Orszag Looking Out For Numero Uno
James Fallows wants Orszag to say it ain’t so:
Peter Orszag, until recently the director of the Office of Management and Budget under Barack Obama, to join Citibank in a senior position. Exactly how much it will pay is not clear, but informed guesses are several million dollars per year. Citibank, of course, was one of the institutions most notably dependent on federal help to survive in these past two years.
Objectively this is both damaging and shocking.
– Damaging, in that it epitomizes and personalizes a criticism both left and right have had of the Obama Administration’s “bailout” policy: that it’s been too protective of the financial system’s high-flying leaders, and too reluctant to hold any person or institution accountable. . .– Shocking, in the structural rather than personal corruption that it illustrates. . . The idea that someone would help plan, advocate, and carry out an economic policy that played such a crucial role in the survival of a financial institution — and then, less than two years after his Administration took office, would take a job that (a) exemplifies the growing disparities the Administration says it’s trying to correct and (b) unavoidably will call on knowledge and contacts Orszag developed while in recent public service — this says something bad about what is taken for granted in American public life.
Karl Smith–a kinder, gentler Keynesian whom I am now reading because I’m so sick of Krugman–had this to say in reaction to Fallows:
What it says most about is public sector pay. One thing that I find disheartening about the debate over public sector pay is how much it seems to mirror the notion of a “Just Price” for public workers. Is this how we think in economics?
Or do we believe that when prices are out of whack then black markets emerge, corruption of various forms ensues and people engage in strategic behavior?
One thing the low pay of senior public officials allows for is a pump-and-jump. Even in the most noble of circumstances smart folks will notice that they can get to the front of the line pretty fast in the low competition public sector, build an impressive resume and then jump ship to the private sector to make a load of cash.
Less noble would involve actively selling the benefits of one’s position to the highest bidder. What would stop people from doing this? The fear that they would be fired and thus loose out on a lucrative salary. However, with no lucrative salary there is little incentive not to do this.
I do hope that economically oriented folks aren’t suggesting that we use moral suasion to control government corruption. People respond to incentives. If you don’t want them to sell you out then you have to pay them more.
Well yes, Dr. Smith, that’s one possible solution. Of course, it’s an odd solution, since it means we save taxpayers from being fleeced by corrupt corporations…by giving the prize directly to the government employees in the first place.
I’m trying to think if there are any other ways of cracking this nut. How could we change things in DC, so that corporations didn’t find it worthwhile to pay multimillion-dollar salaries to people who had ties to current government officials? Anyone? Bueller?
It’s like the politicians who complain about special interest influence on legislation. Please help me before I pass a bad law again! There’s nothing I can do!
If you want to end corruption you have to limit the role of the government in the economy so that businesses have nothing to gain from associating with the government and instead just focus on serving the customers. This will never happen in my lifetime or my great-grandchildren’s lifetime.
Mr. Becker gets a sticker on his homework assignment.
I can’t seem to post a reply to the post you put up after this one, so I’ll do so here.
Bob, you were right about inflation in 2010. Normal people experienced high inflation, even if the government didn’t report it because of the obvious blind spots in their method of calculating it. And I think it’s silly to judge your success solely on officially-reported inflation. The only thing that’s meaningfully gone down in price is the highly-competitive, innovative electronics market, which is highly discretionary anyway.
To put it another way, how debased do the products you buy every day have to get before you say, “You know, this CPI just ain’t reflecting what I’m dealing with”?
Even if you use the “free market” measure of inflation that conspiracy theorists seem to love, inflation for 2010 is still no higher than it was in the early 2000s.
http://www.shadowstats.com/alternate_data/inflation-charts
I think for Bob’s prediction to of high inflation to be meaningful in any way it, it would have to at least be higher than than the 2008 the peak (using government stats or shadowsats) because Bob’s main point was that the fed’s unprecedented actions would lead to inflation higher than the norm.
Bob, you were right about inflation in 2010. Normal people experienced high inflation
I must not be normal then, as I have not experienced this high inflation.
I’m glad that Bob hasn’t taken the cop out of saying that he was right about inflation but the government is just cooking the numbers (admittedly hard to do when his predictions were made in terms of the CPI). I wish, though, that he would actually consider the implications of his being wrong about inflation rather than thinking up more elaborate conspiracy theories about Bernanke’s plan to destroy the dollar.
Desolation_Jones and Blackadder, please answer my question: What observation about your own purchasing difficulties would lead you to conclude that official CPI stats are woefully unrepresentative of the product debasement and price increases you experience in your every day life? e.g. if one day you noticed that literally every food item you bought tasted worse that before, everything fell apart faster, and yet the government “showed” you that those prices didn’t go up (and nominal unit prices in fact didn’t), would you say, “well golly I must be imagining things!” or “sorry, that’s just not right — my dollars really are buying less, I don’t care if the government wants me to believe otherwise”?
Silas,
Sure, if all the prices I saw were going up by a lot while the CPI showed no inflation, I would start to believe there was a problem with the CPI. That hasn’t happened.
Blackadder: So you don’t understand how a constant sticker price for products of declining quality is effectively a price increase? Then why do you consider yourself qualified to render judgments on the matter?
So you don’t understand how a constant sticker price for products of declining quality is effectively a price increase?
No, I understand this (and for the record I have not noticed a decline in product quality either). What’s not clear is why you think an increase in the money supply should lead to a generalized decrease in product quality rather than an increase in prices.
No, I understand this (and for the record I have not noticed a decline in product quality either). What’s not clear is why you think an increase in the money supply should lead to a generalized decrease in product quality rather than an increase in prices.
It can lead to either, and either should regarded as a species of price inflation. Your failure to make this connection (regarding this equivalence) suggests that you were not looking at the full picture.
When producers all face higher input prices, they can respond by raising their own prices, keeping quality constant, or debase their products (and otherwise cut corners) keeping nominal prices the same but debasing quality. Which choice they make depends on consumer preferences — sometimes there can be a “sticky” preference for a constant product price, which makes the quality have to vary. An accurate picture of inflation needs to take this into account, and by its own admission, the agencies that report price data don’t collect the information that would tell them when they need to do negative hedonic adjustments.
I’m glad for you that you’re not noticing a price increases or quality decreases across your basket of goods. I just hope that when it becomes too obvious for you to ignore that you’ll be prepared.
When producers all face higher input prices, they can respond by raising their own prices, keeping quality constant, or debase their products (and otherwise cut corners) keeping nominal prices the same but debasing quality.
Sure, but in an inflationary scenario the reason input prices are higher is because of an increase in demand due to the extra cash that’s floating around. It’s hard to see why businesses would all respond to an increase in demand by reducing product quality, rather than raising prices.
Because lowering quality will scare off fewer customers to the alternatives than raising prices. Customers can more easily monitor nominal price increases than quality changes. Producers know this and resist explicit price hikes as long as they can get away with.
Think about it Blackadder: do you test product quality as much as you “test” nominal price changes? Heck, you even started this by claiming ignorance of quality changes. Have you even done the appropriate comparisons?
It’s “hard” to see for someone who doesn’t want to see it, perhaps.
I think blackadder has a point that for their to be rampant inflation right now the CPI should be increasing more than it did during the housing boom years or mid 2008. Even if the measure sucks, which it does, it was the same during those years unless the government is deliberately manipulating the data and not telling anyone. Second, the temptation for businesses to lower product quality under inflationary pressure is no different now than it was five years ago.
However, I think that there has been serious price inflation judging by the unjustified rise in stocks, rise in commodity prices, and especially the rise in the price of government treasuries and corresponding low yields on government debt. The high price of government bonds is a direct and unequivocal result of the money pumped into the shoulda-been-killed-off banking system. Consumer prices are a vastly overrated gauge of inflation; there are so many other important prices in the market system!