Alan Blinder

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[Economist] Rob Johnson, who watched the Blinder ordeal, says Blinder made the mistake of behaving as if the Fed was a place where competing ideas and assumptions were debated. "Sociologically, what was happening was the Fed staff was really afraid of Blinder. At some level, as an applied empirical economist, Alan Blinder is really brilliant," says Johnson.

In closed-door meetings, Blinder did what so few do: challenged assumptions. The Fed staff would come out and their ritual is: Greenspan has kind of told them what to conclude and they produce studies in which they conclude this. And Blinder treated it more like an open academic debate when he first got there and he'd come out and say, 'Well, that's not true. If you change this assumption and change this assumption and use this kind of assumption you get a completely different result.' And it just created a stir inside – it was sort of like the whole pipeline of Greenspan-arriving-at-decisions was disrupted.

This put him in conflict with Greenspan and his staff. "A lot of senior staff ... were pissed off about Blinder – how should we say? – not playing by the customs that they were accustomed to," Johnson says. [16]

He was an adviser to Al Gore and John Kerry during their respective presidential campaigns in 2000 and 2004. [3]

"Cash for Clunkers"

Blinder was an early advocate of a "Cash for Clunkers" program, in which the government buys some of the oldest, most-polluting vehicles and scraps them. In July 2008, he wrote an article in The New York Times advocating such a program, [17] which was implemented by the Obama administration during the summer of 2009. [18] Blinder asserted it could stimulate the economy, benefit the environment, and reduce income inequality. [17] The program was praised by President Obama for "exceeding expectations," [19] but criticized for economic and environmental reasons. [20] [21] [22] [23]

Private sector

Blinder was a co-founder and a vice-chair of the Promontory Interfinancial Network, LLC.[ citation needed ]

After his service as the vice chairman of the Federal Reserve, Blinder, along with several former regulators, founded a company that offers a number of services that provide a means for depositors (including governmental entities, nonprofits, businesses, as well as individuals such as retirees) to access millions in Federal Deposit Insurance Corporation (FDIC) coverage at a single institution instead of multiple ones.[ citation needed ] This provides banks that are members the ability to offer coverage above the FDIC per account/per bank limit by letting those banks place funds into CDs or deposit accounts issued by other network banks. This occurs in increments below the standard FDIC insurance maximum ($250,000) so that both principal and interest are eligible for FDIC insurance. [24] The company acts as a sort of clearinghouse, matching deposits from one institution with another. [24] Through its services it allows access to higher levels of FDIC insurance although limits apply. [25]

Views regarding 2008 near-meltdown of major financial institutions

Blinder draws 10 lessons for fellow economists in an article entitled "What Did We Learn from the Financial Crisis, the Great Recession, and the Pathetic Recovery?": [5] [26] [27] [ non-primary source needed ]

1) It can happen here.

2) Hyman Minsky was basically right. " . . The financial world envisioned by Minsky is different in every respect from the EMH [Efficient Markets Hypothesis] paradigm. While the good times are rolling, people forget the bitter lessons of the past. (“This time is different.”) So financial excesses grow more, not less, severe as the bubble progresses—creating greater vulnerability to shocks and more damage when the crash comes. The crash itself always seems to come as a surprise; and after it, sentiment swings radically in the other direction. People shun risk, pessimism rules, and the economy struggles. . " [28]

3) Reinhart-Rogoff recessions are worse than Keynesian recessions. " . . Reinhart-Rogoff recessions destroy parts of the financial system and leave much of the rest reeling—and needing to deleverage. All of that stunts and delays recovery. Reinhart-Rogoff recessions also leave large buildups of debt—financial sector debt, corporate debt, household debt, and public debt—in their wake. . " [29] [30] [31]

4) Self-regulation is oxymoronic.

5) Fraud and near-fraud can rise to attain macroeconomic significance.

6) Excessive complexity is not just anti-competitive, it's dangerous.

7) Go-for-broke incentives will induce traders to go for broke.

8) Illiquidity closely resembles insolvency. Blinder asks, Was the situation with Bear Stearns, which was saved in March 2008, really so different from the situation with Lehman Brothers, which was allowed to go bankrupt in September 2008? [32] [33] [34]

9) Moral hazard isn't a show-stopper, it's a tradeoff. [35]

10) Economic illiteracy can really hurt.

Selected works

See also

Related Research Articles

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Recession Business cycle contraction; general slowdown on economic activity

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References

  1. "Economist Rankings | IDEAS/RePEc". ideas.repec.org.
  2. 1 2 Princeton Economist to Be Named To Clinton's Council, Aides Say, New York Times (archives), Louis Uchitelle, Jan. 4, 1993.
  3. 1 2 3 4 5 6 7 8 "Alan S. Blinder, Princeton University". Princeton University.
  4. "Alan Blinder".
  5. 1 2 3 "What Did We Learn from the Financial Crisis, the Great Recession, and the Pathetic Recovery?", Alan Blinder, Nov. 2014. Blinder credits fellow economists Carmen Reinhart (1955– ) and Kenneth Rogoff (1953– ) with describing important features of a worse-than-normal recession in which both parts of the financial system are destroyed and large amounts of debt are left in its wake.
  6. Stephen Harlan Norwood, Eunice G. Pollack (ed.). Encyclopedia of American Jewish History, Volume 1. p. 721.
  7. Blinder, Alan Stuart. "The Theory of Corporate Choice". Princeton University. Department of Economics.
  8. Blinder, Alan S. (1971). Towards an Economic Theory of Income Distribution (Ph.D.). Massachusetts Institute of Technology.
  9. "Alan S. Blinder". National Bureau of Economic Research.
  10. NBER, Curriculum Vitae: Alan Stuart Blinder, accessed 14 August 2001
  11. Alan Blinder, Textbooks
  12. Princeton University, 24 June 2009, Blinder named fellow of American Academy of Political and Social Science, accessed 14 August 2009
  13. Blinder, Alan S. (2008). "Free Trade". In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN   978-0865976658. OCLC   237794267.
  14. Mark Weisbrot (10 January 2012). "The economic idiocy of economists". Comment is free. London: guardian.co.uk. Retrieved 31 March 2012.
  15. The New York Times , 18 March 1995, Opening the Fed's Doors From Inside; Alan Blinder Preaches Communication at Tight-Lipped Central Bank
  16. Grim, Ryan (2009-09-07) Priceless: How The Federal Reserve Bought The Economics Profession, Huffington Post
  17. 1 2 Blinder, Alan S. (27 July 2008). "A Modest Proposal: Eco-Friendly Stimulus". The New York Times.
  18. Why One Economist Pushed Cash For Clunkers, National Public Radio, August 11, 2009.
  19. More Cash for Clunkers?; Despite the frenzy, another $2 billion may not sell any additional cars., Wall Street Journal, August 3, 2009.
  20. Derek Thompson, The Senate Should Kill Cash for Clunkers, The Atlantic, August 2009.
  21. "Cash for Clunkers" Bad for Environment?, CBS News, August 7, 2009.
  22. Clearing the air; Environmental benefits limited from ‘Clunkers’ deal, The Houston Chronicle, September 5, 2009.
  23. ,"Stimulus For Clunkers" Wall Street Journal, August 6, 2014.
  24. 1 2 Svaldi, Aldo (18 August 2008). "CDARS, safety in numbers for big bank customers". Denver Post.
  25. Taleb, Nassim Nicholas, 1960- (2012). Antifragile : things that gain from disorder (1st ed.). New York: Random House. ISBN   978-1-4000-6782-4. OCLC   774490503.CS1 maint: multiple names: authors list (link)
  26. National Bureau of Economic Research, US Business Cycle Expansions and Contractions. The recession was later determined to have begun in Dec. 2007 with the trough occurring in June 2009. And from that point forward until Feb. 2020, the US economy was in expansion mode.
  27. Blinder states that it wasn’t until 2011 (2nd quarter) that GDP climbed back to its Dec. 2007 level, and it wasn’t until May 2014 that payroll employment climbed back to its Jan. 2008 peak.
  28. Blinder writes, "The financial system is a zoo that needs zookeepers, lest the wilder animals escape and wreak havoc upon the rest of us."
  29. Blinder writes, "If fiscal expansion is blocked by a large public debt, and monetary expansion is blocked by zero interest rates, recovery from a Reinhart-Rogoff recession (unlike a Keynesian recession) may require debt-reducing policies such as explicit debt forgiveness or implicit repudiation through inflation. Not your father's recovery policies."
  30. In contrast, the much more common Keynesian recession responds relatively promptly, perhaps in a matter of months, to the standard tools of monetary stimulus (lower interest rates) and fiscal stimulus (tax cuts and/or deficit spending).
  31. In a later passage (page 16), Blinder writes, " . . stimulus does not require larger government. Congress can use tax cuts instead—or the Fed can chip in with monetary policy. Indeed, both Ronald Reagan and George W. Bush were big Keynesians—in deeds, if not in words."
  32. Regarding Bear Stearns, Blinder writes, "Bear Stearns was bleeding cash in March 2008, owing largely to rumors (based on facts!) of large losses in its mortgage businesses. In the fateful days before its shotgun marriage to J.P. Morgan Chase, Bear was about to run out of cash."
  33. Regarding Lehman Brothers in Sept. 2008, Blinder writes, "Lehman Brothers showed remarkably similar symptoms: a liquidity squeeze brought on by rumors (truths?) of large losses in real estate and mortgage-backed securities. Same problem, same solution, right? Wrong. This time, the Fed judged that Lehman was not just illiquid but also insolvent."
  34. Blinder writes, “Such fire sales fetch low prices, which can turn positive net worth into negative net worth. Thus illiquidity can lead to insolvency.”
  35. Blinder writes, “But in the midst of a crisis, with the house on fire, it may be imperative to douse the fire first and try to persuade the occupant not to smoke later—time inconsistency notwithstanding. Yes, bailouts set bad precedents, but letting a crisis spin out of control may be far worse.”
  36. After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead, Alan Blinder, Penguin Press, 2013, review by GoodReads.
Alan Blinder
Alan S. Blinder, Vice Chairman Federal Reserve.jpg
15th Vice Chair of the Federal Reserve
In office
June 27, 1994 January 31, 1996
Government offices
Preceded by Vice Chair of the Federal Reserve
1994–1996
Succeeded by