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December 30, 2012
David Warsh, Proprietor


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An All-Star for the Team of Rivals?

For all the talk about the State and Defense departments, there has been very little speculation about who might be about to head the Treasury Department, the administration’s most important post.  Because I’ve been reading The Founders and Finance:  How Hamilton, Gallatin and Other Immigrants Forged a New Economy, by Thomas K. McCraw, I feel entitled to a little speculation.

The best candidate, it seems to me, is former Sen. Bill Bradley, a partner since 2000 at the boutique investment bank of Allen and Co., in New York.

First a word about the job. Though the Secretary of State outranks him in the line of succession to the presidency, Secretary of the Treasury is the more important job at least in this administration. That much is underscored by The Founders and Finance.   McCraw was making the best of a bad hand when he undertook the project (he died, at 72, in November). A distinguished business historian (Prophets of Regulation: Charles Francis Adams; Louis D. Brandeis; James M. Landis; Alfred E. Kahn [1984]and Prophet of Innovation: Joseph Schumpeter and Creative Destruction [2007]), McCraw served all too briefly as Alfred Chandler’s successor at the Harvard Business School.  He had wanted to say something about the current situation.

The form he chose was a pair of graceful biographical essays about two Treasury Secretaries, Alexander Hamilton (who served under George Washington) and Albert Gallatin (who was appointed by Thomas Jefferson and reappointed by James Madison), anchored by an introduction and a postscript about the importance of immigration to US public finance (four of the first six Treasury Secretaries were born abroad), and three more little essays at the end. Historian Gordon Wood, of Brown University, makes clear in The New Republic that McCraw didn’t have time to tell the story he wanted. But you can’t read The Founders and Finance, or Wood’s review of it, without understanding how deeply rooted in US politics are today’s disagreements about the proper roles of the public and private sectors, the appropriate level of taxation and the nature of the national debt — and how consistently, against great odds, compromises have been achieved.

Little appreciated, I think, is how good a job Timothy Geithner has done.  President Obama hired him partly for his familiarity with the crisis – Geithner had been president of the Federal Reserve Bank of New York in the run-up to it and helped quell the panic – but mainly, even then, because he possessed the elusive sense of gravitas that meant he could not easily be manipulated by various contending interests. He proved equal to the task.

The next Treasury Secretary, however, must do more than restore stability to the financial markets.  The agenda for the years ahead is complicated – manage the public debt and oversee, somehow, a far-reaching and complicated tax reform.

Who should get the job? Laurence Fink, chief executive at BlackRock Inc , apparently thinks he should.  So does Roger Altman, of Evercore Partners. The White House earlier this month boosted  its chief of staff, Jacob (“Jack”) Lew. There are doubtless many others on the list of possibilities.

But Bradley, 69, is the best choice of all.  Famous since his days as an all-American basketball player at Princeton (where he was subject of an early profile  by John McPhee in The New Yorker, Bradley spent two years as a Rhodes scholar at Oxford, then played ten years professionally for the New York Knicks before becoming a three-term senator from New Jersey. He left the Senate in 1997, worked for three years for J.P. Morgan, mounted an unsuccessful campaign for the Democratic presidential nomination in 2000, and joined Allen & Co. in the next year. After ten years with the little investment bank (which specializes in media deals), he knows Wall Street well and Wall Street knows him.  He also happens to know how to write a tax bill, something no one in the administration has yet done. (He was co-sponsor, with Richard Gerhardt (D-Mo.) of the measure that eventually became the Tax Reform Act of 1986.)

Once Washington steps back from the so-called fiscal cliff, President Obama should put his Treasury chief, whoever it turns out to be, to work on what remains a very slippery fiscal slope.

.                          xxxxx

Albert Hirschman, of the Institute for Advanced Study at Princeton, died  earlier this month, after a long illness.  He was 97

Born in Berlin in 1915, Hirschman fought for the Republican side in the Spanish Civil War.  After France fell to Germany in 1940, he made his way to Marseilles, where he joined the American journalist Varian Fry in helping more than 2,000 persons escape  the Nazis and the Vichy regime.  At the end of the year, he made his way to the United States, virtually the last man out, and for the next several years, worked for the Federal Reserve Board.

In 1952 Hirschman moved to Colombia to advise the government there, returned to the US four years later and taught for a decade at Columbia, Yale and Harvard. In 1967, he moved to the Institute for Advanced Study and, over the next twenty years, published a series of inventive and illuminating little books, non-mathematical but fiercely reasoned.  In Exit, Voice, and Loyalty:  Responses to Decline in Firms, Organizations, and States  (1970), he showed how customers of firms, employees, and citizens share a common set of options when confronted with behaviors they don’t like – they may complain, suffer in silence or quit the field. In The Passions and The Interests: Political Arguments for Capitalism Before Its Triumph  (1977), Hirschman traced, from Machiavelli to de Toqueville, the history of the proposition that commerce might be a restraining force on the destructive passions of humankind. Ad in The Rhetoric of Reaction: Perversity, Futility, Jeopardy (1991) he examined three classic arguments traditionally marshaled against liberal ideas about reform  My favorite of these books, at least in the present circumstances, is Shifting Involvements: Private Interest and Public Action (1982),  a sophisticated cycle theory in which concern for equality and civic virtue arises naturally out of concern for personal liberty and well-being – and vice versa.

The New York Times obituary characterized Hirschman as an“optimistic economist.”  He preferred the label “possibilitarian.”  His book about Latin America development was titled A Bias For Hope. His (late in life) autobiographical essays were collected as A Propensity to Self-Subversion. Among the action-intellectuals I know something about, he outranked even Milton Friedman.  He had only one peer: Thomas Schelling, whose Nobel Lecture, at 43 minutes, is the most striking evidence I know of the power of this kind of thought.

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