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Austan Goolsbee: When Wrong People Get Big Jobs

September 10, 2010
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Yesterday the announcement leaked that President Obama would name Austan Goolsbee, the wunderkind University of Chicago economics professor, to replace Christina Romer as Chairman of the White House Counsel of Economic Advisers, extending America’s tradition of promoting people who get most things wrong.

Goolsbee with Barack Obama

How wrong is Goolsbee? Read this New York Times op-ed from March 29, 2007—after the bubble had begun to deflate—in which he neatly ties together wrongness about the housing bubble, wrongness about the “efficiency” of mortgage markets, and stupid, disingenuous wrongness about predatory lending in minority communities.

I could not hope to take this op-ed apart with more grace or a sharper wit than the late Doris Dungey did in this Calculated Risk post, so I won’t even try. But I’ll ask the question, so often asked but never answered: Why do we keep listening to, employing, promoting, and paying ridiculous amounts of money to the people who get things mostly wrong?

Why? Why? Why?

In this case, part of the reason could be that Goolsbee is so quippy. Here he is on The Daily Show last summer, going on about how, thanks to the Obama stimulus, happy days were here again.

Being right is much less valuable than being personable and loyal, it appears.

But the real key to political—and academic and economic—viability can be summed up in one word: centrist.

HuffPO: He is “considered to be a centrist economist.”

NYT: He is “known for his centrist, free-trade views.”

Oh, right; two more words: “free trade.” Can’t be a serious economist without also being four-square for “free trade.” And “free markets.”

“He’s a serious free market guy,” the WaPO’s Ezra Klein assures in today’s “Seven Things to Know About Austan Goolsbee,” of which only two are relevant—numbers four and five.

Goolsbee’s academic work falls into two broad categories. The first I’ll call the New Economy is Different theory, in which he talks about computers and the high-tech markets and how these are mostly wondrous, “efficient,” etc. Goolsbee has said that he drifted toward this line of study because he is a “data hound,” and that’s where the data were. Those who consider this sort of reasoning akin to the guy searching for his car keys under the street lamp because he can see better there are getting my drift. What he misses are the basics—the monopoly power and planned obsolescence that every non-economist experiences and grumbles about when buying or operating computer hardware and software. This blind spot is by no means unique—it is standard among economists, particularly those of the Chicago persuasion. Its utter wrongness should be self-evident.

Goolsbee’s second, and more prominent, set of papers concerns tax policy. The centrist take-away here: Taxing the rich (or corporations, or internet commerce, or anything else with a powerful political lobby and/or phalanx of lawyers at its disposal) is not quite as futile as wingnuts claim. Here’s one from 1997 regarding executive compensation. And another from 1999 (PDF).

This is not wrong, but it’s not complete. The problem with economists’ tax studies is that they don’t consider tax collection policy or potential, probably because improving tax collection has been a political non-starter for at least two decades. If you were a football coach and your defensive line kept allowing short passes, would you conclude that the short pass was undefendable and forfeit the game? What if the opposing team’s QB was routinely throwing his short passes after crossing the line of scrimmage? Would you, maybe, call for some better officiating? Not if you actually worked for the opposing team, you wouldn’t—and that’s what the I.R.S. effectively does today.

The refs—that is, the federal judges—also mostly work for the other team. One key reason for that—the primacy of the Law and Economics Movement—cannot be blamed on Goolsbee. But from 2001 to 2004, he did edit one of the movement’s premier journals.

It’s not that Goolsbee is secretly on the payroll of the Olin Foundation or the Koch Brothers. He’s a creature of the Democratic Leadership Council, the respectably “centrist” Republican wing of the Democratic party. Here’s Goolsbee, in a 2006 DLC missive,  echoing George W. Bush’s “ownership society” con:

Economists don’t know whether the stagnating wage growth of recent years will be a persistent feature of the economy. But the returns on capital investment are as high as they’ve ever been. So at least until there is some clarity in the wage picture, the clarion call for progressives ought to be: Democratize capital ownership!

Got it? 1) Economists “don’t know” if stagnating wage growth will persist because they cannot predict future events, not even with full knowledge—hell, authorship—of the mass of historical policy changes—“free trade,” deregulation, private sector union destruction—that were designed to lower regular peoples’ wages. However, 2) they can predict future events in capital markets. Goolsbee just gets them wrong. Total un-inflation-adjusted returns in the Dow Industrials over the past decade = +.15 percent.

So, no, Goolsbee didn’t get the George Will Stamp of Approval because he’s Skull and Bones. He got it because he believes that the meteoric income and wealth inequality that arose during his lifetime owes not to the tax, labor and trade policies engineered by “centrist” economists in the thrall (and often the pay) of corporate oligarchs, but to a combination of new technology and “radically increased returns to skill.”

It’s skill.

An excellent theory, that. Very sound-biteable. But if Goolsbee is right about that value of skill (and yet so publicly wrong about the housing, mortgage, capital, and wage markets and the utility of the first stimulus package) how can he explain his own success and prominence?