Conflicts of Interest

Megan McArdle has been exceptionally stupid of late. Let's just look at one example.

Glenn Greenwald once lashed out at me for asking an "ignorant" question on a topic I admitted I didn't understand. A petty person would point out that his post on Larry Summers displays not only ignorance, but a total lack of awareness of any gaps in his understanding. And there, I guess I just did.

[Greenwald quote stating Summers was paid off by financial firms via lecture
fees in return for favorable treatment when Summers joined the government.]

In fact, Larry Summers is exactly what we ought to want in a Treasury Secretary: a lifelong academic with no vested interests in the financial system. Following his tenure in office, Summers retreated to a University Presidency, not a lucrative job in finance. He went to DE Shaw to make money only after the Harvard debacle, when he (and everyone else) had concluded that there was no possibility he was going to occupy a prominent political role again. There's no reason to think he is guilty of any ethical breach; in fact, he went to great lengths to avoid any potential for one, until it seemed moot.

There are legitimate questions about whether government officials should be allowed to take money by essentially auctioning off the prestige of their office
to private sector jobs and speaking engagements--but Greenwald isn't asking
them. And there are real problems with the fact that the greatest experts
on financial markets are the people who participate in them--but Greenwald
doesn't name them. Instead he retreats into the crudest sort of conspiracy
theorizing.

McArdle has a problem with Greenwald. He keeps telling her that she is wrong, giving proof of his assertion. That doesn't sit well with McArdle.

I certainly hope for the same forbearance when I argue that Glenn Greenwald is a self-serving media hound with a size-twelve ego squeezed into a size-four soul, and that the root of his rage is less a profound moral grievance than a narcissistic belief that his ideas are of such transcendant clarity, his concerns of such monumental importance, that any failure to obey his dicta can only stem from the most base of motives.

Sigh. Mr Greenwald's anger at the establishment power structure seems to be rapidly transmuting into anger at the non-Glenn-Greenwald power structure[.]...This quite takes my breath away. Because the only reason that one could possibly disagree with Glenn Greenwald about anything is that WE JUST DIDN'T UNDERSTAND HIM!!!!!!!! OMG!!!!!

And so on. So McArdle is quite eager to point out an error by Greenwald. Whether or not she is correct is another matter, and since this is McArdle, I think we know which side is the winning one. After all, McArdle is trying to determine if someone has a conflict of interest, and we know that she is utterly incapable of understanding that subject. She simply doesn't understand that there are conflicts of interest. To have a conflict of interest you have to recognize that other people might have interests and that your interest might harm theirs. To McArdle there is only what she wants and nothing else. No Randian or libertarian will recognize that one should repress one's self and one's actions for anyone else. That would be dragging down the elite, thwarting the good and moral rich in favor of the lazy and immoral poor. If McArdle does it it is correct. If she links to her boyfriend it's because of his elite excellence, not because it will personally benefit her. She's just better that way.

So is McArdle correct that Summers is an academic with "no vested interests in the financial system?" Let's take a look at Summers' career.

As a researcher Summers has made important contributions in many areas of economics,
primarily public finance, labor economics, financial economics, and macroeconomics. Some of
Summers' early papers concluded that corporate and capital gains taxes are an
inefficient form of taxation. Cutting the capital gains tax rate, Summers found, could help the economy grow. Later, while working in the Reagan and Clinton White Houses, Summers was able to lobby successfully for cuts in both corporate and capital gains taxes.One of Summers' prominent findings in labor economics is that unemployment insurance and welfare payments are a major contributor to unemployment, and therefore should be scaled back. As Treasury Secretary, Summers led the Clinton administration's opposition to tax cuts proposed by the Republican Congress in 1999. Also during his stint in the Clinton administration, Summers was successful in pushing for capital gains tax cuts. During the California energy crisis of 2000, then-Treasury Secretary Summers teamed with Alan Greenspan and Enron executive Kenneth Lay to lecture California Governor Gray Davis on the causes of the crisis, explaining that the problem was excessive government regulation. Under the advice of Kenneth Lay, Summers urged Davis to relax California's environmental standards in order to reassure the markets.

Volcker continued to oppose the expansion of banks into the securities underwriting business until his retirement in August 1987. At this time there was still support for Glass-Steagall in Congress (even from Schumer who wrote an oped for the NYT, Don't Let Banks Become Casinos) and so, even with Greenspan at the Fed continuing to advocate for repeal, the most Citicorp and others could do was to chip away at regulations. Over the years several attempts were made to change the law but failed to win passage in Congress. It would take a Republican Congress and the Clinton administration's Robert Rubin and Larry Summers at Treasury to repeal Glass-Steagall.Only last week, as the bill was being pushed through a congressional conference committee, Treasury Secretary Lawrence H. Summers rushed back from a trip to China to huddle with lobbyists representing Citigroup, Goldman Sachs, Merrill Lynch and other financial giants. The meeting was closed to the media and public, but one participant told the New York Times that Summers lectured the lobbyists on how to spin this bill so it appears to be in the public interest. "He said it would be very unfortunate if any financial institution were to suggest that they do not see the broad public purpose of this legislation," the lobbyist reported.

Perhaps Summers is just like McArdle, and doesn't see conflicts of interest at all. So what if he was paid 7.7 million by hedge funds and investment banks right before he was put in charge of bailing them out? It doesn't mean that the millions put in his bank account had anything to do with his subsequent actions on their behalf. The rich are different, you know.