Christina Romer became chairman of President Barack Obama’s Council of Economic Advisers. The University of California at Berkeley got to keep the Romers. (David Romer is author of a leading graduate macroeconomics text.)

The Harvard economics department was permitted to hire as part-time visiting professor, Stanley Engerman, of the University of Rochester, the most distinguished economic historian in the country, not counting Nobel laureate Robert Fogel, his research partner on their landmark study of the economics of slavery before the US Civil War, Time On the Cross.

And Engerman, in turn, acquired at least one more distinguished student. Among the couple hundred undergraduates who each year took his course on economics of sports and entertainment was Jeremy Lin, the former Harvard point guard who elevated his way to stardom last winter as player for the New York Knicks, before a knee injury interrupted his career.

Last week Harvard announced that Engerman would return fulltime to Rochester. The final ripples from the affair ran their course.

In retrospect, it appears that Ms. Romer’s appointment was a casualty, not just of in-fighting in the Harvard department, as widely surmised at the time, but also of the outside opinions  of leading experts in other universities, routinely solicited by the Dean of Arts as Sciences as part of the process of review – in this case, from economic historians.

Her appointment apparently was explicitly to replace economic historian Jeffrey Williamson, who was retiring. Some of those consulted held that Romer was more of a macroeconomist than an historian (her specialty is fiscal and monetary policy during the Great Depression).

That the offer presumably had been planned at a time when economist Lawrence Summers was still president of Harvard; and that economist N. Gregory Mankiw, of Harvard, and David Romer had been best man to one another at their respective weddings twenty- five years before), may have made the decision to overrule the department slightly easier.

Whatever was the case, Christy Romer’s government service during the crisis tipped the Berkeley prof into the policy/public intellectual camp once and for all. The episode presumably will come to be seen as less wounding to both Romer and Faust, now that the credibility of each, as policy adviser and university president, has been established.

That when times were flush the Harvard economists sought to hire another historian is the important thing.  Labor historian Claudia Goldin has stature and plenty of research steam, though a term as president-elect of the American Economic Association will slow her down. Political scientist James Robinson, co-author with Daron Acemoglu, of the Massachusetts Institute of Technology, of Why Nations Fail, a popular trade book, teaches some economics courses, though he’s in Harvard’s Government Department. Economics just tenured Nathan Nunn, an expert on Africa and the Columbian exchange, rather than lose him to Stanford.

But Williamson retired in 2008, David Landes is emeritus, Alfred Chandler  died in 2007, before he could share in the Oliver Williamson/Elinor Ostrom Nobel Prize; and Fogel, a big draw at Harvard for half a dozen years in 1970s,  long ago returned to the University of Chicago, where he began a whole new line of work. The old days, when Alexander Gerschenkron sent the likes of Paul David and Deirdre MCloskey out into the world, are a dim memory. (Harvard historian Niall Ferguson offers no instruction in economics).

This was the gap that Engerman was designed, not so much to redress as to signal. For a few years he would serve as a badge on the institutional sleeve. For one thing, the message of Time on the Cross had been close to the heart of Harvard. Fogel had received the Nobel; the citation that accompanied Engerman’s  election as Distinguished Fellow of the AEA in 2005 put it this way: “Their conclusion served to underscore the magnitude of the achievement of the Abolitionists, whose moral crusade triumphed over a wealthy and powerful slave economy, not a weak and failing one.” For another, as co-editor of the three-volume Cambridge Economic History of the United States, Engerman had mastered the borderlands. He had published with more than thirty co-authors over the course of his career, evenly divided between economists and historians.

By all accounts Engerman, 76, gave good value. There was the surprising success of the undergraduate course, and the famous weekly meetings of the Economic History Workshop.  He edited a volume of his papers with the late Kenneth Sokoloff, Economic Development in the Americas Since 1500, and finished several short essays, including a tentative definition of slavery for the United Nations.

Harvard, having spent heavily to acquire public finance specialist Raj Chetty from Berkeley (but having  failed to attract labor economist David Card), is now losing market designer Alvin Roth, on everyone’s shortlist of prospective Nobel Prize winners,  to Stanford. Harvard’s department is still among the best four or five in the world, but competes for the best students in macro with MIT and Princeton, and the inability to make new senior hires is beginning to show. The university is suffering from having overspent.

Sokoloff, had he lived, might have helped solve the problem in economic history; so might have Robert Allen, another Harvard-trained specialist ensconced at Oxford University.  Harvard has three good young economic historians coming up: Eric Chaney, with a background in Middle-Eastern history; Richard Hornbeck, an environmental historian; and newly-hired Melissa Dell (with a timeout for the Society of Fellows).

There are better history departments than Harvard, but historically, none better than Harvard economics at advancing the cause of history.  The department needs another senior figure.  It will be interesting to see what the university does.

.                                xxx

There was never much doubt that there was something profoundly wrong with the banking industry as it emerged from the Crisis of 2007-09. The question was what to do about it. The Safe Banking Bill, introduced by Sen. Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del), and designed to set formulaic limits on size, never had a chance.  The Dodd-Frank Act that eventuated ducked the issue altogether.

Now the $2 billion loss suffered by JP Morgan Chase has brought the issue back to the fore.

The best approach almost certainly will involve a new system of bank charters designed to force financial institutions to decide what to pursue broad lines of business and to sell off others. The  Morgan Chase fiasco will gain more attention for those thinking seriously about the issue, starting with the irrepressible Edward Kane.

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The retirement of the generation of the baby boom will dominate the investment business for the next twenty years.  Its experience will shape the industry for the rest of the twenty-first century and beyond.  The shape of the industry, in turn, will help determine if there is to continue to be a “middle class.”

Old rules of thumb in the US, intended to provide guidance over a lifetime – the “three-legged stool” of employment- based pensions, social insurance and private savings – have been undermined by globalization.  Corporate plans promising defined benefits have all but disappeared. The Social Security retirement system is threatened by political strife.  Personal savings have been volatile, thanks to two stock market bubbles that burst, and very low interest rates in the years since.

New rules haven’t yet emerged.

So the appearance of a pair of books on the future of finance by eminent professors of the subject is very timely.  Robert Shiller, of Yale, and Zvi Bodie, of Boston University, are each at the top of their trade: Shiller as author of five books, including Irrational Exuberance; Bodie, as author of Investments, a market-leading textbook.  For all that, their books could scarcely be more different.   They make an interesting comparison.

You don’t get very far in Shiller’s Finance and the Good Society before you recognize that he is addressing mainly his students (and those who want to understand his students), expanding philosophically on his Open Yale financial markets course. Indeed, the first half of the book, under the heading of “Roles and Responsibilities,”  reads a little like, as he might have it, a Whitmanesque Song of Occupations: chapters on chief executive officers; investment managers; bankers; investment bankers; mortgage lenders and securitizers; traders and market makers; insurers; market designers and financial engineers; derivative providers; lawyers and financial advisers; lobbyists; regulators; accountants and auditors; educators; public good financiers; policy makers in charge of stabilizing the economy; trustees and nonprofit managers; philanthropists. Publishers and journalists apparently play no part in “the modern system of financial capitalism.”

No matter:  Shiller knows those roles, too.  The second half of the book consists of a series of thoughtful essays (not unlike the monthly column he writes for The New York Times business section) on various features of the financial landscape:  “Categorizing People: Finance, Artists and Other Idealists”; “Some “Unfortunate Incentives to Sleaziness Inherent in Finance”; “Speculative Bubbles and Their Costs to Society”; “Inequality and Injustice”; and so on.  By temperament Shiller is an inventor: he admires Henry David Thoreau chiefly because, as manager of the family business, he invented a new method of making pencil leads. Among the innovations to which Shiller contributed is, of course, the Case-Shiller Index of constant-quality house prices, an ingenious combination of conceptualization and hard work that ultimately supplied the pin that was employed by savvy traders to prick the housing bubble in 2007; also, with John Campbell, of Harvard University, a famous chart of stock prices since the late nineteenth century with which he warned forcefully of a stock market bubble.  Shiller himself has much more imaginative designs in mind (on which he holds several patents): macromarkets for instruments representing many sorts of risk not currently traded, including slow business, unemployment, and occupational obsolescence.  Shiller is understandably disappointed (if not exactly surprised) that, as a result of the recent crisis, the pace of innovation has slowed.

Here is the interesting opposition to the Bodie book. In Finance and the Good Society, the customer only appears on page 235 (of a book with 239 pages), and then disguised as “the public.”   This public requires “reliable information,” which can only be provided by advisers, legal representatives, and educators, “who see their role as one of promoting enlightened stewardship.”  If the public – individual investors – are able to benefit from such help, they will be less resentful and less inclined to believe that financial capitalism is being dominated by a “power elite.”

Bodie, on the other hand, and co-author  Rachelle Taqqu,  have from the beginning structured Risk Less and Prosper  around the discussions of a group of four men and women, composites, presumably, who meet periodically with a financial adviser, hoping to improve their investment performance. These individual investors are at center stage throughout. Bodie and Taqqu write,

Something has gone terribly wrong with the way we think about personal investing. Trustworthy investment advice for individuals is hard to find. Much of what goes for advice is filled with misleading promotions masquerading as education, and the result has been pervasive misinformation. Investors are not aware of how much risk they are bearing. Two stock market collapses in seven years have made these failings all too clear.

Their book is full of practical advice.  But there is no doubt about their basic target.  It is the mutual fund industry, with its 8,000 funds, and what they call “the credo of stocks-for-the-long-term” – the idea that a properly diversified portfolio of stocks somehow magically diminishes risk to the vanishing point.  (What if you retire and need money at a time when the market is down?  You can run through your savings pretty quickly in that event – see this column by Joe Nocera of The New York Times for a personal account.)

Instead, Bodie and Taqqu argue for relatively heavy dependence on US Treasury Inflation Protected Securities, or TIPS, and similar I-bonds, arranged in maturity “ladders” to produce substantially risk-free income as they mature.  I spend too little time in the market for wealth management to fully appreciate the difference between what they say is the conventional approach to managing several different portfolios, which they compare to assembling a computer system from components, and the goal-based method that they recommend.

But I am pretty sure they are right when they tout the advantages of fee-only compensation of personal financial planners and members of the Financial Planning Association as a means of cutting down on conflicts of interests, as opposed to advisers who charge a fee for service (commissions) and who are often paid by a third party (as brokers) to sell particular products.  (There is no discussion of index funds or TRIPS in Shiller, and Social Security shows up under “entitlements” rather than “safety nets.”)

Which system will win out?   The financial technostructure, as represented by the current array of firms on Wall Street?  Or a system that places less stress on personal responsibility for risk management, in the form of relatively simply financial products that require less (though still some) expensive financial advice?  Shiller notes that gross value added by financial corporate business has grown from 2.3 percent of GDP in 1948 to 9.1 percent in 2010 (not counting insurance!). Who is to say, he asks, whether that is too little or too much?  Perhaps the trend is inevitable, required by the advancing economy.

Then again, maybe not – or at least not that much Reading Shiller, I was reminded of another excellent theorist of the good society, John Kenneth Galbraith.  His 1967 book, The New Industrial State, Galbraith summed up a certain view of the power elite that was prevalent in those days. The industrial system, Galbraith argued, was a relatively autonomous, relatively beneficent alliance among giant corporations, and the executives who ran them – managers and planners, scientists and engineers – often at the expense of consumers, shareholders, would-be entrepreneurs and even bankers.  Galbraith was mildly critical of the apparatus he described, while Shiller is at pains to defend financial capitalism. But the memorable thing about The New Industrial State was the extent to which it failed to anticipate the broad turn towards deregulation of various sorts that was just ahead.

Shiller may be making a similar mistake. I understand the advantages of the banks and other huge financial corporations:  long-range planning techniques, slick advertising campaigns, vast sums for political lobbying. The recently enacted JOBS Act authorized hedge fund advertising for the first time, after all.

Myself, I have more confidence in consumer sovereignty, and the capacity of innovators and policy entrepreneurs to undercut the mutual fund industry’s claims to deliver superior performance.  No matter how old you are, pay attention. Keep your eye on Vanguard, those personal financial planners, and proponents, including Bodie, of the so-called “next generation” of retirement plans.

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Therefore I want to return to a point made here before. The regulation of health care in the United States is following, by fits and starts, the same pattern as did the regulation of the banking industry a century ago – and for many of the same reasons.  Competition among the various industries that make up the sector – they add up to as much as a quarter of the economy – has become destructive.

Eventually, health care providers – physicians, hospitals, pharmaceutical companies, medical device makers and insurers – can be expected to quietly caucus with their Congressional overseers and design a broadly acceptable arrangement, much as bankers did in the years leading up to the creation of the Fed. They’ll follow the outlines of an approach sketched by former Sen. Tom Daschle, chief advocate of the legislative restructuring strategy that President Barack Obama adopted in 2009.

One big difference between the banking industry and the health care complex is the presence in the latter of the private insurance industry.  This is an accident of history, a consequence of the adoption of a private, employer-based system during World War II.

For a time after the war, Blue Cross and Blue Shield organizations covered all comers at a single price .But private insurance companies soon entered the market and, offering lower premiums to younger, healthier people, commenced the cream-skimming process that continues to the present day.

There will always be demand for private insurance. But much basic medical care can be provided more efficiently through a single-payer system, just as a certain minimum standard of retirement security is efficiently provided today through the Social Security System.

The other big difference between banking and medicine is the presence of the physician at the center of the system of health care: a bank is just a bank but everybody needs a doctor.  Much of the difference in medical care cost in the US as a percentage of gross domestic product, compared to other nations, is the higher compensation of doctors, especially specialists.

For all its complexity, the Affordable Care Act of 2010 was only half the battle, raising revenues and bringing everyone into the system. The second part is much more complicated.  The Independent Payment Advisory Board that is at the center of the ACA’s plan to control costs must be built out until the 15-member board of experts becomes, in effect, a health care Fed.

By the time the task is done, the Health Care Fed probably will resemble the Federal Reserve – a board of governors, appointed by the president, presiding over a decentralized system of regional authorities, each governed locally, advisory boards of all sorts, and, naturally, plenty of Congressional oversight.  A certain degree of independence must be involved:  The Federal Reserve is self-funding, through its open market operations; some similar mechanism will have to be devised for the Health Fed.

Medicine makes banking look like child’s play, of course.  For a lucid look at what’s entailed in mediating among the myriad conflicts, see Bending the Health Cost Curve: The Promise and Peril of the independent Payment Advisory Board, by Ann Marie Marciarille and J. Bradford DeLong.  Hard to think about; hard even to read about on Sunday morning: changing and shaping the practice of medicine in the US will be the work of many decades.

This plausible story about the direction that American history is taking – it is nothing more than that – came to mind while reading the speech that Mitt Romney made last week after he had won five more primaries and wrapped up the Republican Party’s presidential nomination.

We know that this election is about the kind of America we will live in and the kind of America we will leave to future generations.  When it comes to the character of America, President Obama and I have very different visions.

Government is at the center of his vision. It dispenses the benefits, borrows what it cannot take, and consumes a greater and greater share of the economy. With Obamacare fully installed, government will come to control half the economy, and we will have effectively ceased to be a free enterprise society.

This President is putting us on a path where our lives will be ruled by bureaucrats and boards, commissions and czars.  He’s asking us to accept that Washington knows best – and can provide all.

We’ve already seen where this path leads.  It erodes freedom.  It deadens the entrepreneurial spirit.  And it hurts the very people it’s supposed to help.  Those who promise to spread the wealth around only ever succeed in spreading poverty.  Other nations have chosen that path. It leads to chronic high unemployment, crushing debt, and stagnant wages.

I have a very different vision for America, and of our future. It is an America driven by freedom, where free people, pursuing happiness in their own unique ways, create free enterprises that employ more and more Americans. Because there are so many enterprises that are succeeding, the competition for hard-working, educated and skilled employees is intense, and so wages and salaries rise.

It seems to me that it probably doesn’t really matter what the Supreme Court decides about the insurance mandate – that Obama will win the election in the fall and, if necessary, find a slightly different way to write the law if the approach he took is thwarted, and campaign until he again had a House and Senate that would pass it. The health care industry is destined to come under federal supervision, just as banking was “socialized” after 1913 – with no more dire consequences and with plenty to be gained. That this is intuitively obvious explains the desperation with which the Republicans resist:  they understand that after another four years there will be no turning back.

But that does not mean the United States is becoming “more like Europe,” any more than the assignment of responsibility for conducting monetary policy to the Fed meant the end of a vigorous and competitive banking industry. It was an American solution to a universal problem.  Once every hundred years doesn’t seem too often to expect that some new apparatus for rule-making and supervision will be required for an economy whose complexity continues to grow in new and surprising directions.

.                                     xxx

Amy Finkelstein, of the Massachusetts Institute of Technology, won the John Bates Clark Medal.  The prize goes annually to an economist under forty judged to have made a signal contribution to the field.

Finkelstein is a health economist noted for her work on insurance markets.  She is the first former newspaperperson to earn the medal, having edited The Independent as Harvard College undergraduate.

Runner-up, according to Neil Shah, of The Wall Street Journal (subscription required), was Senhil Mullainathan, 39, of Harvard, a behavioral economist who has been chosen to run the research office of the Consumer Financial Protection Bureau.

Others under consideration, Shah wrote earlier, were Ulrike Malmendier, of the University of California at Berkeley;  Nicholas Bloom, of Stanford; Matthew Gentzkow, of the  University of Chicago;  and Roland Fryer, of Harvard.

Among past winners are Martin Feldstein, Joseph Stiglitz, Paul Krugman, Lawrence Summers, Steven Levitt, Daron Acemoglu, Susan Athey, and Emmanuel Saez.

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Alas, there was no such series.  The closest anyone came to writing anything like it was a low-key 3,000-word article by former Washington Post reporter John M. Berry that appeared in the controlled circulation magazine International Economy in February – “Bloomberg vs. the Fed: Was the news organization excessive in its demands for central bank transparency?”

In fact, no prize was awarded for editorial writing this year (the winners were announced last Monday) – and thereupon may hang a story.  I am not aiming here to pry secrets from the Pulitzer board, but rather to connect up three or four otherwise unrelated circumstances.

A notable feature of the past few years has been the boisterous Bloomberg News campaign against the Governors of the Federal Reserve Board, conducted under the banner of the Freedom of Information Act.  The news service began asking the Fed about the recipients of its emergency lending after the forced sale of Bear Stearns to J.P. Morgan in March 2008.  As the financial crisis deepened, Bloomberg demanded; the Fed didn’t want to say, at least not any time soon.  When the Fed declined to reply, Bloomberg sued, in November 2009.

In its legal briefs, the Fed responded with an exposition of its role as lender of last resort.  In a financial panic, it explained, otherwise-solvent banks and other financial institutions (shadow banks, in current parlance) can be forced to sell assets at fire-sale prices to meet the demands of depositors and other funders.

The antidote had been well understood since the time of Walter Bagehot (whose 1873 classic, Lombard  Street: A Description of the Money Market, codified the modern understanding of central banking): to stem a panic, the government should lend freely, but at a penalty trade, against good collateral, in the expectation of being repaid once calm is restored.

Bagehot might have added – but he didn’t – a further stricture: guard carefully the identity of those getting help, for to acknowledge weakness in particular instances would be to create what central bankers call “stigma” – the equivalent of pouring fuel on the fire.

The Fed’s arguments appealed to practical types. They knew that it was only after the BBC reported in September 2007 that Northern Rock bank was receiving emergency aid from the Bank of England that a run began – the first on a British bank since 1866.

The Bloomberg suit was quickly joined by the Associated Press, Reuters, The Wall Street Journal and The New York Times; Fox News filed a separate action; and the Clearing House Association, whose members are the eleven biggest financial institutions in the United States, joined the Fed.

In August 2009, Chief Judge Loretta Preska, of the Southern District of New York, found for the news media:  the Fed wasn’t entitled to an exemption from the Freedom of Information Act. An appeals court in March 2010 agreed:  if the Fed wanted a special dispensation, it would have to ask for one from Congress.

So in March 2011, its appeals exhausted, the Fed finally released the details of its discount- window lending in 2008 and 2009. Bloomberg and the others wrote stories analyzing the information.  “The long list of borrowers,” wrote Binyamin Appelbaum and Jo Craven McGinty in the Times, “gives a striking impression of a crisis spreading to every last corner of the financial system.” European banks, it turned out, had been among the biggest beneficiaries (through their American subsidiaries); the US Central Federal Credit Union had received dozens of loans, exceeding several billions of dollars at a time.

Bloomberg began a series, The Trillion Dollar Secret, clearly designed to be an entry in this year’s Pulitzer Prizes. (Amanda Bennett, Bloomberg’s executive editor for projects and investigations, left the 18-member Pulitzer Board last fall after completing a term to which she was elected in 2002 as editor of the Philadelphia Inquirer. She was replaced by Robert Blau, Bloomberg’s managing editor for projects and investigations.)  And in December, Bloomberg’s  monthly magazine described how “a fresh narrative” had emerged from the 29,000 pages of Fed documents obtained under the act.

“Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.”   The Brown-Kaufman proposal to limit the size of banks had been defeated by Congress, the article noted; the much less aggressive Dodd-Frank Act has passed into law instead. Some of the account’s  numbers were immediately challenged as having been inflated – $7.77 trillion “committed” as opposed to $1.3 trillion in loans actually made.

The Fed itself made an unusual response to a major premise of the Bloomberg campaign in the form of a four-page staff memo (without ever mentioning the organization by name) that chairman Ben Bernanke sent to Congress:

It is true, generally, the names of the counterparties and borrowers from the emergency facilities were not immediately disclosed, consistent with general central banking practice.  Releasing the names of these institutions in real-time, in the midst of the financial crisis, would have seriously undermined the effectiveness of the emergency lending and the confidence of investors and borrowers.  These matters were discussed extensively at the time, in the press. And the Chairman and other members of the board discussed them numerous times in hearings before Congress.

Bloomberg responded with a lengthy defense of its reporting, and the issue faded from view – until last week, when “The Trillion Dollar Secret” didn’t turn up among the finalists in any of the Pulitzer awards. A Bloomberg spokesman declined to say whether the series had been submitted.

(None of the ruckus discouraged Dylan Ratigan, a talk show host for MSNBC, or the Huffington Post: both chimed in in January with FOIA requests of their own for transcripts of Federal Open Market Committee meetings during the crisis. Last week MSNBC reported that the Fed had posted on its website in early March some 7,000 pages of documents, covering the period from 2007-2010 – with all but the pleasantries redacted. It was another episode in what the WSJ termed “the long running battle over Fed transparency.” The central bank releases full transcripts with a five-year lag.)

One way to think of Bloomberg vs. the Fed is as a contest between representatives of two polar temperaments of present-day journalism – populist skepticism and civic involvement – as personified by Mark Pittman, the Bloomberg investigative reporter who filed a Freedom of Information Act request, and John M. Berry, the long-time Fed-watcher, who wrote the story up for International Economy. The remarkable thing is that, until Berry quit in in the spring of 2009, both men were employed by Bloomberg.

Pittman was a charismatic figure, a football linebacker in high school who took a part-time job as an Oklahoma ranch-hand to supplement his wages as a reporter for the Coffeyville, Kansas, Journal. After working his way up in a series of newspaper jobs (the Rochester, NY, Democrat & Chronicle, the Middletown, NY, Times-Herald-Record), he joined Bloomberg News in 1997, and earned a reputation as a fun-loving, yarn-spinning, whiskey-drinking beat reporter who linked a photo of folk-singer Woody Guthrie to his outgoing messages.  In 2007 he won a Gerald Loeb Award for a prescient series of articles on the mortgage industry.  That Pittman died, at 52, not long before his suit was won, only heightened the drama of his life. Columbia University professor Joseph Stiglitz called him “one of the great financial journalists of our time.” His colleague Bob Ivry, delivered a moving eulogy.

Berry, also a celebrated journalist, is close to the opposite end of the spectrum. Having begun as a reporter for the Providence Journal, in 1962, he earned a Congressional Fellowship from the American Political Science Association and served for a time in Senate and House offices.  After working for Business Week, Time and Forbes, he joined The Washington Post, in 1979 and remained there, dean of the corps of newspaper specialists who covered the Fed, until leaving in 2004 to become a Bloomberg columnist. Berry doesn’t write the kinds of stories that win prizes; he lives for his sources and readers, who include economists and bankers around the world.  He is proud to have been the only reporter invited to every August gathering in Jackson Hole by the Kansas City Federal Reserve Bank (that is, until he switched organizations); proud, too, to have convinced William Greider, former national editor of the Post, of the centrality of the Federal Reserve System to American life (even though Greider became, until recently, a fierce critic. (He wrote the landmark Secrets of the Temple.)

Differences of this sort in point of view exist in all major new organizations. Ordinarily they are mediated by top editors, in the manner of parents of quarrelling siblings.  But the circumstances in which Bloomberg undertook its crusade against the Fed’s secrecy at the absolute height of the crisis were oddly reminiscent of the familiar movie device known to aficionados as Hey-Let’s-Put-on-a-Show!  As described by reporter Alan Feuer in an exuberant story that appeared in the Times, not long after his paper joined the fray:

The critical lawsuit challenging that mystery of finance known as the Bailout started, oddly enough, with a casual newsroom chat.

Mark Pittman, an investigative reporter for Bloomberg News, had filed a Freedom of Information Act request, with the Federal Reserve Board, seeking the details of its unprecedented efforts to funnel money to the collapsing banks of Wall Street.  Mr. Pittman, sometimes known as Bloomberg’s Yoda for his Jedi-like command of economic issues, had quietly surmised that the Fed was holding tightly to the secrets of the bailout. So he was hardly surprised when, after four months, it had failed to even answer his request. He was nonetheless annoyed. One day, even grumpier than usual, he approached his boss, Amanda Bennett, as she stood talking in the company’s East Side newsroom with an in-house lawyer named Charles Glasser.

“Pittman was this big shlumpy guy and he was wandering around going, ‘Argh argh argh,’ ” Ms. Bennett said recently. “So we asked him, ‘What’s with your FOIA?’ And Mark says — he used some colorful language — ‘They won’t answer us.’ ”

“That was when we all sat down and said, ‘So what do we do? They can’t just get away with not answering us,’ ” Ms. Bennett recalled. “Charles said, ‘You know, I suppose we could just sue the Fed.’ So we went to Matt” — Matthew Winkler, Bloomberg’s executive editor — “and said, ‘What do you think about us suing the Fed?’ ” As she recounted this story, Ms. Bennett punched her left palm with her right fist — precisely, she explained, as Mr. Winkler had. She added, “He loved it.”

… Whatever the results, Ms. Bennett and her investigative team have walked away from the experience with their tribal energies revitalized.

“You can’t know how exciting and explosive it’s been,” she said. “This wasn’t some plan where we said, ‘We’re going to file the FOIA, then we’re going to wait, then we’ll check it and our ultimate goal is to sue the Fed. ‘

“It came up spontaneously. It’s like what it was thirty years ago. Back in the days when journalism was exciting – really exciting.”

Exciting, that is, to everyone but Berry.  Within a few months, he found his freedom to express   his views as a columnist severely curtailed; his editors no longer would approve his columns.  In April 2009 he resigned.

In his International Economy article, Berry laid his customary emphasis on the craft of central banking.  After invoking Peter Fisher, former manager of the New York Fed’s open market trading desk to describe the stigma that even healthy banks suffered when they were thought to be borrowing from the Fed in situations of general duress, Berry explained the ingenuity with which Fed officials wired around the stigma problem in the run-up to the crisis, in December 2008, as sources of short-term funding (repurchase agreements by money market funds, for example) were becoming more sensitive to reputational issues.

The Fed sought to encourage borrowing by creating the Term Auction Facility at the New York Fed rather than the discount window.  Using it, banks were able to approach the Fed collectively, rather than one by one, and avoid the stigma, and they could borrow for 28 days rather than overnight and at an interest rate determined by the bidders rather than the Fed.  This worked well, and the Fed reported how much was lent and at what interest rate. Later other facilities were set up to address specific problems in different segments of the crisis-ridden financial markets.  Again, all the details were reported except the names and amounts each institution borrowed.

(A quartet of economists, three of them associated with the New York Fed, later calculated that banks were willing to pay a premium of at least 37 basis points [hundredths of a percent of interest] and, after Lehman Brothers’ bankruptcy, 150 basis points, for the  anonymity of the TAF rather than borrow from the more visible discount window.)

In the end, the basic difference of opinion in Bloomberg vs. the Fed is as simple as this:  the Fed was trying to save the financial system from collapse; Bloomberg, by deeds if not by words, argued in favor of letting it go, in the hope that collapse would lead eventually to a safer system. Here’s the gist of it:

Bloomberg:  While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest that taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger [that is, it maintained entities too big to fail].

Berry:  It’s certainly true that some of the biggest banks have gotten bigger, as some pretty big ones, such as Wachovia, failed and were absorbed by larger institutions.  Again, however, Bloomberg never compares that supposed “price beyond dollars” to the price taxpayers – the whole country – would have paid if the financial system collapsed.

The curious thing is that both views have merit – and have been present in every crisis since central banking was introduced more than three centuries ago. In 1978, when banking panics to most people were no more than a dim memory of something they saw once in the movies, Charles P. Kindleberger, a historical economist at the Massachusetts Institute of Technology, undertook to remind readers in the United States of the lessons that had been taught by Bagehot in the United Kingdom a hundred years before.

In Manias, Panics, and Crashes: A History of Financial Crises, Kindleberger wrote that, at the end of the periods of irrational exuberance that were a “hardy perennial” of economic life, central banks inevitably found themselves on the horns of a dilemma:  lend freely to halt the panic or leave the market to its own devices, hoping to improve the chances of preventing future panics. “Actuality inevitably dominates contingency,” wrote Kindleberger. “Today wins over tomorrow.”

(Now in its sixth edition, Manias. Panics, and Crashes has been substantially augmented by Rober Aliber, professor emeritus at the University of Chicago’s Booth School of Business.)

Bloomberg’s populism is surprising, even ironic, given the nature of the firm.  Founded in 1981 as a data base of bond prices by former Salomon Brothers partner Michael Bloomberg (today the third-term mayor of New York), the company grew to become a hugely profitable player in the financial data industry, mainly by bundling analytic software with its data bases.   By the early 1990s Bloomberg’s success rivaled that of Dow Jones & Co., owner of The Wall Street Journal.  By the mid-’90s, it had surpassed the older company.

In 1991, Bloomberg founded a business news service to augment its analytics and their underlying data. Bloomberg services were distributed to its customers through proprietary computer terminals, known as “Bloomberg boxes,” for which customers now pay around as $1,500 a month (some 300,000 orf them are thought to be installed worldwide).  News content was given away for free to newspapers. Founding editor Matthew Winkler, a former Wall Street Journal reporter, hired journalists by the score, assembling a news service that today numbers more than 2,000 persons around the world; includes the former McGraw-Hill newsweekly now renamed Bloomberg BusinessWeek); and whose human inventory resembles, in certain respects, San Simeon, the legendary mansion on the California coast where publisher William Randolph Hearst stashed acquisitions from his European vacations, sometimes without opening the crates.

In the hands of good editorial writers, Bloomberg vs. the Fed had the makings of a really good civics lesson.  The public understanding of central banks as lenders of last resort in a panic could hardly be more important than it is in the present day. The arguments and counter-arguments each side’s lawyers wrote would have furnished the material for some serious discussion over several years.

Instead, Bloomberg View, the company’s newly established editorial writing arm, offered instruction to the Europeans on how to cope with their debt crisis. What instruction?  It’s anybody’s guess.  A Pulitzer jury of five editorialists thought enough of the Bloomberg entry to select it as one of three finalists – Paula Dwyer and Mark Whitehouse had dealt with important technical questions in ways that the average readers could grasp, the jurors said – but the Pulitzer board declined to make an award.  Perhaps it sensed the trouble in Bloomberg’s chameleon-like positions.

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It’s hard to imagine that much new biographical material about President Barack Obama will surface at this point. There is his own autobiographical Dreams From My Father: A Story of Race and Inheritance; biographies by two of the best political journalists in the business, The Bridge: The Life and Rise of Barack Obama, by David Remnick, of The New Yorker; and  Barack Obama: The Story, by David Maraniss, of  The Washington Post;  plus A Singular Woman,: The Untold Story of Barack Obama’s Mother, by Janny Scott, of The New York Times; The Other Barack: The Bold and Reckless Life of President Obama’s Father, by Sally Jacobs, of The Boston Globe; and The Obamas, about his marriage, by Jodi Kantor, also of the Times – not to mention The Manchurian President: President Barack Obama’s Ties to Communists, Socialists, and Other Anti-American Extremists, by Aaron Klein and Brenda Elliot.

Romney, on the other hand, is only now entering the gantlet. He has written two campaign books, Turnaround: Crisis, Leadership, and the Olympic Games, and No Apology: Believe in America; and is the subject of The Real Romney, a solid job of newspaper reporting by Scott Helman and Michael Kranish, both of The Boston Globe, that nevertheless leaves some room for further scrutiny.

For example, two weeks ago Michael Barbaro reported in the Times on the warm friendship, dating from 1976, between Romney and Benjamin Netanyahu, today the prime minister of Israel.  That was when both men found themselves working at the Boston Consulting Group as newly-minted MBAs. Romney had arrived in 1975 from Harvard Business School, Netanyahu the next year from the Sloan School of Management across the Charles River, at the Massachusetts Institute of Technology. The two competed for the attention of BCG founder Bruce Henderson until Romney left in 1977 to join rival Bain & Co. Netanyahu left the following year, having started a foundation to commemorate the death of his brother, who had been killed while leading a successful raid to free hijacked hostages in Entebbe. The relationship has remained close over the years, Barbaro wrote, with Romney regularly turning to Netanyahu for private briefings on the situation in the Mideast, “and that history could well influence decision-making at a time when the United States may face crucial questions about whether to attack Iran’s nuclear facilities or support Israel in such an action.”

Last week it was Wayne Barrett, of The Daily Beast – in Romney Saved Salt Lake City Olympics from Scandal, but at What Price? – reporting on some details of the rescue operation Romney undertook in 2000 after members of the host committee were accused of taking bribes. Romney authorized the payment of the legal fees of the Mormon organizers who got in trouble (and sought to recover the sums, which ultimately reached $12 million, from the Olympic Committee’s insurer), Barrett wrote, then signed a highly-advantageous contract with the Serbian tour operator who turned state’s evidence against those organizers. A Utah federal judge ultimately dismissed the charges against the organizers, and the entrepreneur, Sead Dizdarevic, is today among Romney’s top donors; it is unclear from the story whether or not the insurer ultimately paid up.  A Village Voice reporter for twenty years, Barrett is the author of critical biographies of New York mayors Edward Koch and  Rudy Giuliani and real estate magnate Donald Trump. He may have found the subject for his  next book.

As a former columnist for The Boston Globe, I am pretty nearly conflicted out on the subject of Romney.  He is a thoroughly likeable man in his private life, clearly a talented private equity investor. But his term as governor was for the most part disappointing. And the tone he has struck in his presidential candidacy seems completely inappropriate.  All my hopes for a resurgent GOP lie in the future

.                           xxx

Normally, today is the due date for paying income tax in the United States. (Because it’s Sunday, and Monday is a holiday in Washington, D.C., the due date this year is April 17] If you have the heart for it, a couple of good books are available to ground you in the coming debate about tax reform as a means of achieving long-term budget stability. There’s no rush. Politically interesting proposals won’t appear until after the election, if then. But the issues are complicated, and you mght want to get a head start.

The Benefit and the Burden: Tax Reform, Why We Need It and What It Will Take, by Bruce Bartlett,” is a sensible primer by a veteran Republican tax policy analyst.  White House Burning: The Founding Fathers, Our National Debt and Why It Matters to You, by Simon Johnson and James Kawk, is a similarly dispassionate survey of the history of the national debt by a couple of Democrats.

One of many points on which both accounts agree on is that the Paul Ryan plan, which specifies new low tax rates but not the loopholes closings and spending cuts necessary to achieve them, is frivolous.  Indeed, if you want to read one good short analysis today on the Ryan Plan, try this short critique by Kwak. Just look at the pictures.

At a certain point, you wonder what’s the use of studying up – why not just wait for a concrete proposal  to coalesce?  In a recent post on the NYTimes “Economix”  blog, Bartlett endorsed a plan devised by Michael Graetz, professor of law atColumbiaUniversity, to create a $100,000 income tax exemption, replacing the lost revenue with a value added tax of 12.5 percent on everything else. Most people would no longer have to keep records; they would pay tax as they went along.

Ventured Bartlett:  “I think this is a viable proposal that ought to be the starting point for a real debate on tax reform.” Perhaps consumption taxation is indeed the coming thing.  We’ll just have to wait and see..

.                            xxx

The Leontief Prize has been given for a dozen years now, reflecting the enthusiasms of Neva Rockefeller Goodwin, founder of the Global Development and Environment Institute ,at Tufts University.  In that time, the award has earned a reputation as a reliable gauge of stature of the sort associated with the remarkable economist whose memory it honors, Nobel Prize-winner Wassily Leontief

Cited this year were Michael Lipton, of the University of Sussex,  and C. Peter Timmer, ofHarvardUniversity, emeritus.  Both are agricultural economists, deeply involved in the design of government policies that enhance the production and distribution of the supply of food in nations around the world.

“We have lived for long enough with the assertion that initial distribution of income does not matter the the rate or distribution of economic growth,” said Timmer in his remarks. “Clearly it does, even in rich countries.”

The Asian experience, in which investments to alleviate hunger enjoyed a high priority, no matter what the form of government, had demonstrated as much. Raising small farm productivity and building human capital within farm households had turned out to be the surest pathway out of rural poverty, said the man who had served as an adviser to the governments of Indonesia, Vietnam and the Philippines, and whose 1983 textbook, Food Policy Analysis, influenced a generation of agriculture minister around the world.

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Newspaper publishers should think a little harder about the distinction between searching and browsing.  Leon Wieseltier framed the distinction nicely the other day in Going to Melody, a poignant little essay in The New Republic about Melody Records, an old-fashioned music store near Dupont Circle in Washington.,D.C., that had gone out of business.

Wieseltier was bereft. For thirty years, he had regularly prowled Melody Record’s aisles, looking for new releases, schmoozing with its knowledgeable clerks, discovering items of chamber music and jazz he otherwise might not had known existed, defending his affection for Rihanna. His visits had been motivated not so much by acquisitiveness, he wrote, but by inquisitiveness.  He went “to engage in the time-honored intellectual and cultural activity known as browsing.”   He elaborated:

Browsing is not idleness; or rather, it is active idleness – an exploring capacity, a kind of questing non-instrumental behavior.  Browsing is the opposite of “search.” Search is precise, browsing is imprecise.  When you search, you find what you were looking for; when you browse, you find what you were not looking for.  Search corrects your knowledge; browsing corrects your ignorance. Search narrows, browsing enlarges. It does so by means of accidents, of unexpected adjacencies and improbable associations.

Any habitué of libraries, bookshops, stationers, hardware stores or, for that matter, frequenters of boutiques of any sort, will understand what Wieseltier means. It is true that anything these shops may contain can be found on the Web, often with only a few keystrokes, and usually for less than  the price of the item in the shop, but as Wieseltier suggests, searching is not the same as browsing; the element of serendipity is missing.

The same experience of browsing is even more characteristic of the act of turning the pages of a printed newspaper.  Its contents are unanticipated in selection and juxtaposition. Knowledge of what it contains – and what it doesn’t – is widely shared, not just with other purchasers, but in fact with many more; that is, its editors’ choices constitute a standard. The ads that keep the stories apart (or fail to!) also send a powerful signal about who it is  advertisers expect to read the paper. Stories may be clipped and kept, or shared.

All this is true, too, of a well-designed newspaper or magazine on the Web:  The Guardian, say,  BBC News, or, my favorite, TheBrowser, an aptly named online magazine assembled by a handful of editors from pieces sometimes assigned (Five Books) but otherwise gathered from around the Web. There is, however, a crucial difference between a daily newspaper and the essentially unbounded cornucopia of a web page or an RSS feed.  The printed edition of a newspaper is finite, conclusively bounded by time and space. It comes out once a day.  It has a beginning, middle and an end.  And it has a price instead of being free.

So are print newspapers doomed?  Probably not, though on the surface their economics don’t look appealing. Everyone understands about declining circulation:  more people get their news online for free, from social media, from radio, from television.

The advertising situation appears even more corrosive. Newsies talk endlessly among themselves about Craigslist, Monster.com and others of their ilk, and how they curtailed classified and help-wanted advertising.  But such destination sites are not the biggest problem. A greater source of instability has been a series of innovations that turned the Web into a giant billboard for the ubiquitous ads that Google sells.

To this point, Google’s invention of its AdWords and AdSense programs has been treated mainly as a business story. Good accounts abound in books:  how Google discovered a business model that not only turned its search engine into a formidable money machine through advertising sales, but one which permitted countless websites to earn revenue through ad sales that it brokered as well.  But the broad account that you might expect from a good newspaper — how this enormous sphere of advertising blossomed practically overnight in the twenty- first century and with what consequences — has yet to be written.

Then again, the advertising industry is as prone to mood swings as anyone else – maybe more so, given the pace of technological change of the last thirty years. The world probably still has its share of readers who prefer browsing to search, much as it found fifty years ago there were those who preferred listening to radio to watching television. Those in the next generation who prefer newspapers will turn out to be another sort of audience that many advertisers will want to reach. Who will they be?  Not college students, that’s for sure.  People with good jobs and an itch for civic involvement.

Clearly, newspapers will never again see anything resembling the near-monopoly profits they enjoyed for more than a century.  To survive something more will be required than aggressively moving onto the Web. (Almost all newspapers have done that.) Publishers must also discern a point at which advertising and circulation revenues from print editions will stabilize, adjust their costs accordingly, and go on from there, perhaps even grow.

Newspapers do have one critical advantage.  Again,Wieseltier:

My father had furniture stores. I grew up with the pathos of retail: you throw all your money into a location and an inventory, you hang out a sign, you trick out a window, you unlock a door and (if you lack the resources to advertise formidably), you wait. If they come in, you use your skill; but they have to come in.

Newspapers – unlike sofas, books, records – go out. They bring the browsing experience to you:  the combination of stimulus and sanctuary that Wieseltier enjoyed in the aisles of Melody Records.  Newspapers are wedded to cities and their suburbs, where they may hope to penetrate deeply into offices and homes, but not to any one particular location. Thus mastery of their distribution system is one key to their survival.  (Much as I love buying the Times in the little Michigan town where I spend part of the summer, the national newspapers had better cede the wide open spaces of the country to the Web.) Another key is pricing.  Here there are many lessons left to learn. The great danger is that management will give up on newsprint prematurely. (The Financial Times let my home delivery subscription expire the other day and only wrote several days after the fact via postal mail to ask if I would like to renew.)

Successful newspapers will continue to set the agenda for many years to come. Their power is not as great as it was, now that there are so many other voices in the room.  But the value of those 240 inches on the front page is greater than ever as a means of organizing civic discourse. Take a case in point last week, when the Times led the Tuesday paper with a story about the Supreme Court’s decision to permit strip searches after minor arrests, while the WSJ led with Obama’s challenge to the justices of the Supreme Court (and played the strip-search decision on page six). Try figuring that out from the Web!

.                       xxxxx

The Royal Economic Society met for three days last month atCambridgeUniversity,RobinsonCollege. More than 670 economists, most of them young, many of them European, turned up to present some 500 papers and attend a series of lectures and panels given by various stars of the profession. (Lecturers were Elhanan Helpman and Ariel Pakes, of Harvard University and Nancy Stokey, of the University of Chicago.)

That’s pretty good for a meeting with no job market. It compares favorably with the regional associations in theUS: Eastern, Southern, Midwestern, and Western. Given the UK’s role as a global financial center (and the standing of the RES’s flagship Economic Journal), the gathering goes well beyond..

Charles Goodhart, of the London School of Economics, who for many years was adviser to the Bank of England, stole the show with a short talk about the ongoing effort to develop an integrated regulatory framework for the global financial system – controls more effective than the system of bank capital ratios improvised by the Basel Committee on Banking Supervision in 1987-88, “with no analytical back-up at all,” as financial deregulation in the US and Europe gained speed.

Some sort of ladder of sanctions would be required, Goodhart said. Central bankers, regulators and bank lobbyists are traipsing around the world, from conference to conference, in the hope that one can be devised before things overheat again.

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Over the past two weeks, Federal Reserve Chairman Ben Bernanke has been interviewed  by Diane Sawyer on ABC, appeared on the cover story of The Atlantic magazine, gave four lectures to college students, delivered a major address  on unemployment to the National Association of Business Economists, testified before Congress on the European economic situation,  and, to cap it all, made a short, pithy speech to a Board of Governors conference, Central Banking: Before, During and after the Crisis — all of it with the mild, self-effacing authority that has become Bernanke’s trademark. As Binyamin Appelbaum wrote on The New York Times “Economix”  blog, “Even by his evolving standards, the last seven days have been extraordinary.”

Bernanke’s spring offensive was a way of sounding a provisional all-clear. What happened in 2007-8 – and what didn’t happen then – is now, he said, considered to be substantially understood.  Financial intermediation had evolved by leaps and bounds into a tangle of banks and bank-like organizations (the latter collectively known as the shadow banking system), which regulators discovered that they no longer understood – whose interconnections they had to figure out on the fly.

Speaking of the Fed’s dimly remembered mission as lender of last resort to this menagerie of institutions, Bernanke told his undergraduate auditors at George Washington University,

[R]ather than being some ad hoc and unprecedented set of actions… the Fed’s response was very much in keeping with the historic role of central banks, which is to provide lender of last resort facilities in order to calm a panic. And what was different about this crisis was that the institutional structure was different. It wasn’t banks and depositors. It was broker-dealers and repo markets. It was money market funds and commercial paper but the basic idea providing short-term liquidity in order to stem a panic was very much what [Walter] Bagehot envisioned when he wrote Lombard Street in 1873

And at the Fed conference he said, “There will not be any more large, complex systemically critical firms that have no oversight. Those gaps are getting closed. We won’t have the situation we had before the crisis.”

To get some idea of how close the world came to what would have been a far much more dangerous situation in 2008, it is necessary to cast your mind back to early 2005.  George W.  Bush had been re-elected. “I earned capital in the campaign, political capital, and now I intend to spend it. It is my style,” he told a press conference.

So the initial venture of his second term was an ambitious attempt to turn the government-administered Social Security System into a program based on private investment accounts. But by April the privatization initiative had failed, solidly repudiated by a Congress that the Republicans controlled.

Then on July 1, Supreme Court Justice Sandra Day O’Connor, 75, announced her resignation.  The president quickly named John G. Roberts Jr to replace her. But when Chief Justice William Rehnquist died in September, Bush opted  to replace him with Roberts instead, leaving the O’Connor seat still to be filled. Many persons, including the president’s wife, urged that the distinguished jurist be succeeded by another woman. In early October, with little study beforehand, Bush nominated White House counsel Harriet Miers to the Court. With almost no background in jurisprudence, she soon came to be seen as little more than an able law office manager.

With Miers’s nomination in trouble, Bush’s hand was forced with respect to the Fed. Eighty-five-year-old Alan Greenspan’s full 14-year term as governor had expired (previously he had filled more than four years of another governor’s term); he was serving as chairman month-to month, and planned to retire in the spring.  The search for his replacement, which had begun the previous spring under vice president Dick Cheney, had narrowed to a list of five names, according to Wall Street Journal columnist David Wessel, author of In Fed We Trust: Ben Bernanke’s War on the Great Panic.

They included Bernanke, John Taylor (of Stanford University), N. Gregory Mankiw (of Harvard University), and Stephen Friedman (a former co-chairman of Goldman, Sachs), all of whom had served in policy jobs under Bush; and Martin Feldstein (of Harvard), who had served under Ronald Reagan. Taylor had received “mixed reviews” as the Treasury’s top international officer, Wessel wrote; Feldstein was remembered as “outspoken,” for his advocacy of deficit reduction during the Reagan administration.

The dark horse was Goldman’s Friedman. He performed best in his interview, Wessel was told. But with Miers’s nomination about to be withdrawn, the White House couldn’t afford to gamble with “another surprise, out of the box choice.”

So on October 24, 2005, the president chose Bernanke.

What would have happened in the crisis if the Fed chairman had been a former Goldman Sachs executive, with almost no background in central banking?  It is anybody’s guess.  Friedman’s counterpart at the Bush Treasury Department would have been his former protégé, Henry Paulson, another former co-chairman of Goldman Sachs.

Friedman served as chair of the Federal Reserve Bank of New York throughout the crisis, even after Goldman became a Fed-regulated bank holding company, in September 2009. (He sought and eventually obtained an unusual waiver from the Board of Governors to continue to serve.) Meanwhile, Timothy Geithner, the New York Reserve Bank’s president and chief executive officer, left in January 2009 to become Treasury Secretary in the Obama administration, replacing Paulson.

Almost immediately, Geithner was succeeded at the New York bank by William Dudley, another longtime Goldman executive. A few months later, Friedman resigned as chairman after the WSJ disclosed that he had increased his stake in Goldman the previous December, and again in January, the day after receiving his waiver.

Bernanke became the second university professor to hold a job that had been considered the province of “markets men” ever since the Fed was created, in 1913. (Greenspan, having made his living as a nuts-and-bolts economics consultant to large corporations, was a transitional figure; Arthur Burns, of Columbia University, was the previous, rule-proving professor.) A pre-eminent student of monetary policy in the Great Depression, Bernanke had the advantage of being intimately familiar with various failures by which the Fed, new at its tasks, compounded the events that followed the stock market Crash of 1929.

The two-week flurry of activity just past almost certainly marks the beginning of a new and final phase for Bernanke, whose second term as chairman expires in early 2014, and who is expected then to leave the Fed. (He will be 61 years old).  The great tests of the crisis may be over, but major challenges of banking supervision remain. It was these to which Bernanke called attention in his remarks to the blue-ribbon research conference in Washington.

Some combination of capital ratios, margin requirements, liquidity regulations and dynamic loan-loss provisioning is, as the experts say, almost certainly required; but as Charles Goodhart, Anil Kashyap, Dimitrios Tsomocos and Alexandros Vardoulakis warned in their conference paper, “It is easy to produce combinations of regulations that look sensible but when combined have adverse effects on the economy.”

To which grateful bystanders can only murmur, “Thank you, Harriet Miers, for having been present in order to have been thrown under the White House bus.”

.                                xxxxx

A further sign that change at the Fed is in the works: Daniel Sichel, Bernanke’s principal speech-writer for the past five years, is on the verge of becoming professor of economics at Wellesley College.

He is expected to succeed there the (not very) emeritus serial entrepreneur Karl (Chip) Case, author of a best-selling textbook (with Ray Fair and Sharon Oster, both of Yale); and inventor of an indispensable index of house prices (with Robert Shiller, of Yale).

Sichel is well known for early work on productivity growth and the measurement of intangible capital. But then he is also the author of the point-making  Everyday Products Weren’t Always that Way: Prices of Nails and Screws Since about 1700 as well.  He was distinguished lecturer at the college last year.

Because of the sheer populous-ness of its graduates in economics and finance, the Wellesley economics program may be unique in US collegiate education. But the fact is that undergraduate college professors play an important role alongside their colleagues in research universities in producing as well as curating and communicating economic knowledge.

Sichel’s pending appointment is good news for those who advocate a broader view of leadership in the profession.  Will a college teacher – as opposed to a university professor – ever become president of the American Economic Association?

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But September 2013 is a long time to wait for a clearer view of the crisis and its aftermath.

So last week Fed chairman Ben Bernanke took another step in constructing a history of events, delivering the first of four lectures to a class of undergraduates at George Washington University.  All the details, including transcripts of the first two lectures, are here.

(Ed:  What was the first step? Bernanke’s testimony to the Congressional Financial Crisis Inquiry Commission.)

The unusual outreach has been billed as a low-budget public relations campaign. But it resembles, too, those extremely low-frequency signals which the US Navy used for many years to keep in touch with deeply submerged submarines . Communication with submarines is difficult because radio waves do not travel well through salt water. So the Navy built a 28-mile-long transmitter in the North Woods of Wisconsin to generate the seriously long radio waves necessary to penetrate the depths until its scientists devised a better way.

Bernanke’s lectures presumably displayed the broad outlines of the book he will write when he leaves office.  (His second four-year term as chairman is up in 2014.)  But they have the easy informality and low-key authority of a man speaking with slides, but not from a text

The first lecture was mainly about panics – not just forgotten panics, but forgotten movies about panics (“How many of you have seen the movie ‘It’s a Wonderful Life?’  No?  Less people are watching Christmas movies than they used to be, I guess.” [laughter]”).  Lender of last resort.

The second lecture was about why the Fed thought it could arrange a soft landing in 2008 after the housing bubble began to deflate. It was thinking about the relatively mild recession that followed the dot.com  crash in 2002, and overlooked the potential for trouble in the largely unmonitored shadow banking system.

Next week comes a description of the unexpected panic, and then, finally, a discussion of the aftermath.  Details are here.

Binyamin Applebaum, of The New York Times, and Jon Hilsenrath (with Kristina Peterson), of The Wall Street Journal, are wonderful reporters, in daily contact with the Fed. To their credit, both filed stories here and here after the first lecture.  But they may have missed the point. Bernanke was trying to tell a different story from the one that’s been told.

Similarly, the hard-working Roger Lowenstein – author of When Genius Failed: The Rise and Fall of Long-Term Capital Management and The End of Wall Street – produced a cover story for The Atlantic (“The Villain” on the Web, “The Hero” in the magazine itself) with plenty of cooperation from Bernanke. (The take-your-pick title is apparently intended to be ironic:  Lowenstein concludes the piece itself, “to a greater extent than he is credited with now, history may marvel that Bernanke has been a success.”)

Bernanke tells Lowenstein to read Walter Bagehot, the nineteenth-century journalist (editor of The Economist) whose Lombard Street: A Description of the Money Market made the classic case for non-invasive governmental oversight of banking.   “Some people don’t understand,” the chairman tells the writer, “fulfilling the responsibility as lender of last resort is what the Fed was created to do. This is what central banks have been doing for three hundred years.”

But Lowenstein skimps on the history of central banking, except for the tired old boilerplate about the First and Second Banks of the United States in the years before the Civil War.  He skimps, too, on the details of the panic, in favor of a theory of why Bernanke was slow to grasp what was happening in early 2008. Lowenstein writes:

[W]hile Bernanke recognized the danger in theory, he did not anticipate the looming crash in home prices…. In 2007, as the subprime mortgage crisis leached into the financial markets, Bernanke’s training failed him.  as a scholar, he had studied how bank failures worsened the depression; as the Fed chair, he didn’t scrutinize the banks closely enough – that is, he overlooked the fact that that dicey mortgage-backed securities made up a sizeable portion of the assets of the biggest banks. “Risk was concentrated in key financial intermediaries,” he told me. “It led to panics and runs. That’s what made it all so bad.  Speaking of government officials collectively, he added, “Everyone failed to appreciate that our sophisticated, hypermodern, highly-hedged, derivatives-based financial system – how ultimately fragile it really was.”

There was, I think, another reason for his blindness:  Bernanke has an academic’s faith in the market’s essential rightness.  He was so skeptical of the idea of mass market folly that in his scholarly writings he referred to bubbles in quotation marks. He was not, like [Alan] Greenspan, ideologically opposed to government intervention,, but he was dubious that anyone could identify, in real time, when markets were off course.

This is precisely the sort of confusion Bernanke sought to combat in lectures when he distinguished among the three principal tools of central banking:  the conduct of monetary policy; bank supervision; and guardian against panics as lender of last resort. Bernanke is talking about the Fed’s role in a panic; Lowenstein thinks he is talking about the conduct of monetary policy. That third lecture should be most interesting.

There will be a lot more of this sort of thing when the Black Box begins to open. Meanwhile, Bernanke’s lectures, deep vibrations from the Fed, amount to a fourth tool of policy. They are a civics lesson.

.                               xxx

President Obama Friday nominated Dartmouth College President Jim Yong Kim, a physician and public health expert, to head the World Bank after Robert Zoellick’s  term expires in June.

Kim’s candidacy, a surprise, is thought to have been advocated by Dartmouth alumnus Timothy Geithner, Secretary of the Treasury.  Kim was among those who in 1987 joined Paul Farmer in the founding , in Haiti, of Partners in Health.

For the first time, there will be some formal competition for the job. A group of African nations has endorsed Ni­ger­ian finance minister Ngozi Okonjo-Iweala. Several South American countries support former Colombian finance minister Jose Antonio Ocampo.

The post has traditionally gone to an American; the US has been the bank’s biggest funder.

Lawrence Summers, of Harvard University, and Jeffrey Sachs, of  Columbia University’s Earth Institute, campaigned for the job.  John Cassidy and Felix Salmon followed their quest to its bitter end.

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I’ll be there (online) and, if you are able, you might enjoy it, too. All four sessions begin at 12:45 EST.

The details are here.

It’s a fascinating story, but not a brief one. Chances are you don’t already know it, unless you have been following Economic Principals closely.

The first lecture (Tuesday March 20) describes the origins and mission of the Federal Reserve System.  The second (Thursday March 22), deals with the conduct of monetary policy by the central bank in the years after World War II.

The third (Tuesday March 27) is titled “The Financial Crisis and the Great Recession.”  The fourth (Thursday March 29) concerns the lengthy aftermath.

Transcripts and video recording will be available immediately afterwards, according to the Fed.

And I’ll be back next week, recovered from brief but incapacitating bout of finance fatigue.

.                                                             dw

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Recently the advent of search advertising has cut real newspaper revenues, perhaps in half, for many years to come.  Yet print newspapers are still the way we establish the horizon of day-by day events. Because of their nature – daily, finite, permanent, and convenient – they are likely to remain the source of this baseline for  years to come.

So pity The Washington Post, right?  While the leadership of The New York Times newsroom jets off to Austin, Texas, for the South by Southwest “interactive” conference this weekend (“much warmer, far less wealthy, infinitely-tweeted, beer- and barbecue-drenched version of Davos for Future-of-Media types,” according to Capital New York), the editors of the Post last week have had their noses rubbed in the past, and not just because the publication of  Leak: Why Mark Felt Became Deep Throat, by Max Holland, throws new light on the complex motivations of the disappointed aspirant to the top job at the FBI who was at the heart of the story of Watergate. Vanity Fair last week published an article about retrenchment at the paper, “Ghosts in the Newsroom.” In it, Sarah Ellison wrote,

The desire to compete as a journalistic enterprise on a national or international level – to do so comprehensively and consistently – seems to have been beaten out of the Post.  The disaffection on the newsroom floor is audible and undisguised.

The deeper situation at the Post is probably just the reverse. You wouldn’t have thought it possible that a seasoned reporter like Ellison (who once covered the newspaper industry for The Wall Street Journal) could write about a newspaper without discussing Google and the invention of search, but that is Vanity Fair for you, the journal of choice for nostalgia buffs.

The Post is clearly moving to preserve its independence.  It is the Times which seems at risk, thanks to a go-for-broke strategy.

The news business is turning into a race among old champions and new entrants, more quickly than most people realize.  In the last few years, Bloomberg and Thomson, both data-base businesses, have moved into news in a big way. Bloomberg, which started life as a library of bond prices, built its 2,000-person news service from the ground up over the last twenty years. Thomson, which began life in 1934 with a single Canadian newspaper, grew to a chain that included the Times of London, before getting out of the newspaper business altogether, in order to invest in financial services and legal publishing, Ten years later Thomson came roaring back into the news business through the purchase of the similarly extensive Reuters service. (A somewhat fuller account is here.)

Michael Bloomberg and David Thomson are each worth around $20 billion – perhaps a dozen times more than all the Sulzbergers (of the Times) and Grahams (of the Post) put together. Both companies have gone on hiring binges recently, luring top reporters with promises of unspecified glories yet to come, signaling their intention to enter the mainstream business one way or another. David Thomson has told his editors that he wants Pulitzers, and, presumably, so does Michael Bloomberg, currently in his third and last term as Mayor of New York.  Proclaiming a new editorial approach is merely the first step  As Michael Wolff pointed out the other day, the Financial Times, now owned by the publishing conglomerate Pearson, is probably the next big paper to go on the block.   The New York Times’ market capitalization is about $1 billion, that of the Post about $3 billion.

What are the newspapers doing about maintaining their independence? The Post has been cutting costs and buttressing its unassailability.  Warren Buffet, a long time investor to the company, took Ellison to lunch to explain the logic of a “moated business”: a profitable one upon whose territory others can’t encroach.  What the Post has going for it is a large and prosperous local market. He might have added that a high penetration rate – many people read it, thanks to relatively low prices – keeps advertising rates relatively high. Add to that an intelligent and resolute chief executive, Katharine Weymouth, granddaughter of the legendary publisher Katharine Graham. It just lacks the dominant advertising monopoly it once enjoyed – and the swagger that accompanied near-monopoly profits. Logic says that once its costs are brought in line, the Post should be nicely profitable again, and other geographical franchises – Los Angeles and Chicago in particular – should eventually be strong as well.

The Times often seems to be doing just the reverse. As a national paper in competition with the WSJ, it has many close substitutes, among readers and advertisers alike.  Its  strategy seems downright reckless: keep staffing high, expand various sections, price aggressively (a daily paper costs $2.50, vs. $2.00 for the WSJ), and deepen the Web presence.. Late last year chairman and publisher Arthur O. Sulzberger Jr. unexpectedly propelled chief executive Janet Robinson into an early retirement, paying her nearly $24 million, according to a proxy statement mailed last week – apparently to assure her silence. The company sold its regional papers a few days later.

If these were the only considerations, you would have to admire the Times’ digital daring.  Its website is superb. Its desire to compete as a journalistic enterprise on a national or international level is as strong as ever. And the daily newspaper itself, as former executive editor Bill Keller said the other day, is what it is – a glorious aspiration, never quite achieved, against which all other efforts must be judged.

It is the revenue stream that is lacking.  The Times hasn’t paid a dividend since December of 2008.  Its stock is selling for around $6 a share. (The Post, with about a twentieth as many shares, closed at week at $387. It pays a $9.80 dividend.)  Sulzberger cousins own around 40 percent of the Class A stock (and an overwhelming proportion of the controlling Class B shares).  Carlos Slim, the Mexican cell telephone magnate, owns 17 percent; Fairpointe Capital, 11 percent; T. Rowe Price, 7.2 percent; and BlackRock, 6.4percent. The Sulzberger cousins are not the Bancrofts, who sold the Wall Street Journal to Rupert Murdoch; a sense of public trust is in their DNA.  But neither can the cousins afford to own and operate their newspaper for free.

The owners of the Post have shown that they know what they must do to survive; in scaling back their ambitions, they may maintain their autonomy. (I am leaving its Kaplan Inc. educational services subsidiary for another day.) The Times has expanded instead of prudentially cut back.  They are living on moonbeams. The golden age of newspapers is definitely over. The exciting days of a great transition have begun.

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