Rob's Corner Archives – Page 2 of 2

On Becoming Mickey Mantle

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.

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When to get your marbles off the table

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…

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From Nearly Dropping out to Fishing with the Chairman of the Fed

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.

Enjoy sound with the story!

Theme From Mahogany – Diana Ross
Goin’ Down – Jeff Beck

Reading List

William Greider – Secrets of the Temple
William Greider – The Economic Education of David Stockman

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Be Humble, Acknowledge Uncertainty, and Don’t Assume A Happy Ending

Today, we pick up at Rob’s time at MIT, and see what lessons economists might be able to learn from sailors.

2 – Be Humble, Acknowledge Uncertainty, and Don’t Assume A Happy Ending

“MIT was tough. I had weird stuff happen to me there. One day, in a computer lab, I was sitting next to this black guy. He told me he’s working on his Ph.D. in medical engineering. And he’s 20 years old. I’m 19, an undergraduate. He’d been at MIT since he was twelve. He told me he’d bet me that he could multiply two numbers in his head faster than he could type them into an HP calculator. And he was right! I said how do you do that? He said he converts everything to base 2. He transformed the numbers in his mind like this. Not even a scratchpad! I just sat there and figured there’s a lot of people here smarter than me. It was humbling. And invigorating.

So everyone found out real fast that they were not the smartest person in the room. For some people, that was hard, especially for people who were a bit socially awkward, and didn’t have much other than their intellect. They had been a valedictorian at home and an average guy here. So for some time, MIT saw a lot of suicides among freshmen. But then they adapted and made freshman year pass-fail. That gave people a longer runway. More room to explore. But it was humbling to be there nonetheless.

The sea also taught me to be humble. When you go offshore, sailing, you know you don’t know. If you go way offshore like into the arctic ocean, you feel small. And you feel grateful that whatever there’s up there didn’t take your soul. There’s humility. When economists say things are uncertain, they still pretend to know. But when sailing, you can’t pretend. You have to function despite the fear. You do not have the power to extinguish the uncertainty you have to cope with. You can’t escape. There are things you do, of course, that are prudent. You wear life jackets, safety harnesses, you keep the more novice sailors off the deck. You decide who should go on the voyage because of needing competent people in a crisis to keep everybody safe. But at the end of it, you are coping with something that’s more powerful than you are.

So when I went to my first economics classes at MIT, I heard them talk about equilibrium. I raised my hand and, not trying to be a smart-ass, I said “isn’t that like assuming a happy ending?” I knew that the same math worked in engineering. But it doesn’t work that great in economics. We were doing Fourier transformations–looking at things in time and frequency domain. In an engineering lab, you can do that on electrical signals, and it fits like a glove. But if you use that stuff on economics data, it looks like mud. So I thought: what are these people doing? What they are doing is pretending to have certainty when they don’t have it.

For me, having experienced the social turmoil of growing up in Detroit, and knowing the uncertainty of the sea, this was crazy. But the work with Kindleberger resonated. I worked with him on Manias, Panics, and Crashes, which is a historical account of financial crises, and the radical uncertainty that underpin them.

In the end, I got a scholarship to go to Princeton, with Solow and Kindleberger backing me. And they told me the rising star at Princeton was going to be Joseph Stiglitz, and the faculty there was going to be amazing. I had applied to Harvard and Berkeley and all these places, but MIT had told me that if I got into Princeton, I had to go there. So I went to try graduate school…”

Enjoy sound with the story!

This playlist, put together by Rob, captures the spirit of the Sea.

Read along!

Recommended Read:
Charles P. Kindleberger – Manias, Panics, and Crashes: A History of Financial Crises

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.

Social Instability, Music, Sailing, and… Economics?

Today, we start at the start. We hear from Rob about his youth, and the way he got involved in economics in the first place. Spoiler alert: it was not a linear path.

1 – Social Instability, Music, Sailing, and… Economics?

“As I was growing up, Detroit was a cauldron for social instability, disorder, racial tension, and labor management issues. It was the time of the Vietnam War, and the 1967 race riots; I was in the middle of that when I was a child. MLK spoke, at what would be my high school 3 years into the future, three weeks to the day before he got assassinated! My parents were talking about whether we needed to evacuate. I saw a lot of violence at 10 and 11 years old. It left me mesmerized by MLK; I wanted to know who he was to evoke such a powerful reaction in society.

I also grew up surrounded by music. My father was a doctor and jazz musician, and my mother was a singer and worked in development fundraising for the Detroit Symphony Orchestra; they brought lots of music into the home. And on top of that, I had a mad passion for sailing. All throughout high school, I was doing high level races. I learned navigation by learning trigonometry myself. I learned aerodynamics by teaching myself calculus. Grades, school, and report cards didn’t matter that much to me. I cared about winning the sailboat races! So I studied meteorology. I read about the history of the great explorers. The North Pole, the South Pole, everything.

When it came time for college, sailing led me to MIT. The greatest naval architect of the 20th century–Olin Stevens–had gone there. And a guy who I sailed on a crew with, John Bertrand (who later became the first person to win the America’s Cup away from America in 132 years) had, too! Plus, my dad was encouraging me. So that’s what I wanted; to go to MIT, and to study engineering and become a Naval Architect.

At MIT, I started out majoring in engineering, aeronautical engineering, I minored in music and creative writing. In creative writing, I chose to specialize in understanding the collective writings of Martin Luther King, and the style and techniques of argument, etc. Because I was still haunted by him.

Then, one day, I was looking at electives. I found a course in financial history of western Europe with a man named Charles Kindleberger, and signed up.

About a month into the semester, there was an article about me in the school newspaper, talking about how I was the leader of a crew that won a college sailing race at the naval academy. Kindleberger had seen it, and he told me “I saw you’re a sailor! And since this is your sophomore year, next year you’ll have to write a junior paper, and I think you should write about the role of marine technology in affecting the trade between the Dutch and the British empire. I can hire you as a research assistant.”

So Kindleberger, at the time of the two oil crises, got me a job between him and a man named Morris Adelman, the most famous oil economist in the world. We were sitting in the same suite. And Kindleberger was amazing. On Friday mornings, he’d take students to the last pre-performance rehearsal of the Boston Symphony. And then we’d go to breakfast and talk about world affairs; he was this lovely, lovely man.

But in the middle of that junior paper, Kindleberger says to me, “well you’re good at engineering and math. If you take advanced econometrics, micro and macro, you can get credit for intermediate and beginners, too; that gives you triple the credits. And I’m gonna be selfish. We have nine people majoring in economics… But if we get a tenth, they double our budget!”

Kindleberger told me that the person who should advise me should be my advisor was Robert Solow, because he and his wife were about to learn how to sail. Teach him how to sail, he said, and he’ll teach you economics and help you in your career.

So here I was, with my background of social turmoil, a passion for sailing, a curiosity for MLK, a love for music, and I’m about to dive deeper into economics…”

Enjoy sound with the story!

This playlist, put together by Rob, captures the spirit of Detroit.

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.

Meet Rob Johnson, President of INET

Over the next few weeks, we’re thrilled to bring you Rob’s life story, with all its twists and turns, surprising anecdotes, and life lessons learned. If you’re a young scholar looking to navigate the choppy waters of economic thinking, you’re in for a treat. 

Below is a little glimpse, citing some of the books that made Rob Rob, and foreshadowing the themes that this series will uncover. Enjoy this appetizer, and stay tuned for the main course!

Prologue – The books behind Rob Johnson

“I grew up in the midst of social turmoil in Detroit; I was ten years old at the time of the Vietnam War and the 1967 race riots. Years later, when I read The Origins of the Urban Crisis, I realized what an impact that had had. It made me lose my innocence. I was also left mesmerized by MLK, who gave a speech at what would become my high school just 3 weeks before he got assassinated. I did not understand it then, but I could tell it was important. Later on, I studied his writing and speeches in depth, reading them collected in A Testament of Hope.

Another major element in my youth was with sailing–I was obsessed with it and it propelled my learning.  At 13, I took The American Practical Navigator out of the library, learning geometry and trigonometry just to become a navigator. I also needed to understand meteorology, so I read Watts’ Wind and Sailing Boats. A couple years later I had moved on to yacht design which meant calculus and Sailing Theory and Practice. I did race and after race, and very successfully.

All of this curiosity and striving were great fuel for a learning mindset. I also devoured the history of the great explorers, like Shackleton and racing geniuses like Elvstrom. I loved St Exupery’s Wind Sand and Stars, which many consider to be the best adventure story ever written. Fiction, too, inspired me: Moby Dick and The Odyssey, for example. All those stories taught me that with preparation and study one could garner the courage to reach further; to get more from life. 

This mix of influences meant that I quickly developed a combination of curiosity and ambition, but also skepticism, and humility. I knew that preparation and skill goes a long way, but you can never really fully comprehend the forces you are up against. So when I first saw an equilibrium graph during my college economics class, I knew it was off. Kindleberger’s notion of radical uncertainty in Manias, Panics, and Crashes would come to resonate much more, and later lead me to feel at home working with George Soros.

My path has always been guided by music, too, I even had my own record label for some time. Music always felt more like truth than discourse. It offers a window into the deeper regions of the mind; the essential, and the unconscious. The Spirituals and the Blues is a profound book on music, and its links to social change. While spirituals are about the afterlife, the author, James Cone notes, the blues is about defiance in the here and now. 

Cone has written much more, including The Cross and the Lynching Tree, which I think is one of the greatest books written in social science. It shows how people really behave under stress, and why you cannot trust experts to come to the rescue. Because at times of societal malfunctioning, they hide from controversy to preserve their reputation. That’s when it’s time for the fresh vision of young people in conjunction with those who suffer injustice. Together they can see what needs to happen, and make the unfeasible feasible. Nothing is more relevant today.”

If this leaves you with a lot of questions, stay tuned! Over the next few weeks, we’ll start at the beginning and delve into the details. Subscribe to receive the articles directly to your inbox.

If you’re excited for this series, you’ll also enjoy Rob’s podcast, Economics and Beyond, available wherever you get your podcasts.