More Links on Kerfuffle about Friedman’s Sanders Analysis

Here are more links related to the kerfuffle surrounding our columnist Gerald Friedman’s research paper on the likely macroeconomic effects if Bernie Sanders economic policies were implemented. (Find the full 53-page paper here.)

David Dayen, The New Republic,  The Pious Attacks on Bernie Sanders’s “Fuzzy” Economics.  “I don’t feel it necessary to defend Friedman, though it’s worth pointing out that his economic growth numbers would simply eliminate the GDP gap [links to the FT Alphaville piece we linked to the other day] that was created by the Great Recession and was never filled in the subsequent years of slow growth—which should be the goal of public policy, however “extreme” it sounds. What I do want to challenge is the idea that there’s one serious, evidence-based way to perform economic forecasting. The truth is that most economic forecasts that look several years into the future are flawed, almost by definition.”

Dean Baker, HuffPo, The Four Economists’ Big Letter. Dean says he agrees with the substance of the CEA ex-chair’s critique (he’s skeptical of Friedman’s growth projections), but not their “tone” of authority. “I respect all four of these people as economists, but I want to hear their argument, not their credentials. How about just giving the evidence? It might not be as dramatic, but it could have considerably more impact.” More recently at his CEPR blog Beat the Press, there’s this from Dean: President Obama’s Council of Economic Advisers Confirms Sanders’ Growth Projections, in which he discusses a section of the 2016 Economic Report of the President and a section “an that provides insight into the question of how fast the economy can grow, and more importantly how low the unemployment rate can go” and the non-accelerating inflation rate of unemployment (NAIRU). Obama’s CEA report “is hardly an endorsement of the specifics or the even the size of the Sanders agenda (and certainly not the now famous growth projections from Gerald Friedman), but it does argue for pushing the envelope in terms of bringing down the unemployment rate.” (Why Dean is engaged in line-drawing here, subtly suggesting that Jerry’s not credible, is beyond me.)

Gerald Friedman, Response to Krugman.  A response to a really condescending blog post by Krugman, Lack of Power Corrupts.  Krugman really smears Friedman.

Bill Black, New Economic Perspectives blog, Krugman and the Gang of 4 Need to Apologize for Smearing Gerald Friedman.  Excellent skewering of the “Gang of 4” CEA ex-chairs. See also Yves Smith’s introduction to her reposting of Bill’s post at Naked Capitalism, Krugman and His Gang’s Libeling of Economist Gerald Friedman for Finding That Conventional Models Show That Sanders Plan Could Work.

Richard Wolff, via email: “As a colleague of Jerry Friedman for decades, I know directly of his consistently careful work in economic history and applied economics, his exceptional commitment to teaching, and the immense time and effort he has committed to doing detailed explorations of the economics of health insurance–explorations his detractors might have learned from had their commitments not been otherwise. Shame on them.”

J.W. Mason, at his blog (The Slack Wire), Plausibility.  A follow up to the earlier post of his we linked to, Can Sanders Do It?. He gives two scatter-plot graphs, one showing “the initial deviation of real per-capita GDP from its long run trend, and the average growth rate over the following ten years, for 1925 through 2005,” the other showing the same thing for just 1947-2005 (so it eliminates the Depression and WWII years). He argues that for either, Friedman’s GDP growth projections don’t look so implausible; even less so if you take out “the seven points well below the line in the middle are 1999-2005, whose 10-year growth windows include the Great Recession.” His upshot: “Should the exceptionally poor performance of this period make us more pessimistic about medium-term growth prospects (it’s sign of supply-side exhaustion) or more optimistic (it’s a sign of a demand gap that can be filled)? This is not an easy question to answer. But just counting up previous growth rates won’t help answer it.” His earlier blog post has been republished under a new title at the Jacobin website: When Wonks Attack.  Subtitle/teaser: “Beltway wonks are dismissing Bernie Sanders’s economic plan as unserious and unrealistic. Here’s why they’re wrong.”

Brad DeLong, at his blog (Grasping Reality…) No: We Can’t Wave a Magic Demand Wand Now and Get the Recovery We Threw Away in 2009.  Responding to the Mike Konczal post we linked to. I wish people would stop the talk of magic wands and unicorns and fantasy and voodoo and puppies and unicorns. It’s just uncharitable and undignified. It reminds me of the infantilizing language Republicans and Clintonites use about Sanders’ proposals (e.g., saying that he’s promising people “free stuff” including “free ponies”). It’s that grown-up stance, talking down to the rest of us.

Kevin Drum, Mother Jones blog, On Second Thought, Maybe Bernie Sanders’ Growth Claims Aren’t As Crazy As I Thought.  Back-pedaling, in light (it seems) of Jamie Galbraith’s full-throated defense of the plausibility of Friedman’s analysis.   No apology for calling his GDP growth projections “insane” without having examined the analysis. (I asked for an apology on Twitter. But that never works.)

Jasper Craven,, Economist, Others, Defend Sanders ‘Stimulus’ Plans as Realistic. A local Vermont summary of the kerfuffle. Hat-tip Nancy B. A nice piece (though he identifies the D&S Economy in Numbers columns as Jerry’s reports, but again, Jerry’s main Sanders report is “yuge”–some 53 pages long, including appendices and sources).

Andrew Perez and David Sirota, International Business Times‘ Political Capital blog, Bernie Sanders Economic Plans Questioned By Critics With Ties To Wall Street, Hillary Clinton.

Ron Baiman, Postscript (Feb 21) to his earlier D&S blog post (Feb 19), The Poverty of Neoclassical Analysis: “Unfortunately, even, politically liberal, mainstream or ‘Neoclassical’, economists do not believe that massive increases in effective demand, or other large scale public spending and policy measures, can produce lasting major and fundamental structural changes in the economy (in spite of the examples of the New Deal, WWII, etc. ). They also don’t accept Verdoorn’s law (which Friedman employs) in spite of numerous empirical studies and common sense validation: long-term growth in demand leads to increased investment and thus increases in productivity and by implication structural changes in the economy. NC ‘Keynesians’ believe only in short-term Keynesianism — not in a long term principle of effective demand. To the extent that Friedman (rightly) employs a long-term ‘Post Keynesian’ principle like Verdoorn’s law (in addition to all of the other standard techniques that he uses) he crosses a line that NC economists will not cross. I belatedly remembered after writing and posting this piece, that Friedman had employed Verdoorn’s Law in his study of the long-term economic impact of Bernienomics.”

And in case you missed it two weeks ago:

Tami Luhby, CNN Money (Feb. 8), Under Sanders, income and jobs would soar, economist says. The article that likely ignited the kerfuffle (rather than our two columns by Friedman based on his research); this is where a large audience saw Friedman’s big GDP growth estimates. And this is where the Sanders campaign appeared to endorse Friedman’s findings. “Sanders’ policy director, Warren Gunnels, also defended the estimates, noting the candidate is thinking big.”

That’s it for now. I’m sure there will be another follow-up to this post.

Siding with Wall Street’s “Winners”

A piece by William D. Cohan in the current issue of Vanity FairWall Street Executives from the Financial Crisis of 2008: Where Are They Now?, is pretty harsh on the bankers who lost their top positions in the 2008 meltdown (Jimmy Cayne of Bear Stearns, Stan O’Neil and John Thain of Merrill Lynch, Ken Lewis of BoA, Angelo Mozilo of Countrywide, Dick Fuld of Lehman), chronicling their downfalls, their enormous severance packages, much smaller amounts in fines and penalties they had to pay, the ginormous mansions or penthouses they now live in, and their refusal to speak with Cohan about the financial crisis. In contrast, the “survivors” of the meltdown (Gary Cohn and Lloyd Blankfein of Goldman Sachs and Jamie Dimon of JPMorgan) did speak with Cohan, and Cohan is a bit easier on them. Cohan quotes Dimon in ways that make him sound wise and high-minded, e.g., when he says that there was a better approach than TARP and the bailout of the banks, which tarnished the whole banking industry:

In retrospect, Dimon says, a better way to rescue the system may have been to dismantle the banks that screwed things up. “If management ruined their companies, their boards should have been fired, management should have been fired,” he continues. “I support the clawbacks. I think that’s perfectly fine. The American public would have received some sense of justice being done.” He thinks there should have been some differentiation between well-run banks and poorly run banks: “If you said to me, how do I feel about some of these C.E.O.’s who walked away with $50, $100, $150 million and their company blew up? Terrible. It’s outrageous. I agree with them. Everyone says that’s bad. If this company went bankrupt, we should all give back the money we earned in the last five years or more. You wouldn’t have to ask me.”

And the article ends with an account of how “Dimon’s world was turned upside down last June” when he was diagnosed with throat cancer and underwent treatment, including radiation:

He also had six full days of chemotherapy. He lost 35 pounds. His body was burning some 4,000 calories a day because of the treatment. “It was hard to eat,” he says. “Your throat hurts. You have no appetite. Everything tastes just absolutely terrible. So you literally just search for the foods that you can get down.” Into this group fell oatmeal, scrambled eggs, and milk shakes.

By December, he was declared cancer-free. Whew!  But the experience made him confront his own death:

He is not yet sure how the bout with cancer has changed him. He believes the way he can still make the most difference for the world is at JPMorgan. “I really mean that,” he says. He talks about jobs that can be created through providing capital to companies. He talks about how the firm has hired 8,000 military veterans and is investing in Detroit.

So what started as a piece about how various Masters of the Universe have weathered the financial crisis (and what looked like it would be about how many of them made a killing and ended up quite comfortable, despite fraud, recklessness, malfeasance) ended up as a sympathetic piece about the “survivors” (i.e., the winners) of the crisis.  (The URL for the of the online version of the piece even reflects this shift, mentioning Dimon’s cancer when the title of the article doesn’t: It’s a little surprising, since Cohan has been harsher on Dimon and the bankers (e.g., in this NYT Opinionater piece from May 2011, which anticipates the Occupy movement, in which he speaks favorably of Nicholas Sarkosy’s excoriation of Dimon at Davos that year).

You wouldn’t know, from Cohan’s piece, that JPMorgan has been fined more than $35 billion in the three-and-a-half-year period ending at the end of 2014, according to (JP Morgan’s Fines to Date: A Brief History), or that “[n]early all of the penalties were tied to the financial crisis and the company’s promotion and use of mortgage-backed securities.” Maybe Cohan assumes that his readers know or remember this, but wouldn’t it have been a good rejoinder to Dimon’s high-minded claim that the poorly-run banks should have been dismantled and their executives punished? (As the LA TImes‘ Michael Hiltzik points out (The Myth of the Obama ‘Attack’ on JPMorgan’s Jamie Dimon), it is pretty rich that Dimon whines about being persecuted by the Obama administration when the fines have come from many directions besides the federal government, including “several state attorneys general, the European Commission, the British Financial Services Authority and the government of Switzerland” (for LIBOR manipulation), the British Financial Services Authority and other regulators (for the “London Whale” losses), the Madoff securities estate (for complicity in Madoff’s Ponzi scheme), and from the California Independent Independent System Operator, the government of the city of Milan, and the attorneys general of New York and Florida. And this is putting aside any disagreement we might have with what appears to be the Obama administration’s policy of pursuing fines against the banks instead of criminal prosecution of the bankers.

And you wouldn’t know, from Cohan’s piece, that Dimon told the Federal Crisis Inquiry Committee in 2011 that “In mortgage underwriting, somehow we just missed, you know, that home prices don’t go up forever and that it’s not sufficient to have stated income.” As Bill Black puts it in a great recent blog post, we’re supposed to think that “JPM just forgot that lenders need to underwrite their loans and that financial bubbles cannot continue indefinitely.  JPM is the world’s largest bank.  Tens of thousands of people would have to simultaneously forget the same points that had been drilled into them over the course of their education and professional employment.  Tens of thousands of JPM employees would also have to forget that their loan manuals existed.  Dimon’s claim is the stuff of bad science fiction.” As Black points out, on 2012, in JPM’s annual letter to shareholders (where he seems to say different things than what he says to financial journalists and government commissions), Dimon indicates that he understands underwriting a little better than that:  “Low-quality revenue is easy to produce, particularly in financial services.  Poorly underwritten loans represent income today and losses tomorrow.” Black again: “Dimon’s statement is pithy and captures the essence of the fraud recipe and its sure things.”

An extreme case of celebrating and sympathizing with the victors is the recent scandal of SEC offical Andrew “Drew” Bowden, who was caught on camera issuing fawning praise for the private equity industry and even joking that he’s encouraging his teenage son to go into the industry (see video above, or here). The story was broken by Yves Smith at Naked Capitalism (The SEC’s Andrew Bowden: A Regulator for Sale?), and covered by Matt Taibbi at Rolling Stone (Regulatory Capture, Captured on Video) and by the LA TImes‘ Hiltzig (Bankers Are Complaining Again–About Too Much Regulation).

The remarks he made at Stanford are bad enough on their own; joking about his son entering the field was bad, but it’s the attitude toward Wall Street’s wrongdoing vs. its “success” that is really appalling. Bowen said:

Like what, who else out there is in a business that’s that good? And I reckon, it’s sort of interesting for me for private equity in terms of all we’ve seen, and what we have seen, where we have seen some misconduct and things like that, ’cause I always think like, to my simple mind, that the people in private equity, they’re the greatest, they’re actually adding value to their clients, they’re getting paid really really well, you know…

Taibbi remarks: “it reveals an attitude that’s absolutely poisonous among regulators, this fawning worship of people on Wall Street who maybe break a few rules, but that’s okay, because they make tons of money! Can you imagine Elliott Ness giving a speech gushing over what nice cars Al Capone drives? It’s revolting.”

And what is especially damaging for Bowen is that he was highly critical of the private equity industry just last May (see Spreading Sunshine in Private Equity), especially about the industry’s fees (something Yves Smith at Naked Capitalism has been hammering home on), and told Gretchen Morgenson of the New York Times that “[i]n some instances, investors’ pockets are being picked.” But since then Bowen has backpedaled (e.g., in the interview he did for this piece for Private Equity International), so that the Stanford remarks look like a complete turnaround–which is why the charge of regulatory capture fits so well.

 –Chris Sturr