Pimco View on Ivy League Economic Advisors
Chris Dialynas of Pimco, the highly respected bond management firm, had something interesting to say about Ivy League Economists serving as advisors to the Federal Government. The full interview is at http://www.pimco.com/LeftNav/PIMCO+Spotlight/2006/Dialynas+Feb+2006.htm
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The Clinton and Bush administrations, as well as the Greenspan Fed, have relied upon many internal and external advisors. Without doubt, most of these advisors are of Ivy League vintage. It is particularly noteworthy to understand that the endowments of most of those universities—endowments that substantially accrue to the benefit of the respective professors—are primarily invested in very high-risk assets and high-risk strategies (as are numerous other investors in their quest for high returns in a low interest rate world). It is, consequently, of little surprise that policy advice has tended to aggressive stimulus. A disciplined, “take-your-medicine/rebalance-the-economy” set of policies would most likely be detrimental to the endowments of many of this country’s leading educational institutions. As long as these institutions maintain high-risk portfolios, the policy advice from the ivory towers will be highly stimulative based upon new, bizarre economic ideas. The global imbalances will grow. Professor Bernanke is a member of this fraternity. He is a very thoughtful economist who was an expert guest speaker at a PIMCO Secular Forum a few years ago. He was impressive then and impressive subsequently. There is an extraordinary challenge for a very high-quality person. My concern is his presumed pro-reflationary bias. |
On grounds of preservation of liberty, I am opposed to handing this much power over the economy to the Federal Reserve. Their institutional bias is towards the “financial” sector of the economy - i.e the well-connected “early recipients of new money” in Austrian/Libertarian terminology. The result is the enrichment of the financial sector, which has expanded massively in the last 15 years, and the progressive decline in the living standards and increase in indebtedness of the middle-class. This is classic redistribution of wealth, enabled by government policy. Alas, this will provide fodder to future left-wing politicians promising “fairness”, by which they mean a reverse redistribution of wealth, causing further erosion of economic liberty for everyone. The left would point to the self-evident problem of the rising debt and decline in living standards of the middle-class [for example, the “Cross of Gold” issue over a century ago], but its prescription would be further centralization of economic power.