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.
11 – The Early INET Days
After we realized what was at stake, and traveled around to gain an understanding, we came together in Bedford, NY. Soros held an event there with 30 leading economists, seven of which were Nobel laureates. We set out to determine what INET’s approach should be, and landed on four things:
- To build relationships with elite universities; places like Oxford and Princeton and Harvard. We figured they might see us as rebels, threatening the profession. But we would make connections, offer support, and work together.
- To commission research ourselves, and add to the critical discourse.
- To convene and build community. Our plenaries were central to that.
- The fourth was what is now the Young Scholars Initiative. To educate and support the people who will 20 years from now be at the vanguard of the profession. To give them the spinal strength needed to step away from conformity.
We didn’t yet think of what later became the fifth piece: the critique of the peer review journals as a constraining device. Jim Heckman and others would later build quantitative evidence of the cronyism and the constriction of the issue space.
So, we got started. For our first INET conference, we invited a skillful Italian minister, Tomasso Padoa-Schioppa, to give a speech. He said, “when I look at what’s going on, I think of three types of sustainability. Financial sustainability, social sustainability and resource sustainability. Resource sustainability is on the horizon. Financial Sustainability is right on top of us now, and if it’s mishandled, people won’t just lose faith in the governance of finance. They’ll lose faith in the governance of resource sustainability, and social sustainability, too. So the stakes are very high.” As everyone clapped, Tommaso sat down next to me, leaned over, and said “all of this is going to flow into social sustainability.” That insight foreshadowed a lot.
As we got going, support arose quickly. Scholars of the highest level started to attack various facets of economics. I came to work very closely with Joe Stiglitz on his book The Price of Inequality, and with the scholars at Oxford led by David Hendry. They, too, found the rational expectations to be statistically unstable, and said that the past is not prologue; we live in a world of radical uncertainty. Roman Frydman, George Soros. They all believe that it madness to think that you can confidently project finance into the future. We were building alliances.
But in the meantime, things kept unraveling. At first, I thought it was mostly the faith in the governance of our financial system that was collapsing. But it was as the Obama administration took hold, it showed that it was broader than that. It became clear that things will not be fair here. The Obama team could not pass everything they wanted to pass, and we had an exacerbation of inequality.
As Atif Mian says, if they had restructured mortgages, people would not have been under water, and they would have had a much higher marginal propensity to consume. You wouldn’t have needed as big a bailout. With required capital injection into the banks, you would have driven their equity down, and would have replaced their management. The people, the perpetrators of the crisis would have paid the price. Instead, the people with underwater mortgages were struggling. Our fiscal capacity was used to pump up aggregate demand where mortgage restructuring would have done the same thing. But the incidents of who bore the burden would have been different.
So you had this wider sense that the government worked for the rich; for the banks and the corporations, not the people. Obama tried to restore confidence but we lost a lot. You started out with Obama, a Democratic House, a Democratic Senate in 2010. But that changed. When Martha Coakley lost to Scott Brown in Massachusetts, pollster Celinda Lake, who’s a friend of mine, called me and said, Robert, I’d worked with her on a couple of Senate campaigns and this has nothing to do with Massachusetts. This is the anger that Goldman Sachs and JP Morgan paid enormous bonuses two weeks ago. By that fall, the House turned Republican. Subsequently, the Senate turned Republican.
It was reinforced by the Fed’s quantitative easing, and OMT in Europe: those practices pump up the asset prices. But who owns all the assets? A fraction of the people. Inequality rose, and along with it, despondency. As Angus Deaton and Anne Case shows, diseases of despair start to rise: opioid addiction, alcoholism, suicide. Shannon Monnat and others who studied geography saw that those diseases exploded exactly where society was being disrupted by globalization, automation, austere state, and local budgets or financial predation.
These are examples from the US. But similar things happened in the UK. It was areas outside of London, with austere state local budgets, that resulted in Brexit votes. You have the AFD in Germany, Marine Le Pen in France.
Then Donald Trump was elected. Who was superb in reinforcing the notion of perceived corruption of expertise. And to some degree it’s fair; expertise has indeed been corrupted.*
So this unraveling moved INET from the themes of finance to inequality, political economy, and more. If we were to address the challenges, we realized we’d have to broaden our scope…
Reading list:
Atif Mian and Amir Sufi – House of Debt
Adair Turner – Between Debt and the Devil
David Brooks – Bobos in Paradise
Joseph Stiglitz – The Price of Inequality
* I used to have this notion I used to call the four corruptions of economics:
1. The corruption of commission: doing marketing for the powerful. Doing something not to find truth, but to get paid, get power, or get promoted.
2. The corruption of omission: when you avoid studying things that confront power.
3. The ritual of hiding in the monastery: emphasizing your acumen with mathematics and statistics to demonstrate your brilliance.
4. The promulgation of false certainty when people are anxious. If somebody convincingly says “this is where we’re going”, they can reduce people’s anxiety until what they are saying is proven to be a lie. Lots of economists do this by pretending they can see the future; it’s a sophisticated form of demagoguery. The audience is complicit because they yearn to be reassured. But it’s false; it’s not what an expert or scholar is meant to do.
Earlier articles in this series can be found here.
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