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Larry Summers on the agencies
He always had a talent for the bottom line. On the mortgage agencies he writes:
What went wrong? The illusion that the companies were doing virtuous work made it impossible to build a political case for serious regulation. When there were social failures the companies always blamed their need to perform for the shareholders. When there were business failures it was always the result of their social obligations. Government budget discipline was not appropriate because it was always emphasized that they were "private companies.” But market discipline was nearly nonexistent given the general perception -- now validated -- that their debt was government backed. Little wonder with gains privatized and losses socialized that the enterprises have gambled their way into financial catastrophe.
I wonder how general the lesson here might be. My fear is fairly general. Inherent in the multiple objectives urged for creative capitalists is a loss of accountability with respect to performance. The sense that the mission is virtuous is always a great club for beating down skeptics. When institutions have special responsibilities it is necessary that they be supported in competition to the detriment of market efficiency.
It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too.
Here is more. Larry Summers was my professor for Macro II and every lecture was a joy. "Lecture" isn't even the right word, it was more like turning on a faucet.
Posted by Tyler Cowen on July 17, 2008 at 05:58 AM in Economics | Permalink
Comments
Two sides to the coin, market profits with government impunity. The answer is obvious of course, fully nationalize!
If, on the flip side, full privatization does not even merit conversation by economists in a time of obvious failure, it seems it never will.
Posted by: Andrew at Jul 17, 2008 7:58:31 AM
The credit crunch began with Citigroup and other banks finding they had no sensible option other than to bring their SIVs back on to their balance sheets. Now it's the US government's turn.
Posted by: at Jul 17, 2008 8:13:56 AM
Tyler Cowen was my professor for Macro I and every lecture was a joy. "Lecture" isn't even the right word, it was more like turning on a faucet.
Posted by: Rich at Jul 17, 2008 9:05:05 AM
Given the mess we now have, shouldn't we be looking for the "best" way (or nth best way)way to nationalize the Fs with minimal or manageable short-term disruption, while allowing some breathing room so decisions about the Fs' futures can be made outside the pressure of the moment? How about the following: The Fs can access the Fed's discount window, but if they do they must immediately issue a huge amount of new stock to the US government. Existing shareholders see the value of their shares immediately and substantially diluted. Accessing the discount window would be in the shareholders' interest when it was the only remaining option better than bankruptcy. That is about what society should want. Like in the Bear Stearns deal, the shareholders get next to nothing, but just enough to make "selling out" preferable to bankruptcy. The government owns a controlling interest in each F, and can manage the transition to the next F__ing institutional structure, be that bringing the Fs fully into the government as a branch in some cabinet agency, returning the Fs to their private status (hopefully with better incentives), shutting down the Fs, and or something else. But the Fs' day-to-day operations can continue now without serious disruption. The administration's current proposal seems nuts -- to avoid current disruption, it just subsidizes current shareholders by confirming that , yes, the government did in fact stand by the Fs with its full faith and credit. Wrong message! What future shareholders and managers of the F's have to know (if in fact their status as quasi-private entities is maintained) is that they get (next to) nothing is they ever have to make use of the government's implicit guarantee.
Posted by: Ken at Jul 17, 2008 11:29:48 AM
I wonder if you would feel the same way about him if you were a woman.
HC
"Larry Summers was my professor for Macro II and every lecture was a joy."
Posted by: Happy Camper at Jul 17, 2008 12:26:17 PM
Happy camper,
Your statement is more sexist than anything Larry Summers Said
Posted by: DRB at Jul 17, 2008 12:33:12 PM
Most of Summers post was delightful but it's my belief that the subprime mess wouldn't have happened if there wasnt such a pervasive attitude that everyone must own a house.
oh yeah, happy camper myself and probably a lot of other females wouldkill to have a lecture with Larry Summers. It's silly to dismiss a brilliant economist because he made one stupid statement.
Posted by: katiet at Jul 17, 2008 2:34:14 PM
^^ and I say that because of this statement in his post - Here is a really good creative capitalism idea. All Americans benefit from increases in home ownership because of the values like hard work, community, and respect for property that ownership instills. Families want desperately to own their own homes and accumulate equity.
noooo!
Posted by: katiet at Jul 17, 2008 2:37:19 PM
Neither fish nor fowl ==> not edible long term
Posted by: ZBicyclist at Jul 17, 2008 3:17:38 PM
"Most of Summers post was delightful but it's my belief that the subprime mess wouldn't have happened if there wasnt such a pervasive attitude that everyone must own a house.
Oh yeah, happy camper myself and probably a lot of other females wouldkill to have a lecture with Larry Summers. It's silly to dismiss a brilliant economist because he made one stupid statement." --- Katiet. Added italics
I congratulate you on your politeness and open-mindedness about Summers, but the phrase in italics, I fear, is misleading.
First off, Summers presented the hypothesis about women lagging behind men in the mathematical sciences as one among four or five others . . . a laudable scholarly endeavor, however much at odds it might be with politically correct nostrums.
Then, too, it is a contested hypothesis that has a great deal of scholarly evidence behind it. No need to say more here. If you want, go to the debate that the Summers remarks sparked between Steven Pinker and Elizabeth Spelke, both on the Harvard faculty . . . both very good psychologists, with Pinker one of the three or four most influential in the field of evolutionary psychology . . . in effect, the updated psychological version of socio-biology.
Others might find the exchange --- either on video or in slide presentations --- as intellectually engaging at a very high order. http://www.edge.org/3rd_culture/debate05/debate05_index.html
.....
In case many think this is a straightforward controversy between male and female scholars, it's worth noting how many prominent female scientists support the hypothesis that there are gender differences between men and women that are partly or largely biological in nature . . . with women being found in dozens of cross-cultural studies to be more adept at verbal skills and men at geometric ones. The evolutionary reasons for such differences are fairly easy to grasp. No need to spell them out here. (Note also that IQ studies show that the variance among men is far greater around the mean --- always set at 100 for both men and women --- than it is far women. Pinker's slides show that clearly in the above link.
Here is a list of distinguished female scientists who have devoted their working lives to research on the brain, hormones, or behavior --- all of them considered among the leading scientists in their disciplines, and all stressing the behavioral differences (including IQ in verbal vs geometric (math-oriented)tests)due in part to biology:
Laura Allen, Camilla Benbrow, Laura Betzig, Monique Borgerhoff-Mulder, Patricia Draper, Anke Ehrhardt, Held Fisher, Patricia Coldman-Rakie, Kristen Hawkes, Sarah Blaffer Hrdy, Melissa Hines, Connie Hutt, Julianne Imperato-McGinsley, Carol Nagy Jacklin, Alison Jolly, Doreen Kimura, Annelise Korner, Marie-Christinede Lacost, Jane Lancaster, Jerre Jevy, Bobby Low, Eleanor Emmons Maccoby, Diane McGuiness, Alice Rossi, Meredith Small, Barbara Smuts, Judith Stern, Dominique Toran-Allerand, Beatrice Blyth Whiting, Patricia Whitten, Sandra Witelson, and Carol Wothman. All of these prominent women scholars are listed at the start of chapter 6 in The Tangled Wing: Biological Contraints on the Human Spirit (revised edition, 2002) by Melvin Konner . . . who holds both a Ph.D. in anthropology and an M.D. degree from Harvard and hass been at Emory University for a fairly long time now.
As Konner notes in the rest of chapter 6, the differences in boy and girl baby behavior show up --- according to the several studies, including by women --- within even hours of delivery.
.......
Here, finally, is a link by a prominent female IQ specialist, Linda Gottfredson who summarized her view of a debate with three prominent male specialists, including James Flynn, who stress only social conditions as influencing IQ development: C:\Users\michael gordon\Documents\INTELLECTUAL TOPICS\IQ CONTROVERSY\Gottfredson cato symposium 2nd essay.mht
........
Another point, more personal.
The most influential contemporary exponent of biological influences (interacting with socio-cultural ones always) on IQ development is Arthur Jensen, a psychologist at UC Berkeley and voted by thousands of members of the American Psychological Association recently as one of the 50 most influential psychologists of the last century. Originally, I balked at his prominent work --- which began in the late 1960s. I was particularly influenced by Stephen J. Gould’s The Mismeasure of Man, published in the early 1980s; and two or three years later, by a book called Not in Our Genes by Steven Rose, Leon J. Kamin and R.C.Lewontin (1985). These were well-intentioned criticisms, but as I read further --- and was convinced by an anthropologist from Stanford who debated Jensen several times in the San Francisco Bay area that Jensen, whom he disagreed with, was anything but a racist --- I found myself far more open-minded about these biological influences on human behavior, including IQ development, without being able to make my mind up even now except to know that such influences clearly do exist . . . always interacting with a social-cultural and specific family environment.
Here is a pretty good article link to Jensen: http://en.wikipedia.org/wiki/Arthur_Jensen Note that his work has been sufficiently contested for both intellectual and political reasons --- the two hard to separate, alas --- that up to 25 anonymous scholarly readers would be given his prolific outpouring of articles, several hundred by now, by scholarly journal editors before they would publish them.
........
Come to think of it, a postscript remark. Libertarians, generally --- like all free-market economists I suppose --- reject both biological and socio-cultural influences that shape human behavior, whether as individuals or (more so) across group differences: ethnic, national, what have you. What do humans respond to then? Different incentive-systems?
An odd view, no? . . . however rife that may be. Especially since even institutional differences across countries are in part cultural: in particular, how specific organization that create and implement the general rules of a national society --- whether constitutional, legal, regulatory, or what have you (say, legislatures, executives, bureaucracies, the judicial system, legally established business firms and corporations) --- turn out to behave in no small part owing to not formal legal rules, but customs and social norms. Hence, among other things, the great differences across 200 national societies in corruption and tax evasion as well as how individuals rise upwards in income, status, and power . . . say, by concrete professional and business accomplishments or by mutual backs-cratching in crony patron-client networks closed to outsiders.
Even that excellent work by Gregory Clark, A Farewell to Alms --- discussed at length, chapter by chapter on this site last year --- stresses that the big gap between rich and poor countries in the world is largely cultural, particularly in attitudes toward hard work, diligence, engagement, savings, risk-taking, delayed gratification, and the like. Just as earlier, in his chapters on why the industrial revolution occurred around 1800 --- suddenly raising productivity to bring England and later others out of a Malthusian world --- reduces overwhelmingly to demographic forces: especially the “downward” mobility of well-to-do and rich English families since the late Middle Ages that spread middle-class habits is partly socio-cultural, but also biological (hereditary influences and family environment).
......
Michael Gordon, Aka, the buggy professor, http:/www.thebuggyprofessor.org
Posted by: the buggy professor at Jul 17, 2008 4:26:37 PM
Thank you for such a thoughtful response, buggy professor. I can appreciate the argument that there are biological differences even if i don't really buy it. And I'm sure there's a lot of people that support it, even if they don't always come out and say it. By "stupid statement" I meant it was probably something Summers should have kept to himself and should have been able to anticipate the media jumping all over it. Generally, college presidents have a job similar to that of a CEO--half of it is putting on a good face and not causing controversy.
Then again I wouldn't have expected him to lose his job over it. You'd think that of all places a university--and one of the very best in the country--would be able to tolerate free speech.
I would posit that it is far more acceptable to propose sociocultural differences as a factor in success/wealth/development (as Clark did) than to propose genetic or biological differences (as Summers/Jensen did).
Posted by: katiet at Jul 17, 2008 5:59:16 PM
Women suffer discrimination at the work place, at home, etc, etc..... You'd think that of all places a university--and one of the very best in the country-- would treat them with dignity and respect.
HC
"You'd think that of all places a university...
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