David Warsh: 'Suzerainties in economics are personal'
The Great Dome at the Massachusetss Institute of Technology, in Cambridge, Mass.
SOMERVILLE, Mass.
When I was a young journalist, just starting out, the economist whose writings introduced me to the field was Gunnar Myrdal. He hadn’t yet been recognized with a Nobel Prize, as a socialist harnessed to an individualist, Friedrich Hayek. That happened in in 1974. But he had written An American Dilemma: The Negro Problem and Modern Democracy (1944) , about the policy of segregation that had been restored de jure after the U.S. Civil War. A subsequent project, Asian Drama: An Inquiry into the Poverty of Nations (1968), longer in preparation, was in the news.
Myrdal’s pessimistic assessment of the prospects for economic growth in India, Vietnam, and China began to fade soon after it appeared. The between-the-wars era of economics in which he was prominent already had been superseded by a new era, dominated by Paul Samuelson, whose introductory college textbook Economics (1948), supplemented by the highly technical Foundations of Economic Analysis (1947), quickly replaced overnight Alfred Marshall’s Principles of Economics, whose first edition had appeared in 1890.
Basic textbooks dominate their fields by dint of the housekeeping that they establish. Samuelson has ruled economics ever since through the language he promulgated; mathematical reasoning was widely adopted within a few years by newcomers to the profession. Ruling textbooks are sovereign. Since the discovery and identification of the market system two hundred and fifty years ago, there have been only five such sovereign versions: Adam Smith, David Ricardo, John Stuart Mill, Alfred Marshall, and Samuelson (brought up to knowledge’s frontiers thirty years ago by Andreu Mas-Colell).
Sovereignty is binary; it either exists or doesn’t. A suzerainty, on the other hand, though part of the main, sets its own agenda. John Fairbank taught that Tibet was a suzerainty of China. (This Old French word signifies a medieval concept, adopted here to describe modern sciences, as in Dani Rodrik’s One Economics, Many Recipes (2007).
Suzerainties are personal. They rule through personal example. Replacing Myrdal as suzerain in my mind, in 1974, practically overnight, was Robert Solow. Eight years his junior, Solow was Samuelson’s research partner at the Massachusetts Institute of Technology, for the next thirty years. Samuelson retired in 1982, died in 2009. Solow soldiered on.
Solow turned 99 last week, hard of hearing but sharp as ever otherwise (listen to this revealing interview if you doubt it.) By now his suzerainty has passed to Professor Sir Angus Deaton, 78, of Princeton University.
What is required to become a suzerain? Presidency of the American Economic Association and a Nobel Prize are probably the basic requirements: recognition by two distinct communities, one for good citizenship within the profession, the other for scientific achievement beyond it, to the benefit to all humanity.
In Deaton’s case, as in Myrdal’s, it helps to have displayed a touch of Alexis de Tocqueville, whose two-volume classic of 1835 and 1840, Democracy in America, set the standard for critical criticism by a visitor from another culture, and, in the process, founded the systematic study today we call political science. Deaton grew up in Scotland, earned his degrees at Cambridge University, and was professor of economics at the University of Bristol for eight years, before moving to Princeton. in 1983. For the first twenty years he taught and worked in relative obscurity on intricate econometric issues. In 1997, he began writing regular letters for the Royal Economic Society Newsletter, reflecting on what he had learned recently about American life, “sometimes in awe, and sometimes in shock”.
In 2015, the year Deaton was recognized by the Nobel Foundation for “his analysis of consumption, poverty, and welfare,” he published The Great Escape: Health, Wealth, and the Origins of Inequality. Five years later, Deaths of Despair and the Future of Capitalism appeared, by Deaton and Anne Case, his fellow Princeton professor and economist wife, just as the Covid epidemic began. It became a national best-seller, focusing attention on the fact that life expectancy in the United States had recently fallen for three years in a row – “a reversal not seen since 1918 or in any other wealthy nation in modern times.”
Hundreds of thousands of Americans had already died in the opioid crisis, they wrote, tying those losses, and more to come, to “the weakening position of labor, the growing power of corporations, and, above all, to a rapacious health-care sector that redistributes working-class wages into the pockets of the wealthy.”
Now Deaton has written a coda to all that. Economics in America: An Immigrant Economist Explores the Land of Inequality (Princeton 2023) will appear in October, offering a backstage tour during the year that Deaton has been near or at the pinnacle of it. I spent most of Friday and Saturday morning reading it, more than I ordinarily allot to a book, and found myself absorbed in its stories about particular people and controversies, on the one hand, and, on the other, increasingly apprehensive about finding something pointed about it to say.
Then it occurred to me. I have long been a fan of Ernst Berndt’s introductory text, The Practice of Econometrics: Classic and Contemporary (Addison-Wesley, 1991), mainly because it scattered one- or two-page profiles of leading econometricians throughout pages of explication of their ideas and tools. Deaton’s new book is far better than that, because no equations are to be found in the book, and part of some of those letters to British economists have been carefully worked in.
The argument about David Card and the late Alan Krueger’s celebrated paper pater about a natural experiment with the minimum wage along two sides of the Delaware River, New Jersey and Pennsylvania, is carefully rehashed (both were Deaton’s students). The goings-on at Social Security Day at the Summer Institute of the National Bureau of Economic Research is described. The “big push” debate in development economics among William Easterly, Jeffrey Sachs, Treasury Secretary Paul H O’Neill, and Joseph Stiglitz get a good going-over. Econometrician Steve Pischke’s three disparaging reviews of Freakonomics are mentioned. Rober Barro and Edward Prescott are raked over with dry Scottish wit; Edmond Malinvaud, Esra Bennathan, Hans Binswanger-Mkhizer, and John DiNardo are celebrated. The starting salaried of the most sought-after among each year’s newly-minted economics PhDs are discussed:
My taste is for theory because developments in theory are where news is apt to be found. That’s why I liked Great Escape and Deaths of Despair so much. Economics in America is undoubtedly the best book about applied economics I’ve ever read, its breadth and depth. But it is a book about applied economics – the meat and potatoes topics that I have tended to avoid over the years. What I craved when I finished is a book about the one-time land of equality that is Britain today.
Other suzerainties exist in economics. The same and/or credentials apply: presidency of the AEA and realistic hopes of a possible Nobel Prize. They tend to be associated with particular universities: Robert Wilson, Guido Imbens, Susan Athey, Paul Milgrom and Alvin Roth at Stanford; George Akerlof (emeritus), David Card and Daniel McFadden at Berkeley; Claudia Goldin and Lawrence Katz at Harvard; William Nordhaus and Robert Shiller at Yale; James Heckman and Richard Thaler at Chicago; Daron Acemoglu and Peter Diamond at MIT; Sir Angus Deaton, Christopher Sims, and Avinash Dixit at Princeton.
Alas, the reigning head of the suzerainty in which I am most interested, macroeconomist Robert Lucas, died earlier this year, and won’t soon be replaced. He succeeded Sherwin Rosen, his best friend in the business, in the AEA presidency in 2001. Rosen died the same year, a decade or two short of what might have been his own trip to Stockholm.
David Warsh, a veteran columnist and an economic historian, is proprietor of Somerville-based economicprincipals.com, where this column originated.
David Warsh: Through the decades with my brilliant friend and occasional rescuer The Copy Editor
SOMERVILLE, Mass.
Economic Principals has been preparing for months to move to Substack’s publishing platform next week, figuring out what to bring and what to leave behind. A critical feature also will make the move: EP’s conscience, teacher and fellow-traveler, The Copy Editor.
We met mornings some forty years ago, walking to the paper {The Boston Globe} from the train. He was working in the library at the time, having turned down an offer from The Atlantic Monthly. I was a newly hired economics reporter. We’d attended the same college, Harvard, 15 years apart, and read some of the same books. We had undertaken similar undergraduate theses: his on historian Henry Adams and critic Edmund Wilson, in History and Literature; mine on Henry Adams and newspaper columnist Joseph Alsop, a China hand, in Social Studies. The Copy Editor finished his thesis with great distinction and graduated with high honors; I abandoned mine and graduated with no distinction.
Clear from the beginning was that he was unusually acute – more acute than I about many things; faster, too. One day without thinking I exaggerated the barriers I had run into as a quarter-miler in high school, claiming 51-second laps, perhaps, instead of 53-s? He had been an alternate in the mile relay for a team that had won the state championship. He forgave and remembered.
Before long he had moved to the book department. The Globe had some 550 editorial employees in those days. I keep a photo on the office wall of a house ad, “Every One’s a Critic:” fifteen lively souls arrayed on stools, The Copy Editor among them. By then it was clear that he was a prodigy; what was unusual was that he served as cook and bottle-washer as well. He displayed deeply ingrained habits: helping others, performing introductions, giving parties, constructing networks. We lived near one another, knew each other’s families and friends.
Certain things stand out, none more than “Wing Tips on the Beach,” a Sunday feature story that became one of three finalists in that category for a Pulitzer Prize in 1994. To this day, I have never read a more revealing interpretation of Richard Nixon than that meditation on a famous photograph of the former president. It did not win, but the author persevered, devising a more capacious framework for his story. When Nixon at the Movies: A Book about Belief appeared in 2004, it quickly gained a place on the relatively short shelf of indispensable second-generation receptions of the Nixon story. And when the Pulitzer finally came, in 2008, it was for criticism, specifically “For his penetrating and versatile command of the visual arts, from film and photography to painting.”
At some point The Copy Editor had begun to read what I wrote before I turned it over to the editor’s desk, to “save you from yourself,” he regularly explained. The tumult of the sale of the paper to The New York Times cost us much. He remained at The Globe and become ever more one of its foremost citizens, knowledgeably recalling in print the long-ago saga of the Bulger clan one week; visiting a museum or reviewing the latest edition of the Fast and Furious movies the next; educating the stream of talented newcomers to the paper all the while. He stayed with me, too, after I left the paper, in 2002.
Almost certainly I would not have kept at EP if he had not. We have had our occasional, sometimes major, differences of opinion. His relatively humble title is designed to emphasize that he is not responsible for opinions published here. But never have I had a friend as loyal, generous and shrewd as The Copy Editor.
David Warsh, a veteran columnist and an economic historian, is proprietor of Somerville-based economicprincipals.com, where this column originated.
David Warsh: The Nobel Prize in Economics and the 'Methods Revolution'
Scurvy-prevention pioneer James Lind
The cure for scurvy became known to Portuguese explorer Vasco Da Gama when, in 1498, he stopped in Mombassa, along the east coast of Africa, on his way to India – the first such maritime voyage by a European in history. The African king fed the ship’s sailors oranges and lemons, and the disease, which often can be fatal to sailors on ships that remain at sea longer than 10 weeks, cleared up. The remedy became a naval secret, then a rumor, and, eventually, folk wisdom. Only in 1747, when British Navy surgeon James Lind performed his famous experiment, did it become reliable knowledge.
Lind divided 12 men suffering from similar symptoms aboard his ship into six pairs. He treated one man in each pair with one of six competing nostrums, and gave the other man nothing. Those who received citrus juice recovered while the others did not. It took another 40 years (and the onset of a desperate war with France) for the British Admiralty to require a ration of lemon juice be provided regularly to sailors throughout the fleet. Not until the 1930s did biochemist Albert Szent-Györgyi pin down that it is ascorbic acid, AKA vitamin C, that does the trick.
Since then, the practice of inferring causation by comparing a “treatment group” receiving a certain intervention with a “control group” receiving nothing of the sort has been considerably refined. Agronomists began using the technique in the early 20th Century to improve plant yields through hybridization. Statisticians soon tackled the problem of experiment design. The first randomized controlled trials in medicine were reported in 1948 – the effectiveness of streptomycin in treating tuberculosis.
Beginning in the 1980s, economists began adopting the technique of randomized control trials to use across a broad swathe of microeconomics, distinguishing between “natural experiments,” in which nature or history formulates the treatment and control groups, and “field experiments,” in which investigators arrange interventions themselves and then follow their effects on participants making decisions in everyday life.
Early experiments with negative income taxes by others were assessed by Jerry Hausman and David Wise in 1985,; the RAND Health Insurance Experiment, analyzed by Joseph Newhouse, in 1993; a series a welfare- reform experiments conducted by economic consulting firms for the Ford Foundation in the the ’80s and ’90s, surveyed by Charles Manski and Irwin Garfinkel in 1992; and experiments in early-childhood education, especially the Perry Preschool Project, begun in 1963, and introduced to economists by Lawrence Schweinhart, Helen Barnes, and Weikart, in 1993. An especially striking exemplar of the new approach came from Angrist in 1990 who used the draft lottery to study the effect of Vietnam-era conscription on lifetime earning.
Behind the scenes, of course, enabling the revolution, was the advent of essentially unlimited computing power and the software to put it to use, searching out all kinds of new data and analyzing it. Major developments along the way were described by Hausman and Wise (Social Experimentation, 1985); James Heckman and Jeffrey Smith, “Assessing the Case for Social Experiments,” 1995; Glenn Harrison and John List (“Field Experiments,” 2004); Angrist and Jörn-Steffen Pischke (“The Credibility Revolution in Empirical Economics,” 2010); David Card, Steffano DellaVigna, and Ulrike Malmendier (“The Role of Theory in Field Experiments,” 2011); Manski (Public Policy in an Uncertain World: Analysis and Decisions, 2013); and Susan Athey and Guido Imbens (“The Econometrics of Randomized Experiments,” 2017). All this can be gleaned from the first few pages of the Royal Swedish Academy of Sciences’ Scientific Background to this year’s Nobel Prize.
Confronted with this Tolstoyan sprawl, the Nobel Memorial Prize in Economic Sciences committee earlier this month finessed the problem of allocating credit by singling out the sub-discipline of development economics as a field in which experiments is said to have shown particular promise. Recognized were Abhijit Banerjee, 58, and Esther Duflo, 46, both of the Massachusetts Institute of Technology; and Michael Kremer, 55, of Harvard University, for having pioneered the use of randomized controlled trials (RCTs) to assess the merits of various anti-poverty interventions.
In Duflo, the committee got what it wanted: a female laureate in economics, only the second to be chosen, and a young one at that. (Elinor Ostrom, then 78, who was honored with Oliver Williamson in 2009, died two years after receiving the award.) Duflo’s mother was a pediatrician who traveled frequently to Rwanda, Haiti and El Salvador to treat impoverished children or victims of war, according to Herstory. Duflo herself formed a life-long obsession with India at the age of six, when reading a comic book about Mother Teresa, the Albanian nun who operated a hospice in Calcutta (now Kolkata). As a student at the Ecole Normale Superieure, Duflo switched to economics from history while working for a year in Russia, observing the work of American economic advice-givers first hand. Duflo was Kremer’s and Banarjee’s student at MIT; the university hired her upon graduation, and tenured her after Princeton sought to lure her away.
Banerjee grew up in Kolkata, the son of a distinguished professor of economics. An interview with The Telegraph gives a vivid picture of the rich intellectual life of Bengal. He earned his PhD from Harvard in 1988 with a trio of essays in information economics, and taught at Princeton, then Harvard, before moving to MIT. There he founded, in 2003, with Duflo, Kremer and others, the Abdul Latif Jameel Poverty Action Lab, known colloquially as J-PAL, its researchers self-identifying as randomistas. In 2010, he and Duflo published Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (Public Affairs), a primer on RCTs. By then he had divorced his first wife. In 2015, he and Duflo married.
Of the three, Kremer was the pioneer. After graduating from Harvard College, in 1985, he taught high school in Kenya for a year. Returning to Harvard to study economics with Robert Barro, in a period of great ferment, he made two durable contributions to what was then the “new” economics of growth: “Population Growth and Technological Change: 1.000,000 BC to 1990” and “The O-Ring Theory of Economic Development,” both in 1993. With “Research on Schooling: What We Know an What We Don’t,” in August 1995, Kremer asked a series of questions; six months later, in “Integrating Behavioral Choice into Epidemiological Models of the AIDS Epidemic,” he developed a model of a different problem whose implications might be tested with a new approach: randomized control trials. Since then, he has kept up a drumbeat of influential papers – health treatments, patent buyouts, elephant conservation, vaccine-purchase commitments, the repeal of odious debt – including several with his wife, the British economist Rachel Glennerster.
“The research conducted by this year’s Laureates has considerably improved our ability to fight global poverty,” asserted the Nobel press release. “In just two decades, their new experiment-based approach has transformed development economics, which is now a flourishing field of research.” One reason it is flourishing is the availability of a deep river of global funding: The World Bank, the United Nations, and several major philanthropies regularly invest enormous sums in development research compared to other areas of inquiry. Those projects offering carefully designed experiments, promising reliable answers to perplexing questions, enjoy a significant advantage in the competition for research funds.
For a well-informed description of some of the work and its limitations, see Kevin Bryan’s post at A Fine Theorem, “What Randomization Can and Cannot Do.” For some sharp criticism, read “The Poverty of Poor Economics,” on Africa Is a Country’s site. (“Serious ethical and moral questions have been raised particularly about the types of experiments that the randomistas… have been allowed to perform.”) Remember, too, that problems of agricultural policy that are fundamental to poverty reduction are far beyond the reach of RCTs to deliver answers. How to escape the middle income trap? How to build a research system to reach the technological frontier?
And to be reminded that commerce routinely alleviates more poverty around the world than aid (though hardly all), read veteran Financial Times correspondent David Pilling’s recent dispatch on Africa’s increasingly dynamic interaction with the rest of the world, China in particular. “When most people think of China in Africa,” he writes, “they think of mining and construction. But things are moving on. It is no longer the highways where the main action is taking place. It is the superhighways,” he says, of e-commerce in particular.
In short, to speak of a “credibility revolution” seems to me mainly a marketing slogan; it overstates the contribution that the small steps that RCTs are delivering, compared to those of theory prior to investigation. “Methods revolution” is a more neutral term. But that said, the Nobel panel neatly solved its problems for another year. The prize for RCTs in development economics is the first step in what will surely be a series of prizes to be given for new methods-driven results. There will be many more.
David Warsh, an economic historian and a veteran columnist, is proprietor of Somerville-based economicprincipals.com, where this essay first appeared.
David Warsh: How the press didn't cover the Panic of 2008
The headquarters, in New York, of Lehman Brothers, whose collapse ignited the Panic of 2008.
— Photo by David Shankbone
SOMERVILLE, Mass,.
When John Authers departed the Financial Times for Bloomberg News earlier this autumn, he left behind a couple of bombshell articles that my friends still haven’t stopped talking about. After 29 years as one of the FT’s most admired commentators, the former editor of the paper’s vaunted Lex page, proprietor of the “Short View” column, was leaving Britain for the United States.
In the first article, under a headline “In a crisis, sometimes you don’t tell the whole story,” he wrote:
It is time to admit that I once deliberately withheld important information from readers. It was ten years ago, the financial crisis was at its worst, and I think I did the right thing. But a decade on from the 2008 crisis (our front pages during the period are at ft.com/financialcrisis), I need to discuss it.
It had occurred on Wednesday, Sept. 17, two days after Lehman Brother declared bankruptcy, the scariest day of the crisis, both for Authers, and, to judge from his memoir, for Federal Reserve chairman Ben Bernanke as well. The insurance giant AIG had received an $85 billion government loan the day before. The Reserve Fund, the nation’s largest money market fund, had seen its redemption value dip below $1, thanks to its losses on Lehman bonds. A high rate of withdrawals had begun.
Authers, as it happened, had sold his flat in London not long before. The proceeds were deposited in Citibank, far more than would be covered by government insurance if Citi failed. He went to the bank, intending to withdraw half his money and carry the cash to a rival bank. He found himself standing in a long line. The bank officer he finally reached told him he didn’t need to withdraw his funds in order to protect them. She quickly opened trust accounts for each of his children and a joint account with his wife.
Presto, Authers was insured by the government for the full amount of his deposit. The maneuver had been going on all morning, the officer explained, and the same at Chase bank next door. Neither she nor her competitor had ever performed a single such transaction previously. That day they had undertaken many. Authers wrote,
I was finding it a little hard to breathe. There was a bank run happening, in New York’s financial district. The people panicking were the Wall Streeters who best understood what was going on. All I needed was to get a photographer to take a few shots of the well-dressed bankers queuing to get their money, and write a caption explaining it.
Instead, he went back to his desk and wrote a column about the breakdown of trust among banks, describing the atmosphere as one of panic, but omitting the queue in the bank branch. Authers concluded,
We didn’t do it. Such a story on the FT’s front page might have been enough to push the system over the edge. Our readers went unwarned, and the system went without that final prod into panic…. The right to free speech does not give us the right to shout fire in a crowded cinema; there was the risk of fire and we might have lit the spark by shouting about it.
A month later, in a long contemplative essay headlined “In nothing we trust” ($1 trial subscription may be required), Authers explored the erosion of confidence in the media he had experienced in the thirty years since he had begun. He described the old days of newspapers’ semi-monopoly on advertising and information, the faith invested in the FT’s every word, and the ethic of responsibility that went with it.
He described the stinging backlash to his earlier admission that he and the paper had held back from adding fuel to the fire. There had been hundreds of responses in which opinion was overwhelmingly against him. One reader wrote,
Your decision to save yourself while neglecting your readership is unforgivable and in the very nature of the elitist Cal Hockley of the Titanic scrambling for a lifeboat at the expense of others in need.
He found the feedback “astonishing and wrongheaded.” But gradually he came to view it as a crisis of belief – belief in the news media as an institution that clarifies and sets the agenda. The rise of social media had diluted the privileges of print, including the mystique that relative anonymity conferred. These days his photo accompanied nearly everything he wrote. His mornings turned into a digital talk show with readers. Sometimes they were specialists, thrillingly well-informed. Increasingly they were ignorant and rancorous. Limits on deposit insurance had been raised a few weeks later and the crisis abated, he wrote; ten years later, banks were once again sound, and the threat had moved on to the pension system.
The irony, it seems to me, is that Authers had missed the fact, or at least the significance, of the very real panic already raging thirty floors above that retail branch, and in trading rooms around the world. To judge from the special section devoted to the tenth anniversary of the crisis in which his initial column appeared, so had the FT itself. What would eventually become the Panic of 2008 was not so different from the Panic of 1907, or 1893, as economic historian Gary Gorton wrote a year later, “except that most people had never heard of the financial markets involved.” In Slapped by The Invisible Hand: The Panic of 2007 (Oxford, 2010), Gorton continued,
In the earlier panics, individuals, fearing for their savings and not knowing if their banks would survive the coming recession, rushed to their banks to withdraw their money. Those runs would occur at all banks, usually starting in New York City, and spreading from there. Everyone knew that the panic had happened and then consequences would follow; firms would fail and there would be difficulties making transactions.
The visibility of the earlier panics did not make the event itself explicable, but it did provide clarity about what had happened in a direct sense. In the Panic of 2007 [sic], the “bank run” was invisible to almost everyone because it was a run by banks and firms on other banks. These interbank markets were invisible to the public, journalists, and politicians. Without observing the bank run, what became visible were only the effects of the run and, in many cases, the effects were mistaken for the cause.
Because what happened after Lehman Brothers failed in September 2008 wasn’t framed as a traditional systemic banking panic, the traditional policy response was then widely misunderstood. Instead of being seen as performing their traditional role as “lenders of last resort” (backed by national treasuries), central banks’ emergency loans designed to stem the fear were routinely described as “bailouts,” despite the fact that in most cases loans were fully repaid.
The willingness to engage in self-examination shows why the FT is widely loved, why Authers is respected, at least by most of his readers. By acknowledging the centrality of trust he goes straight to the heart of the matter. But it wasn’t the press that failed to adequately explain the Panic of 2008. It was the economics profession. That story still has a long way to go.
David Warsh, a longtime columnist and an economic historian, is proprietor of Somerville-based economicprincipals.com, where this column first ran.
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David Warsh: The Times and the WSJ in the hot-air debate
SOMERVILLE, Mass.
A consensus seems to be emerging that climate change has begun exceeding its natural variability, and that accelerating global warming is something to be feared. What makes me think so? Accounts of widely shared experiences on the front pages of the newspapers that I read: forest fires; melting ice; famine, flood and drought; ecosystem collapse, and species loss. The Economist’s cover 10 days ago was, “Losing the War against Climate Change.”
What can we hope to do about it? It’s hard to tell, since, at least for the present, it seems only one problem among many: trade wars, international rivalries, urban-rural disparities, even arguments about the nature of truth. Yet many ways of narrowing differences exist, beginning with, as noted, the great but sometimes dangerous teacher of experience.
I’d like to suggest that we pay special attention to another mechanism. I think someone, not me, should carefully examine and compare the coverage that climate change receives from the three major American newspapers, The New York Times, The Wall Street Journal, and The Washington Post, with other nations and other languages soon to follow.
There is, obviously, a wide divergence in treatments of these issues. For example, the Aug. 5 Sunday Times magazine devoted an entire issue to a 30,000-word article accompanied by striking photographs of various disasters, titled “Thirty years ago, we could have saved the planet.” Meanwhile, the editorial page of The Wall Street Journal, arguing that Trump administration deregulation policies were “improving consumer choice and reducing cost from health care to appliances,” celebrated the decision to freeze corporate average fuel-economy (CAFE) standards as “Trump’s Car Freedom Act.” The two issues are not tightly connected, the editorial argued, offering a crash course in the microeconomics of auto-emissions regulation in a dozen paragraphs.
The Times magazine was especially striking. Nathaniel Rich, the author, writes, “That we came so close, as a civilization, to breaking our suicide pact with fossil fuels can be credited to the efforts of a handful of people, a hyperkinetic lobbyist and a guileless atmospheric physicist, who at great personal cost, tried to warn humanity of what was coming.”
Of the story’s heroes, the lobbyist, Rafe Pomerance, seemingly had been born to his role: “He was a Morgenthau – the great-grandson of Henry Sr., Woodrow Wilson’s ambassador to the Ottoman Empire; great-nephew of Henry Jr., Franklin D. Roosevelt’s Treasury Secretary; second cousin to Robert, district attorney for Manhattan,” The physicist, James Hansen, had been the first to raise the alarm, as lead author of a Science paper, in 1982, then, forcefully, before a Senate hearing in the heatwave summer of 1988. Rich’s story has its villains, too: then-White House Chief of Staff John Sununu and Office of Management and then-Budget Director Richard Darman, who together blunted a drive to cap carbon emissions during the George H.W. Bush administration. And, of course, there is the author himself; the son of former Times columnist Frank Rich and HarperCollins executive editor Gail Winston. I don’t know about the three novels that Rich has published, but a previous article in the Times Magazine, about the history of a Dupont Co. product called PFOA, for perfluorooctanoic acid, was awfully good. This new article is divided into two chapters, with all the years since 1989 compressed into a short epilogue. My hunch is that they are drawn from a book in progress.
Rich’s article elicited a response from WSJ columnist Holman Jenkins, Jr., “Fuel Mileage Rules Are No Help to the Climate.” Incorporating the arguments of the paper’s editorial on the topic more or less by reference (he probably wrote the editorial), Jenkins disparaged Rich’s attachment to international climate treaties that “by their nature would have been collusion in empty gestures.” He scolded him for failing to note that “the U.S. has gone through umpteen budget and tax debates without a carbon tax — which is unpopular with the public, but so are all taxes – ever being part of the discussion.”
That seemed to be jumping the gun, given that Rich’s magazine article so clearly seemed part of a longer account. Perhaps later Rich will get around to the issue of quotas vs. prices as a way of limiting carbon dioxide emissions. Still, I was glad to see Jenkins bring up what seems to me to be the central issue of what can be done to curb global warming. He blamed “the green movement” for “hysterical exaggeration and vilifying critics” for the failure to obtain widespread support “the one policy that is nearly universally endorsed by economists, that could be a model of cost-effective self-help to other countries, that could be enacted in a revenue-neutral way that would actually have been pro-growth” (as opposed to a presumed drag on it).
I’m not so sure that the Greens, or even the Democrats, are mostly to blame. It’s true that the WSJ has periodically published op-ed pieces propounding carbon taxation – for instance, here. But if the paper’s editorial board has taken the initiative in arguing that global warming is a serious threat and that urgent measures are required to combat it, I haven’t noticed. Jenkins wrote, “A carbon tax remains a red cape to many conservatives, but in fact, it would represent a relatively innocuous adjustment to the tax code. It could solve political problems for conservatives (who want a tax code friendlier to work, savings, and investment) an as well as for liberals (who want action on climate change.)”
I was among those who were disappointed when The Times a year ago discontinued the position of its public editor. To that point it had been the leader among newspapers employing news professionals to plump for high standards of public discussion.
Other papers rely on columnists (like Jenkins) to augment debate. and preserve a semblance of even-handedness. Newspaper discourse is a little like an ongoing series of judicial proceedings. Acting as advocates – reporters, for readers; editorialists, for publishers – obey different rules to summon experts to support their pleadings. A seminal event in the saga of global climate study occurred 60 years ago when the U.S. established a carbon-dioxide observatory atop a volcano in Hawaii in the middle of the Pacific Ocean. Who will establish an equally disinterested project to monitor major emissions of newspaper hot air — The Times’s magazine piece, the WSJ editorial page — on the topic of global warming?
David Warsh, a long-time economics and political columnist, is the proprietor of economicprincipals.com, based in Somerville, Mass.
David Warsh: Newspaper truths and movie truths
Spotlight, about The Boston Globe’s 2002 series of stories that put an end to efforts by the Archdiocese of Boston to cover up over the years the behavior of pedophile priests, won the Oscar for best picture. But no matter who won the best picture Oscar at the Academy Awards last night, 2015 was a goodyear for topical flicks. Spotlight was a brilliant success. So was The Big Short.
Both translate important news stories into Hollywood vernacular.
Spotlight viewers have often applauded at the end of showings; some left the dark in tears.
The Big Short tells how in 2006 three disparate groups of investors sought to bet against big mortgage lenders, and how, despite their ingenuity, they failed to make as much money and/or fame as they hoped they might. Running commentary, their own and others, on the cupidity of Wall Street provides counterpoint to the bittersweet saga. People leave the theater laughing and shaking their heads.
Each movie drives home important truths. Predatory priests wreak havoc on young lives. The hierarchy of the Catholic Church in Boston defended its pedophile priests’ immunity from the criminal justice system until The Globe undertook an all-out reporting campaign to overturn its indifference.
Mortgage lending in the U.S. and elsewhere went crazy after 2003, but the market stayed manic longer than the film’s prescient short-sellers were able to maintain their bets that it would fall. Only several months after they got out did the market crash.
But there’s movie truth and newspaper truth. What follows is newspaper truth.
***
Spotlight depends for its drama on the fiction that a chasm separating darkness from light existed between Globe editors and reporters who worked for the Taylor family in the 1990s and the paper under management sent in 2001 by its new owner, the New York Times Co.
In fact, two successive Globe editors in the ’90s, John S. (Jack) Driscoll and Matthew V. Storin, gradually turned the stories of various local pedophile priests, James R. Porter, John R. Hanlon, and John J. Geoghan in particular, from short items about lawsuit filings tucked away well back in the paper’s Metro section into front-page news. In each case they were reacting to the efforts of crusading attorneys. They were gingered along the way by various Globe reporters, including Alison Bass, Daniel Golden, James Franklin and David Armstrong; by reporter Kristen Lombardi, of the Boston Phoenix; and by Globe columnist Eileen McNamara.
As early as 1993, Cardinal Bernard Law had called down “the power of God” on The Globe , as he sought to downplay the newspaper’s reports of priestly misconduct. By 2000 he had himself been accused of protecting a notorious pedophile. By the next spring it had become public knowledge. By the summer of 2001, the story was simmering just below the boiling point.
That’s where the movie begins, as a new editor arrives at The Globe. Martin Baron (played in the film by Liev Schreiber), a highly skilled news editor, is fresh in from the frontlines of watchdog journalism in Florida as chief editor of The Miami Herald (the Elián González custody battle, the contested 2000 presidential election vote count). He’s also an outsider to Boston, untrammeled by the tribal loyalties of the city. He quickly recognizes that there is more to the story of priestly abuse than had been made of it so far. So starting his first day on the job, he turns up the heat.
He assigns the story to the Spotlight Team, the pioneering investigative unit The Globe had created 30 years before, led by Globe veteran Walter (Robby) Robinson (portrayed in the film by Michael Keaton) and supervised by assistant managing editor Ben Bradlee Jr. He signals his intent by going to court to unseal depositions.
The 9/11 attacks intervene, but behind the scenes the Spotlight Team searches through records, pesters lawyers, and interviews victims, seeking to document the extent of the problem. In November a judge unseals a stack of critical depositions. By January Spotlight is ready to commence the public phase of its investigation, with a blockbuster story about Cardinal Law sending serial offender Geoghan to a new parish, despite having been warned against him by a trusted lieutenant. Tips flood in as the film ends.
That much is both newspaper and movie true.
The movie takes plenty of small liberties to retain its sharp focus and buttress the storyline of darkness and light. All seem to fall within standard Hollywood practice known as “based on a true story.” The statistics are a mess, because the stories discussed are describing events that took place over a span of40 years. The only real laugh-out-loud moment comes when the actress playing the crackerjack columnist McNamara whispers, “You mean there’s more than one?”
During 2002, the Spotlight treatment turned what had been a series of stories about a series of bad apples and their punishments into an overarching scandal of a church hierarchy mired in stubborn denial of its problems, unwilling to take the steps necessary to fix them. The Spotlight Team grew from four to ten persons, who together wrote some 600 stories. Cardinal Law resigned in disgrace in December. And the next April, the Spotlight Team won its third Pulitzer for The Globe -- this one its Gold Medal for Meritorious Public Service. By then, the story had begun to be replicated around the world.
Unfortunately, no book has been written about that epic contest of wills, though David France’s Our Fathers: The Secret Life of the Catholic Church in an Age of Scandal (Crown, 2004) employed the story as its spine. There are only the newspaper stories themselves, published as Betrayal: The Crisis in the Catholic Church (Little Brown, 2002); a Columbia Journalism School case study from 2009 that reads like a film treatment; and, of course, the screenplay itself, by Josh Singer and director Tom McCarthy. Baron, who retained his ties to Hollywood (earlier he had been business editor of the Los Angeles Times), apparently advised the filmmakers throughout. In 2013 he became executive editor of The Washington Post.
The film version departs from what a good newspaper story would tell back at that chasm. A new sheriff who takes in hand a troubled town is a plot familiar from many a classic Western. It doesn’t describe what happened in Boston.
Certainly there had been a time within memory when The Globe routinely downplayed news that the Boston Archdiocese found distressing. For much of its first century, the paper catered to readers in Boston’s rapidly expanding working class – preponderantly Irish, Catholic, Democratic, and, with every passing decade, more females. Editors clearly went out of their way not to offend. As recently as the early 1960s, sentences deemed inappropriate in coverage of the church were quietly excised by a senior editor thought to be in close touch with church headquarters.
After Thomas Winship took over as editor, in 1965, this began to change. The Globe had bested the respectable old Herald Traveler in a no-holds-barred newspaper war during the late 1950s and through the ’60s. Winship took advantage of his paper’s victory to rebuild The Globe into New England’s dominant newspaper, which made its mark with editorials like those that criticized the Vietnam War and vigorously supported court-ordered desegregation in Boston, if not always the busing that aimed to achieve it.
After William O. Taylor succeeded his father as publisher, in 1978, the paper continued to soar. The Globe credo was still spelled out in the words of its founder on a brass plaque in the lobby: “My aim has been to make The Globe a cheerful, attractive and useful newspaper that would enter the home as a kindly, helpful friend of the family….” (The saga is scrupulously told in a chapter of Common Ground: A Turbulent Decade in the Lives of Three American Families, the classic account of Boston’s busing troubles in the 1970s, by J. Anthony Lukas.)
In 1993, the New York Times Co., corporate parent ofThe Times and a handful of much smaller papers, bought The Globe for $1.13 billion, the highest price ever paid for a newspaper up until then. For the next few years, The Globe continued to thrive under Boston management.
The NYT Co.’s makeover ofThe Globe began in 1998, when star columnist Mike Barnicle was humiliated and then forced to quit instead of scolded as he might have been in the past for any lapses. His defenestration was preceded by that of another columnist, Patricia Smith. People still argue about the merits of the cases, even as they forget the details. Both separations were inevitable in the circumstances.
In 1999, NYT Co. chief executive Arthur Sulzberger Jr. dismissed Globe publisher Benjamin Taylor and replaced him with a previously unknown executive from New York. Senior staffers Martin Nolan, David Nyhan, Gerard O’Neill, and Thomas Mulvoy took buy-out packages.
Then in summer 2001, Storin announced he, too, was leaving and New York hired Baron as the new editor. He made it clear that he intended to make over the Boston paper to a more stringent standard. The Taylor family credo had been discarded. “Make the news more relevant to readers,” as one newsroom catch-phrase had it at the time; “the joyless pursuit of excellence,” according to another. (I was one of those who leftThe Globe not long after Baron arrived.)
The other thing the movie leaves out is the backlash. There’s no easy way of telling what broad efforts by New York’s managers to re-shape The Globe cost the paper in terms of readership, especially since the decline in its revenues and circulation coincided with invention of search advertising and the rise of social media. But The Globe’s slide since 2002 appears to have been more precipitous than that of almost all other major papers, such that in 2009 New York threatened to simply close down the newspaper if labor concessions weren’t forthcoming.
Finally in 2013 NYT Co. soldThe Globe for $70 million, or around 6 percent of what it had paid20 years before, not to the Taylor-led group that had sought to buy it, but to another outsider, Boston Red Sox owner John Henry. Henry recently has become embroiled in misadventures of his own.
Thanks to the movie, The Globe’s brand has never shined brighter. And the paper itself, far slimmer than before, seems to have returned to its roots, under editor Brian McGrory. The business model, however, is badly damaged, perhaps even broken. The story of what happened to The Globe after it was sold awaits its Tony Lukas.
***
The Big Short is based on The Big Short: Inside the Doomsday Machine, by Michael Lewis. Starting with Liar’s Poker: Rising through the Wreckage on Wall Street (Norton), in 1989, then with another ten books, Moneyball and The Blind Side among them, Lewis has demonstrated an astonishing knack for finding the right characters in order to tell important stories.
There are four main characters in the film – three idiosyncratic speculators, unknown to one another, each obsessed with betting against the housing market, and the bond trader who showed them how to play their hunch, using the new and less risky derivative instruments known as credit default swaps.
Actor Christian Bale plays real-life California neurosurgeon-turned-hedge-fund-manager Michael Burry; Steve Carell plays a Wall Street New York veteran who resembles real-life Steve Eisman in the book; and Brad Pitt is the worldly mentor to a pair of thirty-something friends who had worked briefly managing money on Wall Street before going into business for themselves in a backyard shed in Berkeley, Calif.
Ryan Gosling plays the Deutsche Bank bond trader – Greg Lippmann in real life – who taught them all the new way to make their trades. He is “Patient Zero,” in author Lewis’s pungent phrase. He is the narrator of the film. And since traders don’t do things by themselves, each of the four has associates, lawyers, therapists, family members – a highly interesting cast of characters who make the movie version remarkably true to real life in markets but who nevertheless get in the way of understanding.
The better way to place a wager against a market that Gosling peddles in the film is the strategy he describes in presentations that he makes to potential investors, “Shorting Home Equity Mezzanine Tranches.” Director and screenwriter Adam McKay ingeniously treats the strategy as a McGuffin – a device that sets the plot in motion without needing to be fully understood – though he makes two attempts to explain it as he goes along.
In the first instance, actress Margo Robbie describes the pooling and securitization of subprime mortgages – from a bubble bath (itself a sly joke, since Robbie appeared in considerably less in The Wolf of Wall Street, as Leonardo di Caprio’s mistress/second wife); in the second instance, in a Las Vegas casino, University of Chicago Booth School of Business Prof. Richard Thaler and singer Selena Gomez explain the nature of derivatives.
So much for the MacGuffin. What exactly is a credit default swap? It is an insurance contract, a derivative of a security, not the underlying asset itself. The esoteric new market was created in the 1990s and proved so useful to investors, for various reasons, that it grew exponentially. Gilliam Tett, of the Financial Times, tells the origin story in Fool’s Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe, Free Press, 2009.
And the advantage such markets offered over traditional methods of shorting an asset? Author Lewis describes the basics this way in his book.
The beauty of the credit default swap, or CDS, was that it solves [a] timing problem. Eisman no longer needed to guess exactly when the subprime mortgage market would crash. It also allowed him to make the bet without laying down cash up front…. It was also an asymmetric bet, like laying down money on a number in roulette. The most you could lose were the chips that you put on the table; but if your number came up, you made 30, 40 , even 50 times your money.
There are two important things you don’t learn from the film version of The Big Short. One is that there was an investor, John Paulson, who actually made “a Soros trade,” a killing so great as to enter the ranks of legendary investors. The poignancy in the film derives from the fact that none of its heroes makes nearly as much money as he had hoped, because various backers run out of nerve.
Neurologist Burry makes $750 million for his investors in 2007, but the fund he is managing shrinks to $600 million, and threats of withdrawal continue throughout the coming year. Disillusioned, fearing for his health, Burry closes his firm in Cupertino a year later, despite gains of 489 percent over seven years.
Those thirty-something investors who started their fund in a backyard shed? By 2008, they are managing $135 million, up from $30 million, but can’t enjoy their subprime triumph because they are too worried about how to invest next. Eisman has sold his last CDS back to Lippmann in July 2008. He enters the autumn conventionally invested in the stock market, betting that the banks will fail.
Meanwhile, Paulson, a relatively well-known Wall Street investor previously deemed to have been a reliable hitter of singles and occasional doubles, succeeded brilliantly where Burry earlier had failed. In 2006 Paulson raised $137 million (including $30 million of his own money) with no other purpose than making bets with credit default swaps against subprime mortgages. He and his associates picked the right securities to short, and hit the jackpot: $15 billion for his hedge fund in 2007, including some $4 billion for himself. The story, with many of the same characters as The Big Short, is told in The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History (Broadway Books, 2009), by Gregory Zuckerman, of The Wall Street Journal.
The second thing you don’t learn from The Big Short is what actually happened after Lehman Brothers failed in September 2008, triggering a run on the banking system. The climax of the film comes in March 2008, as Bear Stearns is merged into J.P. Morgan, The scene at the end of the movie, with the Eisman character (Carell), sitting with his partners on the steps of St. Patrick’s Cathedral in Manhattan on Sept. 18, 2008, as the whole world teeters on the brink, serves in the film, as in the book, to emphasize the immense harm that is about to ensue: the homes foreclosed, the jobs lost, the confidence shattered, the political divisions exacerbated.
The reason why has already been given: simple greed.
Never mind. The Big Short is a brilliant success, conveying the same truths about financial markets in 2007 that Michael Lewis adduced in the book – that finance is complicated, that money managers talk fast and crack jokes, that life is unfair. So it’s not the whole story. What is?
. ***
Movies are wonderful, but a problem arises when movie critics who know little about the background write as though the screenplay were newspaper truth.
Thus Nigel Andrews, in the Financial Times: “Tom McCarthy (The Station Agent) directs and co-writes as if the film were a hot-button documentary hijacked by stars, and in a way it is.”
A.O. Scott, in The New York Times: “Before 2001 – with some exceptions, notably in work by the columnist Eileen McNamara (played by Maureen Keiller) – the paper overlooked the extent of the criminality in the local church and the evidence that the hierarchy knew what was going on.”
Anthony Lane, in The New Yorker: “…Marty Baron, of all people, shy, taut, and humorless, in Schreiber’s clever portrayal – struck me as the hero of the hour. He is mocked for being, as one insider labels him, ‘an unmarried man of the Jewish faith who hates baseball,’ but it is precisely his status as an outsider that allows him to initiate the quest. Folks in the Church, and elsewhere in the city, know what went on, yet they don’t really want to know. It’s all too close to home. Baron wants to know.”
Ty Burr, in The Boston Globe: “’Spotlight’” makes the sharp, sobering point that it took an outsider, Baron, to notice what the locals didn’t, or couldn’t, or maybe even wouldn’t, and that The Globe had more than one chance to open an investigation years earlier than it did. The movie paints this as the regrettable bureaucratic oversight of a hectic workplace. It’s also true that people are flawed, and that institutions thrive by not making waves. Until something changes, and they do.”
And, perhaps most surprisingly, historian and journalist Garry Wills, of Northwestern University, in the New York Review of Books: “An instinctive deference to the Church had inhibited the press in this Roman Catholic city from recognizing a scandal in its own backyard. Baron was not subject to that thrall.”
As for the scene that serves as a climax, which occurs when, on the eve of the publication of the story that is to finally break the long silence, the team discusses the fact that in 1993, when Robby was metro editor, he had buried on page 43 the story of a lawyer’s claim that he had obtained settlements against 20 pedophile priests who had been retired or put on indefinite leave. It turns out it didn’t really happen like that. It was the screenwriters, not the reporters, who were tipped by lawyer Roderick MacLeish (played in the film by Billy Crudup) to the existence of that long-ago clip.
McCarthy and Singer found it and read it, then queried Robby about its significance. He promptly acknowledged he had been metro editor at the time – and they subsequently wrote a scene to buttress the story of the chasm between darkness and light. In the film Baron then pronounces benediction: When people have been in the dark for a long time, he says, they are necessarily disoriented; a light is turned on and suddenly things at last seem clear. All he knows, he says, is that the team has done a good job.
“That moment [the confession of knowledge and failure to act] was probably the one moment where we took something that was not [precisely true] and we felt that we had the right to include it,” director McCarthy told Jeff Labrecque of Entertainment Weekly for his story. “Spotlight players confront the clue that became the movie’s key twist.” The screenwriters already had “concluded from their research that the Globe was probably guilty of sins of omission, if not commission, when it came to its coverage of the Church in the early 1990s,” wrote Labrecque. Their discovery was a dramatic gift too good to pass up.
Maybe so, in the powerful logic of movie abstraction. But it’s far from newspaper truth. What really happened in that interval in 1993 was that The Globe changed editors and publishers, from Jack Driscoll and Bill Taylor to Matt Storin and Ben Taylor. The staff wrapped up the Porter and Hanlon stories, and prepared to take up the Geoghan saga when, two years later, attorney Mitchell Garabedian brought his blockbuster suit.
By the spring of 2001, a new judge, Constance M. Sweeney, had been chosen to take over the case. She was another outsider, a Springfield native, and a largely unsung hero of the story. In December she would, on The Globe’s motion, release 10,000 documents in the 84 lawsuits against Geoghan and Cardinal Law. The stage had been set for the Spotlight series – the single most important story in the 142-year-history of The Boston Globe.
David Warsh, a longtime financial journalist and economic historian, is proprietor of economicprincipals.com.