Atta Boy!

David Beckworth, financial crisis, graduate students, New York Times, Ramesh Ponnuru
Starring Role, by Pewarl CC BY 2.0

David Beckworth, financial crisis, graduate students, New York Times, Ramesh PonnuruAlthough I was an academic economist for 30 years, almost all of them spent in departments with PhD programs, I was never much of a graduate student mentor.  As a matter of fact hardly any graduate students chose to work with me, and, unless I miss my guess, those that did do so ended up hating my guts, at least for a while.

At my first job, at George Mason, Steve Horwitz allowed himself to fall victim to my tender mercies; he had, after all, the excellent excuse that my reputation hadn't preceded me.  My own memory is about as porous as a yard of cheesecloth; but stories of how I liked to torture Steve still occasionally make their way back to me via the GMU grapevine.  The one I hear most concerns the time when, having told Steve that he and I were going to write a paper together, I assigned him the task of writing its opening.  I received the requested paragraph, read it, and stormed down the hall, into the office Steve shared with several other graduate students (most of whom now have their own grad students).  Steve didn't see me enter, as he was facing his carrel at the back of the office.  Instead he saw the paragraph he'd just written, savaged by my red pen, slapped-down before him, while hearing me say, "This is s**t: do it again."

Steve's second attempt was much better.

Whether more of that sort of thing would have hastened Steve's education, or led to his doing time at Mecklenburg after being found guilty of second-degree murder, is something we'll never know, since after only three years at GMU I transferred to Hong Kong, leaving him safely beyond my clutches.  What is certain is that he managed rather well without my help.

At Hong Kong I had no graduate students; nor can I even recall whether there were any.  In any case I taught there only for a year before being invited to join Larry White and Dick Timberlake at the University of Georgia, where I was to spend most of the remainder of my teaching career.

Hong Kong nevertheless provided me with an opportunity to contribute to a grad student's education in an important if unusual way.  The student was Kurt Schuler, who had been one of my NYU classmates, but who had left NYU for UGA, where he was studying with Dick and Larry.  The opportunity came the summer before I left GMU, which I also spent in Hong Kong, thanks to a grant administered by the Institute for Humane Studies.  The grant allowed me to work with John Greenwood, the architect (and continuing supporter) of Hong Kong's dollar peg.  As my time with John was wrapping up, he asked my opinion concerning an applicant for the same grant for the following summer.  I said, "Never mind him.  The fellow you want is Kurt Schuler!"  I think that was a pretty good call.

In all my years at UGA, though I sat on plenty of grad student committees, I only supervised three dissertations — a pretty dismal record.  Nor did my picking and choosing have much to do with it.  The sad truth is that those students were the only ones who chose me.  Being labelled a "kook" by some of my colleagues didn't help.  But the word also got out that I was no fan of "push-button" dissertations, meaning the sort where a student got together a "data set" (how I loathe the very phrase!), and then went about wringing asterisks from it.  Instead I had the ridiculous notion that my students should learn a fair bit about whatever topic they planned to write about before proceeding to write about it.  That amounted, so far as most were concerned, to yet another unpleasant hurdle, but one easily gotten around by taking their business elsewhere.

David Beckworth was, thank goodness, one of the brave (or unthinking) few who ended up with me.   I say "thank goodness" because, had it not been for him, I could not claim, after a long career of teaching, to have been the principal mentor of a single good economist.

And David has turned out to be a very good economist, if I may say so.  Besides being one of the Center for Monetary and Financial Alternatives' elite troupe of Adjunct Scholars, David is considered second only to Scott Sumner among leading Market Monetarists.  Like Scott he also has one of the more influential monetary- and macro-economics blogs.

David and National Review Senior Editor Ramesh Ponnuru scored a big hit just recently, with their excellent New York Times op-ed blaming misguided Fed actions for turning a severe housing bust into an all-out economic rout:

Through early 2008, even as investors kept pulling money out of the shadow banks, key economic indicators such as inflation and nominal spending — the total amount of dollars being spent throughout the economy — barely budged.  It looked as if the economy would be relatively unscathed, as many forecasters were saying at the time…

It took a bigger shock to the economy to bring the financial system down.  That shock was tighter money.  Through acts and omissions, the Fed kept interest rates and expected interest rates higher than appropriate, depressing the economy.  This point is easy to miss because the Fed lowered interest rates between September 2007 and April 2008.  But raising rates is not the only route to tighter money.

Between late April and early October, the Fed kept the interest rate over which it has most direct control, the federal funds rate, at 2 percent.  But when the economy weakens, the “natural” interest rate — the rate that keeps the economy on an even keel — falls.  By staying in place, the Fed’s target interest rate was rising relative to that natural rate.

Quite right.  Just how the Fed went about "staying in place" is something yours truly has dwelt on, in his post on sterilized lending, and in three later ones on interest on reserves.

Publishing an op-ed in The New York Times is always a coup; publishing one that criticizes the Fed. while delivering, en passant, a bouquet of orchids to Ted Cruz, qualifies as a minor miracle.  If you doubt it, have a look at the readers' comments.  If most of that paper's subscribers reacted to the op-ed the way those commentators did, one could confidently predict the imminent demise of America's second-largest-circulation print newspaper.

David and Ramesh end their essay by observing how "It took decades for the Fed’s responsibility for the Great Depression to be widely accepted," and that "it may take that long for most people to see its responsibility this time around."  But revising the record regarding the Fed's part in the Great Depression took as long as it did in part because Milton Friedman and Anna Schwartz didn't publish their groundbreaking Monetary History of the United States until 1963.  Thanks to the efforts of people like David and Ramesh (and Scott Sumner and Bob Hetzel, among others), there's good reason to hope that, this time around, the wait won't be nearly as long.