Alan S. Blinder

Didn't like it. Seemed like most of what I read was covered in other books, but then I have read more than a dozen books now on the financial crisis. This is Alan Blinder's account of the financial crisis . It seemed stale. It certainly would be of interest to financial types, but too much of the story was based on his view of what went on during the crisis rather than actual facts or reporting. I can't say the book was very insightful in its analysis. That said, it would make a good reference book. How about as a work of nonfiction? The writing was plodding, and in some cases, deadly dull. The book would benefit from some narrative storytelling. www.tellingdigitalstories.com… (mer)

The Politics of Economics

When Alan Blinder was advising the Clinton Administration from his economics perch, he would often find himself thinking “There is no election next Tuesday.” The thinking of the political class is so far removed from anything else, we find economic advice ignored, public opinion ignored, and the good of the nation ignored. What’s important is the next sound bite, tweet and poll that will aid in re-election. For an economist, it feels like automatic rejection every time.

Advice and Dissent is based on the hundred year-old Lamppost Theory, which says that drunks depend on lampposts for support, not illumination. So with politicians, apparently. They use economists to support their own positions, not for insights or solutions.

The main problem is the Madison Curse, Blinder says. James Madison bequeathed a system so hoary , cumbersome and slow that little or nothing could be accomplished in it. That was the actual idea, and we see the results daily.

Having chaired Clinton’s Council of Economic Advisors and vice-chaired the Federal Reserve board, Blinder had a front row seat to the disconnect between politicians and economists. He says economists are all about data and equity, while politicians are all about the popular vote and re-election. These two galaxies rarely cross paths. That is why tax reform is so difficult, why boondoggles continue to exist and why common sense is not a factor. It’s to the point, he says, where even a bipartisan panel of economists would not necessarily agree with a bipartisan panel of lawmakers.

Blinder goes into exquisite detail of how things get derailed in the process. How the budget needs to be passed by scores of committees. How local politics can destroy national programs. How linkages and logrolling top proven practices and corrective initiatives. The government is there for the needs of the politicians and the process. Economists don’t figure in that, unless they support the politicians’ stands.

There is a separate room in economics hell for supply-side theories. Blinder quotes newly-minted Nobel laureate George Stigler, invited to comment on Reagan’s new cure-all: “It’s a gimmick, or if you wish, a slogan.” There are essentially no economists who support the supply side, trickle-down theory of cutting taxes to increase government revenues. Which is why you never see them backing the president. Blinder stabs the supply-siders numerous times throughout the book. The whole concept is an embarrassment to the discipline. But that doesn’t stop politicians from trying it again and again, claiming it is a proven solution.

Economists have the numbers, and the politicians ignore them. Blinder shows that while politicians bemoan the disappearance of American manufacturing, output has been stable for 60 years (Jobs have disappeared, but production continues). And while politicians claim government has ballooned, the civil service is the same size it was in the Eisenhower Administration. This stops absolutely no one from winning elections based on government-bashing.

The government is twisted so far out of shape that Blinder’s suggestions for nudging it back to the mean would have seemed crazy not long ago. He thinks we need more backroom negotiations where deals can be done out of the sunshine. He thinks we should bring back earmarks to exchange for votes on bills. And he thinks we can safely implement otherwise impossible tax hikes if we pass them now but put them off for years. The intellectual dishonesty is breathtaking.

On the other hand, Blinder argues for a Tax Board, made up of economists and other technocrats, to structure a fairer and simpler tax system, without input from special interests. Taking this away from the politicians is not unprecedented. He points to the Federal Reserve, which Congress created because it was out of its depth trying to reign in panics and recessions. Similarly, fast track approvals allow specialists to devise an entire package, and Congress gets to vote yea or nay on the whole thing. We have the resources to make government work, but politicians have other priorities.

Another great old idea is the parliamentary system of civil service. The US president must appoint 9000 people to Administration positions. The vacancies can last for two years or more, what with finding candidates, having the FBI investigate them, and the senate confirm them. The UK and Canadian governments carry on with a full and neutral civil service, without missing a beat. Only the ministers (cabinet secretaries) change.

The one great weakness of Advice and Dissent is Blinder’s clear and omnipresent status as a Democrat. He wears it proudly, and demonstrates it often. This is not merely beneath the lofty pedestal he puts economists on, but ironically, points right back James Madison, whom Blinder cites repeatedly. Madison was totally against political parties for gumming up the works. Which is saying something, considering Madison’s design. If we had politicians devoted to issues instead of ideologies, even the government might work better.

After reading Advice and Dissent, your appreciation of how government works changes; you realize it is a miracle if anything productive comes of it, ever.

David Wineberg… (mer)

This book from 1987 was recommended to me a couple times by a grad school professor of mine. Blinder is writing at the end of Reagan's presidency and is reflecting back on the good and bad economic policies that emerged from that era. Blinder is a Democrat.

"Hard-headed" policies are those that promote efficiency-- greater economic growth and higher utility for society overall. "Soft-hearted" policies are ones that deal more with equity-- dividing up the economic pie more equally. Economists and policy makers struggle to promote both efficiency and equity, and Blinder illustrates several examples where the two can meet in the middle.

He is highly critical of the supply-side arguments that won the day in 1981, and also critical of conservatives' attempts to rid the world of all forms of Keynesian thinking. He does a good job of showing that the schools of thought in economics are not so black-and-white easy to define and are constantly evolving. Modern "New" Keynesian economists have incorporated the virtues of the Lucas critique and rational expectations into their models. New Monetarists have abandoned many of the core beliefs held by Phelps and Friedman in light of the 1980s experience. And conservatives in both the rational expectations and monetarist schools of the early 1980s were highly critical of the supply-siders' claims that tax cuts could pay for themselves. The vast majority of Keynesians never believed that "money doesn't matter," and have common ground with monetarists on that important point. While you still have your hyper-rationalists, hyper-Keynesians, and hyper-monetarists, the majority of the macroeconomics profession is in the "neoclassical synthesis" that's found in the middle.

Chapter 5 deals with the history of tax reform from 1985-1986. Reagan's Treasury Department submitted a proposal to radically change the tax code-- including a plan that looks similar to the John McCain campaign plan of taxing employer-provided insurance as a benefit and giving vouchers or tax credits to people to purchase their own health insurance. That plan was butchered by Congress and special interests, but then somewhat salvaged by the Senate Finance Committee led by Bob Packer and Bill Bradley to be (almost) really sensible tax reform including a PAYGO rule.

Blinder holds up the 1986 tax reform as an example where sometimes sound economics can trump insider greed and lobbying. Blinder also gives some basic economic suggestions for dealing with pollution-- like an emissions tax, a cap-and-trade system and other ideas that are now part of the vernacular, and makes the strong case for free trade.

It's important to remember that even liberal economists like Blinder stand against harmful policies like rent controls, minimum wage laws, trade barriers (Blinder has recently retreated on his position here, though), subsidies and other policies typically touted by more left-leaning politicians. That often gets forgotten in all of the debate and vitriol-- economists still have a lot of common ground.

In all, I give this book 3.5 stars out of 5. It's almost as relevant to today as it was in 1987… (mer)