|Man Without Qualities|
Sunday, December 08, 2002
Paul Krugman almost seemed determined to replace Miss Cleo, the disgraced fake prognosticatrix, as he recently wrote:
When Paul O'Neill was chosen as Treasury Secretary, there was unanimous applause from the financial press. Well, almost unanimous. What I wrote two years ago looks pretty good right now: ...
Paul O'Neill, the former Office of Management and Budget official who became Alcoa's chairman, wasn't exactly what the optimists had in mind. ... What's wrong with Mr. O'Neill? ... [O]verseeing world financial markets is nothing at all like running a large, very old-economy, command- and-control corporation (or, for that matter, working the details of the federal budget). ... Despite Mr. O'Neill's long association with conservative causes, his appointment does not please the hard right. ... None of this says that Mr. O'Neill will necessarily fail. - Originally published in The New York Times, 12.24.00; Originally published on the Official Paul Krugman Site, 12.6.02
Well, that shuts my mouth. Professor Krugman is a genius! There was unanimous applause from the financial press when Paul O'Neill was appointed, and only the brilliant Paul Krugman saw through to the TRUTH! Or, at least that's what Professor Krugman wants us to believe.
It's not completely clear what entities comprise "the financial press" - although it appears that Mr. Krugman includes the New York Times in that category, a choice many others would not make. But everybody would include the Wall Street Journal and the Financial Times at the leading members of the "financial press." So, is it true what Professor Krugman says? Was there "unanimous applause from the financial press" other than his own brilliant dissent?
Well, fusty old, non-brilliant Robert L. Bartley, Wall Street Journal editor who doesn't keep telling us how brilliant he is but seems to get the job done, wrote on December 22, 2000:
At first blush the head of an aluminum company, of course, seems a curious choice for a post redolent of high finance. But at Alcoa, Mr. O'Neill has made a silk purse out of something of a sow's ear, marking himself one of the economy's most able executives. As chairman of RAND Corp., he cannot be a blindered old-economy type. His board membership at the American Enterprise Institute is a solid conservative credential. And his Office of Management and Budget apprenticeship in the Ford administration means he is no naif in Washington. ... By now the world knows that Mr. O'Neill came out for an energy tax at a Clinton economic summit in 1992. This has caused some consternation among economic conservatives. It has also led both the New York Times and Mr. O'Neill's hometown Pittsburgh Post-Gazette to editorialize hoping that he'll give lip service to the Bush tax cut but privately stab it in the back.
OpinionJournal also quoted Grover Norquist of Americans for Tax Reform on O'Neill's prior comments supporting energy taxes: "That's the kind of stupid thing businessmen say when they are trying to suck up to politicians. It would be very important for him to clarify his pro-tax positions. Hopefully, they are a youthful indiscretion."
Is that "applause" from Mr. Barkley and OpinionJournal? Reads more like damning with faint praise while trying to give the man and the President appointing him a break. That's the Journal, but what about the Financial Times? I wasn't able to locate the actual FT editorial, but the Journal summarized the FT concerns this way:
The Financial Times, for example, greeted the appointment of Alcoa Chairman Paul O'Neill to Treasury by complaining that "businessmen, or, perhaps more accurately, industrialists, do not have a glowing record in government." They would have preferred an academic economist, Martin Feldstein perhaps, like departing secretary Larry Summers.
Doesn't that read a lot like Paul Krugman's own concerns? In fact, many, many people were having the same concerns about Mr. O'Neill, but they rapidly decided that for all his faults he did have real talent, and wasn't doomed. In fact, Professor Krugman admits this much in his own caveat: "None of this says that Mr. O'Neill will necessarily fail." Further, while Mr. O'Neill has not been a star, neither was he a disaster, nor did he fail for the reasons that concerned Professor Krugman when he summarized his main concerns about Mr. O'Neill:
Mr. Rubin excelled at the deft strategic intervention — persuading investors, when the situation was on a knife edge, not to pull their money out and turn a temporary loss of confidence into a self-fulfilling prophecy of collapse. Perhaps Mr. O'Neill will reveal a comparable talent, but nothing in his career to date suggests that this is his sort of thing.
Mr. O'Neill's tenure, which included huge crises - such as September 11 and turmoil in investor confidence flowing from corporate bookeeping scandals - certainly included more than its share of "situations on a knife edge." But none of those "situations" decended into a "self-fulfilling prophecy of collapse." And even when Mr. Rubin suggested to his former Treasury subordinate another of those "strategic interventions" Professor Krugman so admired - that time in Enron, to "save" the sacred bond market, of course - Mr. O'Neill's Treasury department wisely told Mr. Rubin to get lost.
In short, Professor Krugman's basic call on Mr. O'Neill is like the old publisher's rejection letter: "Parts of your work are original and good. However, that part that is original is not good, and the part that is good is not original" But Professor Krugman isn't the type to let details like that get in the way of a good self-administered pat on the back - and a chance for some undeserved self-promotion! Heck, any fool can get kudos for something he's accomplished. It takes a real self-promoting academic to garner it when he's done nothing worthwhle at all!
UPDATE: Brad DeLong reads Paul Krugman's self-promotional autobackpat and intones: "I confess that Paul Krugman was right." If one reads on in Professor DeLong's post it becomes unclear that he has any idea what Paul Krugman is actually attempting to take credit for. Professor DeLong seems to think that his fellow economist was "right" about listing certain attributes a Treasury Secretary should have. That's not what Professor Krugman is claiming credit for. He's claiming credit for identifying certain characteristics of Mr. O'Neill which actually caused him problems as Treasury Secretary. As noted above, Professor Krugman's correct reservations about Mr. O'Neill were relatively commonplace and the specific weakness Professor Krugman did identify in Mr. O'Neill as especially important was not the source of his problems.
FURTHER UPDATE: Daniel W. Drezner has interesting points on the decline of Paul Krugman and the fall of Paul O'Neill. I may not agree with everything Mr. Drezner says. For one thing, Professor Krugman has many more independent problems than the two identified here - starting with his truly terrifying easy willingness to indulge in conspiracy theories.
And the problems don't stop there. Mr. Drezner also points out that Professor Krugman's is "always stunned when leaders take actions that maximize their own power rather than benefiting the greater good." But this is just a special case of somethng the Man Without Qualities has pointed out previously: Professor Krugman has big difficulties in working with the economic concept of "agency costs" in general - which is one of the reasons he keeps lapsing into conspiracy theories, a construct which he uses as a substitute for the correct agency cost analysis. Agency costs are a basic tool of economic theory - and Professor Krugman's repeated inability to deal with these concepts shows that he often does not think like an economist.
But Mr. Drezner does say a good many insightful things. And he certainly makes a lot more sense on these topics than Brad DeLong does.
[Link found by KausFiles.]
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