Saturday, February 14, 2009


I want to take issue with something Simon Johnson of MIT said on Bill Moyers' show tonight, because I think it was very insulting. From the transcript:

BILL MOYERS: Geithner has hired as his chief-of-staff, the lobbyist from Goldman Sachs. The new deputy secretary of state was, until last year, a CEO of Citigroup. Another CFO from Citigroup is now assistant to the president, and deputy national security advisor for International Economic Affairs. And one of his deputies also came from Citigroup. One new member of the president's Economic Recovery Advisory Board comes from UBS, which is being investigated for helping rich clients evade taxes. ... SIMON JOHNSON: Absolutely. I don't think you have enough time on your show to go through the full list of people and all the positions they've taken. I'm sure these are good people. Don't get me wrong. These are find upstanding citizens who have a certain perspective, and a certain kind of interest, and they see the world a certain way. And it's exactly a web of interest, I think, is what you said. And that's exactly the right way to think about it. That web of interest is not my interest, or your interest, or the interest of the taxpayer. It's the interest, first and foremost, of the financial industry in this country.
Johnson's blanket assumption that Treasury officials who come from the financial industry don't have the taxpayers' interests at heart is incredibly insulting. These people are public servants, and yet Johnson doesn't hesitate in assuming that they're not acting the public interest. Why does working in the financial sector mean that everything you do subsequently is in the service of the financial sector? The implication is that working on Wall Street makes you incapable of acting in the public interest. Now, there are definitely plenty of people on Wall Street who are incapable of separating Wall Street's interests from the public's interests. But the idea that any Treasury official who came straight from the financial sector is essentially a Wall Street lackey is absurd. It's a childish argument that Johnson makes. His claim that he thinks "[t]hese are fine upstanding people" rings hollow, since after getting that disclaimer out of the way he proceeds to accuse them of failing to have the public's interests at heart. Believe it or not, favoring a banking solution that's as harsh as possible on Wall Street doesn't show how "tough" or "bold" you are. The world's not that simple. You can have contempt for Wall Street without believing that the most effective banking plan is the one that inflicts the most pain on Wall Street.


mattw said...

I understand your point, which is legitimate, but I have heard and read Johnson elsewhere, and my impression is that he doesn't see these situations as being contradictory, but rather that these are upstanding people who have been cognitively captured by the financial industry viewpoint and are no longer capable of looking at things from another perspective. So the "web of interest" is a web of unconscious bias rather than some kind of self-dealing, because they have internalized the interests of the financial industry as those of the nation.

That may be wrong, but it isn't inconsistent; many good people wear blinders in one area or another.

Chris said...

I hear you, but I'm still with Simon Johnson.

Gentlemutt said...

The question is, what kind of error can we afford: false positives or false negatives?

Given the preponderance of evidence it may be safer to risk false negatives (ie, conclude that ex-bankers are incapable of serving us well at this time in government).

Stated otherwise, what is the risk in hiring non-ex-bankers to oversee the attempted cleanup? Hard to argue engineers, doctors, scientists, etc could do worse....

dwesley said...

This has been a pet peeve of mine for awhile. Instead of criticizing an individual for specific failures, we paint them with nebulous, unverifiable innuendo. If you want to make sure only liars, morons and thieves go into public service, then by all means assume you can identify the integrity of an individual by the location of his previous employment.

It's perfectly fine to talk about trends in a group, and ways to deal with those trends, but you can't flip it around and assume that these trends are automatically represented in an individual.

Economics of Contempt said...


I suspect you're right that that's the argument Johnson intended to make. But even so, the "cognitive regulatory capture" argument in this context is ridiculous. It's absurd to think that everyone who has worked on Wall Street has internalized the Street-centric worldview, which is essentially what Johnson assumes. To him, proof of previous employment on Wall Street is proof of a Street-centric worldview. But "Wall Street," as it's commonly understood in the finance community, is a very big place where many thousands of people work. The assumption that every one of them shares a common worldview is, to put it mildly, untenable.

Yves Smith, for example, used to work on Wall Street; I seriously doubt anyone would accuse her of having an unconscious bias towards Wall Street. The "cognitive regulatory capture" argument is acceptable when applied to particular individuals -- a lazy argument in my opinion, but acceptable. When applied to everyone who works or has worked on Wall Street, however, the "cognitive regulatory capture" argument is for the naïve and simple-minded.

Johnson appears to be an excellent economist, but he's an academic economist with no experience on Wall Street. His time at the IMF gave him experience with the financial markets of developing countries, but U.S. financial markets are a whole different ballgame, and he doesn't seem to know terribly much about U.S. financial markets.

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