Anyone interested in the roots of the corruption that led to the current global economic disaster should read “Larry Summers and the Subversion of Economics,” a superb essay at the Chronicle of Higher Education by Charles Ferguson, who created the new documentary Inside Job.
While much of the article focuses on Obama’s chief economy wrecker, departing National Economics Chief Larry Summers, Ferguson also mention four of Berkeley’s best known economics wunderkindren, folks who have made large fortunes playing economics for profits.
Millionaires aren’t all that rare on the Cal campus: We’ve posted a fair amount here about Chris Somerville and Jay Keasling, the “bioengineers” who’ve made tidy piles tweaking genes for fun and profit. But Ferguson’s focus is on economic biug guns who have helped pave the wave for today’s rapacious looter capitalism.
Here’s an excellent concise summary of what’s happened:
Starting in the 1980s, and heavily influenced by laissez-faire economics, the United States began deregulating financial services. Shortly thereafter, America began to experience financial crises for the first time since the Great Depression. The first one arose from the savings-and-loan and junk-bond scandals of the 1980s; then came the dot-com bubble of the late 1990s, the Asian financial crisis; the collapse of Long Term Capital Management, in 1998; Enron; and then the housing bubble, which led to the global financial crisis. Yet through the entire period, the U.S. financial sector grew larger, more powerful, and enormously more profitable. By 2006, financial services accounted for 40 percent of total American corporate profits. In large part, this was because the financial sector was corrupting the political system. But it was also subverting economics.
Over the past 30 years, the economics profession—in economics departments, and in business, public policy, and law schools—has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And it’s due not just to ideology; it’s also about straightforward, old-fashioned money.
Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Department’s Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates.
Laura Tyson, a professor at Berkeley, director of the National Economic Council in the Clinton administration, and also on the Board of Directors of Morgan Stanley, which pays her $350,000 per year.
During esnl’s days at the Berkeley Daily Planet, we wrote extensively about David Teece, a Haas business school prof and economics consultant who is a major player in Berkeley city politics and the deep pockets behind most of the new apartments built in Berkeley in the last decade. [He sold his piece of the action to Sam Zell, the real estate profiteer responsible for trashing the Los Angeles Times after he scooped up the Tribune Company.]
Teece is a secretive fellow who has refused to speak to the press about the sweeping changes he’d made in the urban landscape. You’d think a fellow whose job at a public institution and who draws a salary from taxpayers for teaching folks about how money makes the world work would feel a sense of obligation to explain his own role in the game.
But such things don’t both Teece, who’s content to live in his multi-million-dollar home in the Berkeley Hills, where he can look down on the rest of us.
It’s nice to see someone outside the city looking at folks like Teece and Tyson, people who grab from the public purse with one hand and with the other reach deeply into the pockets of the vandals who’ve ruined the nation, perhaps even the world.