut interest rates a quarter-point. And they told our contact, David Smick, that they won’t cut anymore. Not for the British, or anyone else.   

At this point, we did not yet have a very big position on.  So George and Stan and I had a meeting, and George said, “how big a position do you think you ought to take?” Stan asked me “What do you think you make on the downside?” I said, “well, 18 to 20 percent if there’s a devaluation.”  

And how much would we lose? “Well, I said, we’d stay within the band. So you might lose one and a quarter percent, but it would be very liquid if they hold the system together.”  

Now it became very clear. They asked me, “so you mean that’s like 18 or 20 to one shot!? This is the bet of a lifetime!”  

George asked me how much leverage I would have used on this at Bankers Trust. I said three to five times capital. Then George just said, “okay, guys, let’s start at least three times capital.”   

At that point, that was 15 billion dollars. And Britain only had around twenty-two billion in reserves.  

That’s what led to Black Wednesday. Britain ended up having to withdraw the British pound from the ERM, after the British pound had long been the store of value. There was a sense of embarrassment for Britain, absolutely. But after they devalued the economy, they started recovering, and interest rates came down. So, some actually call it White Wednesday.   

After this major trade, it was off to the races. I focused more on other places. I built up a four billion dollar position short the Swedish kroner. And that dropped almost 55 percent. Not 15 or 18 percent, but 55! That was another very profitable trade.   

George was an incredible coach throughout all this. He was not directly involved, it was Stanley who was in charge, and I was the deputy, but George would act as a coach; he wanted you to learn, and it showed in the way he interacted.  

In 1993, when I was working on Spanish bonds, he called me into his office and said “I don’t like what you’re doing.” I explained myself, and he said, “well, I gave you the keys to run these positions. You should stick to your guns and we’ll find out what happens.” That time, I was right, and I made a lot of money. So, George walked into my office and he said, “Way to go. You were right!” But in another instance, I lost money. It went wrong, and I went to his office, admitting my mistake. All he said was “well, what did you learn?” No scolding, whatsoever. That’s so great about George.  

He was, and still is, a big presence, but not an intimidating one. He was always trying to bring our creativity out; he was not making us into subordinates. He was focused on us performing well; on his team making money.  

Stanley, too, was incredible to work with. For his birthday, I once gave him a photograph of Coltrane and Miles Davis playing together. Because I so relished the pleasure of the teamwork with him. We did a lot together; and he taught me so much. His expertise in bonds, and in equities; I got to learn from him through example and conversation.   

---

---

Earlier articles in this series can be found here.

Subscribe to receive the next article directly to your inbox! And in the mean time, take a look at Rob’s podcast Economics and Beyond, available wherever you get your podcasts.

Rob Johnson, President of the Institute for New Economic Thinking, is not your average economist. He’s got heart and soul, or if you’ll have it, the blues! With his deep connection to the arts and humanities, Rob leads the new economic thinking not just with a sharp mind, but also with sensibility.

This article is part of an ongoing series in which Rob shares his life experiences, and biggest lessons learned. If you’re an aspiring expert in economics or a related field, this is for you. It might mitigate the depth and duration of your mid-life crisis. Earlier articles in this series can be found here.

---

5 – On becoming mickey mantle

“When I got to know Soros in the late 1980s, he introduced me to this guy he’d hired: Stanley Druckenmiller. Stan was an absolute genius. In those days —before LeBron James—I’d call him the Michael Jordan of traders. The three of us came to have frequent discussions about the state of the world and strategy. There clearly was a strong connection between Soros and I; a kind of a strategic side and an intuitive side, which I was very in sync with him about. Largely because the work of Charles Kindleberger (who had inspired me to become an economist) resonates with Soros’ approaches.  

And it seemed that Stanley and I could be a very good team. Stanley was a much better trader than I, but I could augment him as a kind of sounding board, and be a constructive critic on strategy. I think Soros believed in teams as a way to diminish error; if you have two bright people who trust each other working together, you’ll know that when both of them give the green light on something, the likelihood of success is pretty good.   

So at one point, they offered me a job with them. But I wasn’t so sure. I didn’t think I was ready. I looked at them and I used a baseball analogy: I said “you’re Babe Ruth and you’re Lou Gehrig but I’m not yet Mickey Mantle!” I knew that if I joined, there may not be that much time to learn the ropes; the firm had a reputation for hiring people quickly. And if someone didn’t work out, they’d just throw them back out. So, I wanted to strengthen myself first. But when I said that, Soros looked at me and he said, “well, Robert, if you want to stay in the womb and not be born, that’s your problem.” He was tough love.  

So, I kept working at Bankers Trust. At this time, I was trying to build a long, short fund in Asia. My clients were like the Government of Singapore Investment Corporation, and others who had reserve management in the Asian countries. The Asian system was not as formal as the ERM, and I learned how to play with it. And they could learn by watching me; I agreed I’d report my positions to them every week.   

Then, the following spring, in 1992, they had what was called the Maastricht Vote, and the Danish voted against affirming the Maastricht Treaty. Everybody’s position, including ours, had been really long the periphery, and short the core. And Germany was going through unification and unification required a very big fiscal stimulus. I actually understood the situation fundamental textbook macroeconomics. You have a nominal exchange rate that’s locked or within a narrow band. And you have in Germany a stimulus, in the real sector, from the fiscal rebuilding of East Germany. That puts pressure on the system, so have to allow the real exchange rate to appreciate. 

At that point, you can do one of three things:  1) You can break the German Mark out and let it rise,  2) You can let Germany inflate, which was undesirable in their minds after the hyperinflation in the 1920s, 3) You can deflate everybody else. So, we started to watch the situation. Everybody had all these positions; not just speculative funds. Lots of corporations were funding themselves in Deutschmarks at eight percent rather than at Swedish kroner at 12 percent. They were saving on what you call “the carry.” The pressure in the system was going to build up. Then, in May, the French announced that they were going to hold a vote in September. That was my cue to schedule a dinner with Stanley Druckenmiller.   

Stan and I got together at an Italian restaurant on the East Side. We talked through the strategy together and at one point I said “I think I’m Mickey Mantle now; I think it’s time I come work with you guys.” So Stan and I talked for a while. And then, that same night, he talked to George, and they made me an offer that I accepted…”

Earlier articles in this series can be found here.

---

Subscribe to receive the next article directly to your inbox! And in the mean time, take a look at Rob’s podcast Economics and Beyond, available wherever you get your podcasts.

Rob Johnson, President of the Institute for New Economic Thinking, is not your average economist. He’s got heart and soul, or if you’ll have it, the blues! With his deep connection to the arts and humanities, Rob leads the new economic thinking not just with a sharp mind, but also with sensibility.

This article is part of an ongoing series in which Rob shares his life experiences, and biggest lessons learned. If you’re an aspiring expert in economics or a related field, this is for you. It might mitigate the depth and duration of your mid-life crisis. Earlier articles in this series can be found here.

---

4 – When to get your marbles off the table

After working at the Senate Banking Committee, when Senator Proxmire retired, I became curious about the private sector and interviewed with a place called Bankers Trust. There was a brilliant man there at the time, Jay Pomeranz, who was the head of the foreign exchange trading floor, and an ordained rabbi.

As part of the hiring process, I first had a whole day with all of his deputies and it all seemed to go very well. But then Jay walks in. He’s got big fluffy hair, looks like Carlos Castañeda, and he’s got Birkenstock sandals on. He says “well, you had a good day with everybody, and these guys want to make you an offer, but if you and I don’t connect, you’re toast.”

I said, “no, I’m not toast. I just don’t get the job here.” And I do want the job here. So he asks me “well, what do you want?” And I said “well, talk to me about what the terms are.” So he lays out a whole thing with a guaranteed bonus of a hundred thousand dollars. And I looked at him and I said “you know what? You can keep that bonus, if I get the chair on the floor sitting next to you for the first year.”

At this point Pomeranz goes, “ahhh I don’t know if I can do that!” but I persisted. I said “how you expect how you expect your strategist to learn unless you put me in the flow? I’m not gonna sit back here in some office and try to figure out what you guys need. I gotta be here, in the turmoil. I have to connect with people and be the guy they call late at night. I gotta learn how to provide this service! I’ll make a lot more money for you, for me, for the firm, if you give me that.” And then he walked out. He went and had some kind of consultation. A few minutes go by but then he calls me onto the trading floor, with 400 people sitting there. And Pomeranz just jumps up on top of the desk and starts walking down and says “I want everybody to meet our new foreign exchange team member!” and everybody started yelling.

I ended up really enjoying my work with them. There was an ethical frame that their best people adopted. You’d make mistakes. You lose money, you make money, whatever. But they didn’t they didn’t have a sneaky bone in their body.

I was paired with a man called Norman Weinstein, who was a grandmaster in chess. He and I ended up co-managing an intra-European long/short leveraged currency fund. Usually long the periphery, short the core. To a large degree, my job was to be on airplanes, in the field, using my policy language and training to meet with finance ministers, central banks and the like all over Europe.

Then a couple of things happened in 1991. After the Berlin wall had come down, the Soviet Union was collapsing. At the time, we had a two billion dollar position long in the Finnish Markka. But I figured out that Finland might actually get hit hard because they were economically deeply intertwined with a collapsing nation (USSR). So I basically went and lived in a hotel room in Helsinki. I was well-connected there, had friends from graduate school and I knew all the central bankers. Plus, at Princeton, one of my professors had been a disciple of the famous Finnish economist Pentti Kouri.

So I was in Finland, meeting with everybody. I’d take the policy officials out and if they’d have a lot to drink (which was not something I had to induce) I’d say things like “you guys are talking like if you devalue, there’s gonna be inflation. But you got 14% unemployment; you’re not gonna get inflation!” Then, they would all start talking about the simulations they were doing on devaluation. So once I heard that directly from the central bank and finance ministry staff, I figured I better get my two billion dollars out of there.

Now, Finland only had about eight billion dollars worth of reserves. So ours was a big position in relation to that. So I told the postal bank and the Finance Ministry that I will not short against them, but that I need to get my money out–right at the boundary, but in one swoop. They agreed to that as a way of not starting a storm. So I did that and then I got on an airplane and flew back to New York

It turned out I was correct, Finland blew up. So when Soros heard the news, he called Pentti Kouri and asked him “who got this right?” And Kouri said, well, there was a guy from New York named Rob Johnson who was over here, staring in the whites of their eyes. He got his marbles off the table. So soon after, when I was at a birthday party for Richard Medley that Soros was at as well, he came right up and started talking to me…

---

Subscribe to receive the next article directly to your inbox! And in the mean time, take a look at Rob’s podcast Economics and Beyond, available wherever you get your podcasts.

Rob Johnson, President of the Institute for New Economic Thinking, is not your average economist. He’s got heart and soul, or if you’ll have it, the blues! With his deep connection to the arts and humanities, Rob leads the new economic thinking not just with a sharp mind, but also with sensibility.

This article is part of an ongoing series in which Rob shares his life experiences, and biggest lessons learned. If you’re an aspiring expert in economics or a related field, this is for you. It might mitigate the depth and duration of your mid-life crisis. Earlier articles in this series can be found here.

Today, we hear about Rob’s time in graduate school, and how he started his career in the U.S. Senate.

---

3 – FROM NEARLY DROPPING OUT TO FISHING WITH THE CHAIRMAN OF THE FED

“As a graduate student at Princeton, I worked with some very good and interesting people, including Joe Stiglitz and Alan Blinder. But still, I almost dropped out. I just didn’t see the point of all the formalism, game theory, set theory, etc. It wasn’t that it was too difficult; I was well trained in using math from my sailing and MIT days. But I felt that I was burning away my time on this planet doing this ritual in modeling technique. A lot of it was rigid formalism that was not insightful.

But then Axel Leijonhufvud was visiting Princeton’s Institute for Advanced Studies, led by Albert Hirschman and with Marcello De Cecco. Their environment and approach opened my eyes. Axel was a big influence. He started having me come to their seminars and introduced me to people in the history department. David Abraham, who was a friend of Tom Ferguson, Arno Meyer, who wrote all about the transition from the Bolshevik revolution; and Carl Schorske–they brought the material to life for me. Axel actually told me I’m lucky that I can do the math. I could get through, he said, and then really use my time to go through channels of political economy, history, and institutional economics. They bred me as a dissident, and kept me going. I could again see how to approach understanding the calamity in Detroit.

Towards the end of my time there, I was thinking about what direction my career would take. I knew this Professor, Peter Kenen, who had tremendous international finance knowledge, which made me want to go fishing with him every Saturday. And one day, Kenen said “I’m gonna bring this guy along next time; he’s the Chairman of the Fed. So before I knew it, Paul Volcker and Peter Kenen and I stood together on a boat throwing our rods, and I listened to the two of them talk. At one point, Paul said to me “You don’t sound like someone who just wants to be an academic. Why don’t you apply for a dissertation fellowship and come to the Federal Reserve and you can work with Ken Rogoff and Dale Henderson there.” Well, I did that, but I ended up working with a wonderful mentor named Peter Isard.

It let me write my dissertation while maintaining a connection to practitioners and the “real world.” Paul and I talked about that; he agreed that in order to be a meaningful economist, you have to choose which problems to focus on. The best way to do that is through what I now call “inductive inspiration”; by being around real events. That’s how you ask the better questions. Albert Hirschman always stressed this, too; he would also go out into the field periodically to get inspiration on what would be important to work on.

Then, during my life at the Fed, as I was finishing my dissertation, I got in a serious relationship with a woman there and we wanted to get married. Her name was Bonnie Loopesko, and she was the head of Japan Analysis, which was a big job in the 1980s. And so Paul Volcker called me to his office and told me that he needed her to stay, and that it would be a bad idea for me to work in the same place as my wife. He asked if he could help me, and that he could talk to some people. Then the next day he said “Senator Pete Domenici – Republican senator from New Mexico – would like to meet with you.”

So I ended up at the U.S. Senate, working for Republican Chairman Pete Domenici on the Senate Budget Committee, with a brilliant team led by Bill Hoagland and Gail Fosler, and always consulting with former chief of staff Steve Bell. I learned about hearings, speechwriting, and how legislation on economic issues was made. Domenici told me that I should listen to him on the Senate floor, write speeches with my economic ideas in his voice, and then brief him on who in the Senate would be an ally and who would not. Afterwards, we would experience the reaction to see what we learned, and formulate a strategy for hearings and legislative action. It was like a postdoc in political economy.

During this time I also met the brilliant journalist and writer William Greider, who wrote “The Education of David Stockman.” At the time, he was writing a book on the Federal Reserve, and reached out to me to ask about Central Banking. I told Volcker about it, and he told me to go ahead, and that he would be interviewed, too. So I told Greider that I would not gossip about people or meetings inside the Fed, but that I’d be happy to discuss monetary and macro theory with him, and critique his drafts. Greider agreed, shared many of his ideas with me, and introduced me to a fabulous network of people in Washington D.C. Later on, Steve Bell from the Domenici staff went to work with David Stockham, which led me to connect with him as well. He, too, was a valuable advisor.

After the Senate changed to Democratic control in November of 1986, I moved over to be the Chief Economist of the US Senate Banking Committee under Democratic Chairman William Proxmire. That was interesting because it was the time of the savings and loan bailout and the 1987 stock market crash.  My Kindleberger background came in useful. Traders had been doing what they call arbitrage, by creating a kind of dynamic option. Portfolio insurance was what they named it. But that didn’t work out in the midst of a crisis; the quant methods they were using were not realistic in the marketplace.

After that happened, I ran the Senate side Humphrey Hawkins hearings, which is where the Federal Reserve reports on their mission to the U.S. Congress. I met many great journalists that way,  including Paul Blustein, Alan Murray, Tom Ricks, Martin Wolf, Anatole Kaletsky and Lionel Barber. And I was also reaching out to people behind the scenes, like Warren Buffett and George Soros, who Dave Smick and Richard Medley introduced me to. 

Soros had lost 120 million dollars in that crash, which I was told was nearly a third of his net worth at the time. I wanted him to be a witness, but he didn’t want to appear himself. But he was very happy to give me guidance so that I could run hearings focused on the crux of the problem. I got to know him quite well, and later worked on his 500-day plan for how Russia should transform its structure of governance.  Naturally, Soros asked me to envision how a parliament should interact with a Central Bank.

---

---

---

Subscribe to receive the next article directly to your inbox! And in the mean time, take a look at Rob’s podcast Economics and Beyond, available wherever you get your podcasts.