American Plutocracy: Rubinites & The Larry Summers Show

Trillion-dollar back scratching at the intersection of business and government has become one of the most widely recognized and resented problems in modern politics. You might think, then, that a Harvard research center founded to “advance the state of knowledge and policy analysis concerning some of society’s most challenging problems at the interface of the public and private sectors” would place priority on restoring some accountability to American democracy. You might think that Summers’ move to such a center would mark a turn away from the influence of money towards the integrity of critical research and debate.

Think again. Private profit is undermining the legitimacy of academic institutions as well, and recent studies of conflicts of interest and disclosure in the economics profession have demonstrated how pervasive the quiet flow of money in the academy can be. Summers is still highly respected as an academic in the mainstream, even though he has earned millions from speaking and consulting to banks in recent years. That’s partly because Summers, like most economists, doesn’t disclose potential conflicts when he publishes economic articles or opinion pieces. Of course, he has an incentive not to: his Wall Street ties, milked in private, are good for power and money, but threaten his public reputation as an intellectual and public servant. What’s incredible is that many leading economists, who spend their days thinking about the mechanics of incentives and self-interest, don’t even seem to know what a conflict of interest is. Charles Ferguson’s excellent documentary, Inside Job, illustrates this phenomenon in interviews with top economists at Columbia and Harvard who served in the White House and Federal Reserve. Ferguson’s talk with Glenn Hubbard, Bush’s first NEC director and architect of the Bush tax cuts, is particularly revealing:

FERGUSON: Do you think that the economics discipline has, uh, a conflict of interest problem?

HUBBARD: I’m not sure I know what you mean.

FERGUSON: Do you think that a significant fraction of the economics discipline, a number of economists, have financial conflicts of interests that in some way might call into question or color –

HUBBARD: Oh, I see what you’re saying. I doubt it. You know, most academic economists, uh, you know, aren’t wealthy businesspeople.

…

FERGUSON: I’m looking at your resume now. It looks to me as if the majority of your outside activities are, uh, consulting and directorship arrangements with the financial services industry. Is that, would you not agree with that characterization?

HUBBARD: No, to my knowledge, I don’t think my consulting clients are even on my CV, so –

FERGUSON: Uh, who are your consulting clients?

HUBBARD: I don’t believe I have to discuss that with you.

FERGUSON: Okay. Uh, uh –

HUBBARD: Look, you have a few more minutes, and the interview is over.

…

FERGUSON: Do they include other financial services firms?

HUBBARD: Possibly.

FERGUSON: You don’t remember?

HUBBARD: This isn’t a deposition, sir. I was polite enough to give you time; foolishly, I now see. But you have three more minutes. Give it your best shot.

The faculty at the Mossavar-Rahmani Center for Business and Government (CBG), which Summers will now direct, probably wouldn’t have better answers than Hubbard. The CBG is a part of the Harvard Kennedy School, a graduate school for government policy makers that houses policy research and discussion groups, much like Brookings and CFR. The Center was founded in 1982 and lengthened its name in 2005 when Bijan Mossavar-Rahmani, an oil man, and his wife Sharmin, a Goldman Sachs executive, gifted the Center $15 million.
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