No change, no hope: Obama’s Transition Economic Advisory Board

I’m afraid this post is going to be rather boring (the comment “What’s new?” is taken as made). I intend to take you on a trip through Barack Obama’s Transition Economic Advisory Board.

It members are:

  1. DAVID E. BONIOR, a former Democratic Congressman from Michigan and John Edwards’s campaign manager. Has been active in union advocacy. He is now a professor of labour studies at Wayne State University. He opposes NAFTA and abortion. He has a BA and MA, but I cannot find out in what subject(s). He is 63 years old.
  2. WARREN E. BUFFETT, the billionaire investor and chairman of Berkshire Hathaway; he has a BS and MS in Economics. He is 78 years old.
  3. ROEL C. CAMPOS, a lawyer and former member of the Securities and Exchange Commission under appointed by Bush Jr. He is 58 or 59 years old.
  4. William H. Daley, a senior executive at JP Morgan Chase, former Commerce Secretary under Clinton and chairman of Al Gore’s presidential campaign. He is a lawyer. He is 60 years old.
  5. WILLIAM H. DONALDSON, a former Chairman of the S.E.C. As Chairman, Mr. Donaldson presided over the meeting at the SEC on April 28, 2004, held at the request of the major Wall Street investment banks. These requested that the SEC release them from the so-called “net capital rule” – the requirement that they hold capital reserves in their brokerage units. The request was granted, and leverage in the investment banks exploded. He is a CFA. He is 77 years old.
  6. ROGER W. FERGUSON Jr., Chief Executive of TIAA-CREF, former vice chairman of the Federal Reserve, with special responsibility for regulatory issues. He is an economist. He is 57 years old.
  7. JENNIFER M. GRANHOLM, Governor of Michigan. She is a protectionist (‘Fair Trade’ fan) and a lawyer. She is 49 years old.
  8. ANNE M. MULCAHY, Chairwoman and Chief Executive of Xerox. She has a degree in English and journalism. She is 56 years old.
  9. RICHARD D. PARSONS, Chairman of Time Warner; he is a former banker and a lawyer. He is 60 years old.
  10. PENNY S. PRITZKER, Senior executive, Hyatt; she was national finance chairwoman for the Obama campaign. She has a BA in Economics and a JD/MBA. She is 59 years old.
  11. ROBERT B. REICH, Author, academic and former Labor Secretary under Clinton. He is a lawyer. He is 62 years old.
  12. ROBERT E. RUBIN, Chairman of Citigroup and former Treasury Secretary under Clinton. He is a lawyer. He is 70 years old.
  13. ERIC E. SCHMIDT, Chairman and chief executive, Google. He has a degree in Electrical Engineering and Computer Sciences. He is 53 years old.
  14. LAWRENCE H. SUMMERS, Academic and former Treasury Secretary under Clinton. He is an economist. He is 53 years old.
  15. LAURA D’ANDREA TYSON, Academic and former chairwoman of the President’s Council of Economic Advisors and of the National Economic Council under Clinton. She is an economist. She is 61 years old.
  16. ANTONIO R. VILLARAIGOSA, Mayor of Los Angeles and former union organiser. He failed the California Bar exam four times. He is 55 years old.
  17. PAUL A. VOLCKER, former chairman of the Federal Reserve under Carter and Reagan. He is an economist. He is 81 years old.

A few features of this list jump out at the reader:

They’re old! The mean age is 61.9 years and the median is 60. Old age is good. I plan to enjoy it extensively and expect to be listened to respectfully by young whippersnappers. But even so… The youngest member is 49 years old. Were there no persons in their early 40s, their 30s or their late 20s who could brighten up this sexagenarian coterie?

Too few serious economists! There are far too few members with an serious background in economics, capable of grasping the complexities of the financial crisis, budgetary policy, monetary policy, international trade and global financial issues, tax reform, prioritising infrastructure spending, the economics of education, health insurance, health care, education and the environment. Experience running a business is of no help when it comes to preparing for and planning broad structural economic reforms. Most of this Transition Economic Advisory Board appears completely out of its depth – dead wood at best – a ball and chain at worst. I count only four of the 17 members as card-carrying, qualified economists – Roger Ferguson, Larry Summers, Laura Tyson and Paul Volcker. Where are Austan Goolsbee, Jason Furman and Peter Orszag? Where are Jo Stiglitz and Paul Krugman? If they are otherwise engaged, there are dozens of intelligent, wise and politically savvy younger economists who could play a useful role in the presidential transition process.

Far too many lawyers! I count eight of them. America is held back and at times almost suffocated by an overgrown legal infrastructure and an overweening legal profession, much in the same way that the UK was held back and almost suffocated by organised labour during the last years before Margaret Thatcher came to power.

Lest I be the target of a class action suit by the US legal profession, let me state here that (a) some of my best friends are (or were) lawyers and that (b) a limited quantum of lawyers is necessary to support the essential infrastructure of the rule of law. Unfortunately, in the US, the legal profession has grown to an astonishing size and has become a veritable succubus preying on the body politic and on the economic resource base of the country – the ultimate rent-seeking, wealth destroying profession. According to Legal Reform Now! there are 1,143,358 lawyers in the US, one for every 200 adults. The main problem is not that there are over a million socially unproductive lawyers in the US. The problem is that these lawyers are an essential component of a dysfunctional legal framework that has created the most litigious society in the world. The damage this dysfunctional legal framework causes must be measured not primarily by the direct cost of litigation, astounding though it is, but through the actions not undertaken and the creative and productive deeds not done because of fear of litigation. The first thing we do…

Except for a depressingly small minority among them, lawyers know nothing. They are incapable of logic. They don’t know the difference between necessary and sufficient conditions or between type I and type II errors. Indeed, any concept of probability is alien to them. They don’t understand the concepts of opportunity cost and trade off. They cannot distinguish between normative and positive statements. They are so focused on winning an argument through technicalities, that they no longer would recognise the truth if it bit them in the butt. If you are very lucky, a lawyer will give you nothing but the truth. You will never get the truth, let alone the whole truth. Things have degenerated to the point that lawyers and the legal profession not only routinely undermine justice, but even the law.

But the American political system is completely dominated by this largely socially unproductive and parasitic profession. Consider the membership of the House and the Senate (according to the Congressional Research Service 170 members of the House (out of 435) and 60 Senators (out of 100) are lawyers). Consider the professional training and background of past and future presidents (including Obama, 26 out of 44 presidents were lawyers) – and weep.

They are protectionist! David Bonior, Jennifer M. Granholm (both Michigan politicians), Antonio Villaraigosa and Robert Reich are all ‘fair traders’, that is, rabid protectionists. Laura Tyson has long been a crypto-protectionist and Larry Summers has stepped repeatedly over the boundary between legitimate critiques of certain extravagant claims concerning the joys of globalisation and simple trade protectionism.

They are the unalluring faces of past failures! Roel Campos and William Donaldson served on the SEC when this organisation aided and abetted the excesses of the investment banks that contributed so much to the financial and economic crisis now facing us. Robert Rubin has been a life-long leading light in the banking system that has just imploded and is dragging the real economy with it. William Daley is Robert Rubin lite. Both Rubin and Summers were deeply involved in the Clinton era bail-outs in emerging markets. Both exhibited the characteristic myopia and inability to make credible commitments that turned many of these bail-outs into moral hazard incubators. Larry Summers in particular has never seen a bail-out he did not like and never one so large that he did not want to boost its size further. He will have a field day in the current crisis.

The one beacon of hope in this fog of mediocrity is Paul Volcker, a truly great man with more character, intelligence and vision than the rest of the Board put together. But can he, on his own, salvage this wreck in the making? I hope so, but I doubt it.

To summarize: the members of Obama’s Transition Economic Advisory Board are too old, too uninspiring and too much part of the problem to deliver the change America needs and to keep alive the hope that Obama may have inspired through his election. A wasted opportunity.

Maverecon: Willem Buiter

Willem Buiter's blog ran until December 2009. This blog is no longer active but it remains open as an archive.

Professor of European Political Economy, London School of Economics and Political Science; former chief economist of the EBRD, former external member of the MPC; adviser to international organisations, governments, central banks and private financial institutions.

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