Alan Blinder

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Alan Blinder
Alan S. Blinder, Vice Chairman Federal Reserve.jpg
15th Vice Chair of the Federal Reserve
In office
June 27, 1994 – January 31, 1996
Appointed byBill Clinton
Preceded byDavid Mullins
Succeeded byAlice Rivlin
Member of the Federal Reserve Board of Governors
In office
June 27, 1994 – January 31, 1996
PresidentBill Clinton
Preceded byDavid Mullins
Succeeded byAlice Rivlin
Personal details
Born (1945-10-14) October 14, 1945 (age 74)
New York City, New York, U.S.
EducationPrinceton University (BA)
London School of Economics (MS)
Massachusetts Institute of Technology (PhD)
Academic career
FieldMacroeconomics
School or
tradition
New Keynesian economics
Doctoral
advisor
Robert Solow
Doctoral
students
Julio Rotemberg
Information at IDEAS / RePEc

Alan Stuart Blinder ((/ˈblndər/, born October 14, 1945) is an American economist and the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University who served as the Vice Chairman of the Board of Governors of the Federal Reserve System under President Bill Clinton.

Blinder is among the most influential economists in the world according to IDEAS/RePEc,[1] and is "considered one of the great economic minds of his generation."[2]

He served on President Bill Clinton's Council of Economic Advisers from January 1993 to June 1994[3] and as the Vice Chairman of the Board of Governors of the Federal Reserve System from June 1994 to January 1996.[4] Blinder's recent academic work has focused particularly on monetary policy and central banking,[5] and on the "offshoring" of jobs. His writing has been published in The New York Times, The Washington Post, as well as a monthly column in The Wall Street Journal.

Regarding the 2008 near-meltdown of major financial institutions, Blinder drew ten lessons for fellow economists, including: "It can happen here," "Fraud and near-fraud can rise to attain macroeconomic significance," "Excessive complexity is not just anti-competitive, it's dangerous," and "Go-for-broke incentives will induce traders to go for broke."[6]

Early life[edit]

Blinder was born to a Jewish family[7] in Brooklyn, New York. He graduated from Syosset High School in Syosset, New York. Blinder attended Princeton University as an undergraduate student and graduated summa cum laude with a B.A. in economics in 1967. He completed a 130-page long senior thesis, titled "The Theory of Corporate Choice".[8] He subsequently gained an MSc in economics from the London School of Economics (1968)[4] and then received his doctorate in economics from the Massachusetts Institute of Technology in 1971.[4] He was advised by Robert Solow.[9]

Professional life[edit]

Academic career[edit]

Blinder is the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton where he has been since 1971, and from 1988 to 1990, he chaired the economics department.[4] Also in 1990, he founded Princeton's Griswold Center for Economic Policy Studies. And he has served as vice-chair of The Observatory Group.

Since 1978, Blinder has been a Research Associate of the National Bureau of Economic Research.[10] He is a past president of the Eastern Economic Association and Vice President of the American Economic Association and was named a Distinguished Fellow of the latter in 2011.[4] He is a Fellow of the American Academy of Arts and Sciences (since 1991), a member of the American Philosophical Society since 1996, and a member of the board of the Council on Foreign Relations (since 2008).[11] Blinder's textbook Economics: Principles and Policy, co-written with William Baumol, was first published in 1979 and, in 2012 was printed in its twelfth edition.[12]

In 2009 Blinder was inducted into the American Academy of Political and Social Science, "for his distinguished scholarship on fiscal policy, monetary policy and the distribution of income, and for consistently bringing that knowledge to bear on the public arena."[13] He is a strong proponent of free trade.[14] Blinder has been critical of the public discussion of the US national debt, describing it as generally ranging from "ludicrous to horrific".[15]

Political career[edit]

Blinder has served as the Deputy Assistant Director of the Congressional Budget Office (1975), on President Bill Clinton's Council of Economic Advisers (January 1993 - June 1994),[4][3] and as the Vice Chairman of the Board of Governors of the Federal Reserve System from June 27, 1994, to January 31, 1996.[4] As Vice Chairman, he cautioned against raising interest rates too quickly to slow inflation because of the lags in earlier rises feeding through into the economy. He also warned against ignoring the short term costs in terms of unemployment that inflation-fighting could cause.[16]

Many have argued that Blinder's stint at the Fed was cut short because of his tendency to challenge chairman Alan Greenspan:

[Economist] Rob Johnson, who watched the Blinder ordeal, says Blinder made the mistake of behaving as if the Fed was a place where competing ideas and assumptions were debated. "Sociologically, what was happening was the Fed staff was really afraid of Blinder. At some level, as an applied empirical economist, Alan Blinder is really brilliant," says Johnson.

In closed-door meetings, Blinder did what so few do: challenged assumptions. The Fed staff would come out and their ritual is: Greenspan has kind of told them what to conclude and they produce studies in which they conclude this. And Blinder treated it more like an open academic debate when he first got there and he'd come out and say, 'Well, that's not true. If you change this assumption and change this assumption and use this kind of assumption you get a completely different result.' And it just created a stir inside – it was sort of like the whole pipeline of Greenspan-arriving-at-decisions was disrupted.

This put him in conflict with Greenspan and his staff. "A lot of senior staff ... were pissed off about Blinder – how should we say? – not playing by the customs that they were accustomed to," Johnson says.[2]

He was an adviser to Al Gore and John Kerry during their respective presidential campaigns in 2000 and 2004.[4]

"Cash for Clunkers"[edit]

Blinder was an early advocate of a "Cash for Clunkers" program, in which the government buys some of the oldest, most-polluting vehicles and scraps them. In July 2008, he wrote an article in The New York Times advocating such a program,[17] which was implemented by the Obama administration during the summer of 2009.[18] Blinder asserted it could stimulate the economy, benefit the environment, and reduce income inequality.[17] The program was praised by President Obama for "exceeding expectations,"[19] but criticized for economic and environmental reasons.[20][21][22][23]

Private sector[edit]

He is also a co-founder and a vice-chair of the Promontory Interfinancial Network, LLC.

After his service as the vice chairman of the Federal Reserve, Blinder, along with several former regulators, founded a company that offers a number of services that provide a means for depositors (including governmental entities, nonprofits, businesses, as well as individuals such as retirees) to access millions in Federal Deposit Insurance Corporation (FDIC) coverage at a single institution instead of multiple ones.[24] This provides banks that are members the ability to offer coverage above the FDIC per account/per bank limit by letting those banks place funds into CDs or deposit accounts issued by other network banks. This occurs in increments below the standard FDIC insurance maximum ($250,000) so that both principal and interest are eligible for FDIC insurance.[25] The company acts as a sort of clearinghouse, matching deposits from one institution with another.[25] Through its services it allows access to higher levels of FDIC insurance although limits apply.[26]

Views regarding 2008 near-meltdown of major financial institutions[edit]

Blinder draws 10 lessons for fellow economists in an article entitled "What Did We Learn from the Financial Crisis, the Great Recession, and the Pathetic Recovery?":[6][27][28]

1) It can happen here.

2) Hyman Minsky was basically right. " . . The financial world envisioned by Minsky is different in every respect from the EMH [Efficient Markets Hypothesis] paradigm. While the good times are rolling, people forget the bitter lessons of the past. (“This time is different.”) So financial excesses grow more, not less, severe as the bubble progresses—creating greater vulnerability to shocks and more damage when the crash comes. The crash itself always seems to come as a surprise; and after it, sentiment swings radically in the other direction. People shun risk, pessimism rules, and the economy struggles. . "[29]

3) Reinhart-Rogoff recessions are worse than Keynesian recessions. " . . Reinhart-Rogoff recessions destroy parts of the financial system and leave much of the rest reeling—and needing to deleverage. All of that stunts and delays recovery. Reinhart-Rogoff recessions also leave large buildups of debt—financial sector debt, corporate debt, household debt, and public debt—in their wake. . "[30][31][32]

4) Self-regulation is oxymoronic.

5) Fraud and near-fraud can rise to attain macroeconomic significance.

6) Excessive complexity is not just anti-competitive, it's dangerous.

7) Go-for-broke incentives will induce traders to go for broke.

8) Illiquidity closely resembles insolvency. Blinder asks, Was the situation with Bear Stearns, which was saved in March 2008, really so different from the situation with Lehman Brothers, which was allowed to go bankrupt in September 2008?[33][34][35]

9) Moral hazard isn't a show-stopper, it's a tradeoff.[36]

10) Economic illiteracy can really hurt.

Selected works[edit]

  • (2014), "What Did We Learn from the Financial Crisis, the Great Recession, and the Pathetic Recovery?" Princeton University Griswold Center for Economic Policy Studies Working Paper No. 243, 22-page paper, November 2014.[6]
  • (2013), After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead, New York: Penguin Press, 24 Jan. 2013. ISBN is 978-1594205309.[37]
  • (2009), "How Many U.S. Jobs Might Be Offshorable," World Economics, April–June 2009, 10(2): 41–78.
  • (2009), "Making Monetary Policy by Committee," International Finance, Summer 2009, 12(2): 171–194.
  • (2008), "Do Monetary Policy Committees Need Leaders? A Report on an Experiment," American Economic Review (Papers and Proceedings), May 2008, pp. 224–229.
  • (2006), "Offshoring: The Next Industrial Revolution?" Foreign Affairs", March/April 2006, pp. 113–128. (A longer version with footnotes and references is "Fear of Offshoring," CEPS Working Paper No. 119, December 2005).
  • (2006), "The Case Against the Case Against Discretionary Fiscal Policy," in R. Kopcke, G. Tootell, and R. Triest (eds.), The Macroeconomics of Fiscal Policy, MIT Press, 2006, forthcoming, pp. 25–61.
  • (2004), The Quiet Revolution, Yale University Press
  • (2001, with William Baumol and Edward N. Wolff), Downsizing in America: Reality, Causes, And Consequences, Russell Sage Foundation
  • (2001, with Janet Yellen), The Fabulous Decade: Macroeconomic Lessons from the 1990s, New York: The Century Foundation Press
  • (1998, with E. Canetti, D. Lebow, and J. Rudd), Asking About Prices: A New Approach to Understanding Price Stickiness, Russell Sage Foundation
  • (1998), Central Banking in Theory and Practice, MIT Press
  • (1991), Growing Together: An Alternative Economic Strategy for the 1990s, Whittle
  • (1990, ed.), Paying for Productivity, Brookings
  • (1989), Macroeconomics Under Debate, Harvester-Wheatsheaf
  • (1989), Inventory Theory and Consumer Behavior, Harvester-Wheatsheaf
  • (1987), Hard Heads, Soft Hearts: Tough‑Minded Economics for a Just Society, Addison-Wesley
  • (1983), Economic Opinion, Private Pensions and Public Pensions: Theory and Fact. The University of Michigan
  • (1979, with William Baumol), Economics: Principles and Policy – textbook
  • (1979), Economic Policy and the Great Stagflation. New York: Academic Press
  • (co-edited with Philip Friedman, 1977), Natural Resources, Uncertainty and General Equilibrium Systems: Essays in Memory of Rafael Lusky, New York: Academic Press
  • (1974), Toward an Economic Theory of Income Distribution, MIT Press

See also[edit]

References[edit]

  1. ^ Economist Rankings at IDEAS
  2. ^ a b Grim, Ryan (2009-09-07) Priceless: How The Federal Reserve Bought The Economics Profession, Huffington Post
  3. ^ a b Princeton Economist to Be Named To Clinton's Council, Aides Say, New York Times (archives), Louis Uchitelle, Jan. 4, 1993.
  4. ^ a b c d e f g h Princeton University, Alan S. Blinder, Princeton University
  5. ^ Alan Blinder, [1], accessed 17 October 2009
  6. ^ a b c "What Did We Learn from the Financial Crisis, the Great Recession, and the Pathetic Recovery?", Alan Blinder, Nov. 2014. Blinder credits fellow economists Carmen Reinhart (1955– ) and Kenneth Rogoff (1953– ) with describing important features of a worse-than-normal recession in which both parts of the financial system are destroyed and large amounts of debt are left in its wake.
  7. ^ Encyclopedia of American Jewish History, Volume 1 edited by Stephen Harlan Norwood, Eunice G. Pollack p 721
  8. ^ Blinder, Alan Stuart. Princeton University. Department of Economics (ed.). "The Theory of Corporate Choice". Cite journal requires |journal= (help)
  9. ^ Towards an economic theory of income distribution.
  10. ^ National Bureau of Economic Research, Alan S. Blinder
  11. ^ NBER, Curriculum Vitae: Alan Stuart Blinder, accessed 14 August 2001
  12. ^ Alan Blinder, Textbooks
  13. ^ Princeton University, 24 June 2009, Blinder named fellow of American Academy of Political and Social Science, accessed 14 August 2009
  14. ^ Blinder, Alan S. (2008). "Free Trade". In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267.
  15. ^ Mark Weisbrot (10 January 2012). "The economic idiocy of economists". Comment is free. London: guardian.co.uk. Retrieved 31 March 2012.
  16. ^ The New York Times, 18 March 1995, Opening the Fed's Doors From Inside; Alan Blinder Preaches Communication at Tight-Lipped Central Bank
  17. ^ a b Blinder, Alan S. (27 July 2008). "A Modest Proposal: Eco-Friendly Stimulus". The New York Times.
  18. ^ Why One Economist Pushed Cash For Clunkers, National Public Radio, August 11, 2009.
  19. ^ More Cash for Clunkers?; Despite the frenzy, another $2 billion may not sell any additional cars., Wall Street Journal, August 3, 2009.
  20. ^ Derek Thompson, The Senate Should Kill Cash for Clunkers, The Atlantic, August 2009.
  21. ^ "Cash for Clunkers" Bad for Environment?, CBS News, August 7, 2009.
  22. ^ Clearing the air; Environmental benefits limited from ‘Clunkers’ deal, The Houston Chronicle, September 5, 2009.
  23. ^ [2],"Stimulus For Clunkers" Wall Street Journal, August 6, 2014.
  24. ^ https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=45817065 & https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=45817065 & http://www.bbt.com/bbtdotcom/business/banking/cds/cdars.page
  25. ^ a b Svaldi, Aldo (18 August 2008). "CDARS, safety in numbers for big bank customers". Denver Post.
  26. ^ "Antifragile: Things That Gain from Disorder", Chapter "The ethical and legal" By Nissim Taleb & https://www.umpquabank.com/personal-banking/high-value-cds/
  27. ^ National Bureau of Economic Research, US Business Cycle Expansions and Contractions. The recession was later determined to have begun in Dec. 2007 with the trough occurring in June 2009. And from that point forward until Feb. 2020, the US economy was in expansion mode.
  28. ^ Blinder states that it wasn’t until 2011 (2nd quarter) that GDP climbed back to its Dec. 2007 level, and it wasn’t until May 2014 that payroll employment climbed back to its Jan. 2008 peak.
  29. ^ Blinder writes, "The financial system is a zoo that needs zookeepers, lest the wilder animals escape and wreak havoc upon the rest of us."
  30. ^ Blinder writes, "If fiscal expansion is blocked by a large public debt, and monetary expansion is blocked by zero interest rates, recovery from a Reinhart-Rogoff recession (unlike a Keynesian recession) may require debt-reducing policies such as explicit debt forgiveness or implicit repudiation through inflation. Not your father's recovery policies."
  31. ^ In contrast, the much more common Keynesian recession responds relatively promptly, perhaps in a matter of months, to the standard tools of monetary stimulus (lower interest rates) and fiscal stimulus (tax cuts and/or deficit spending).
  32. ^ In a later passage (page 16), Blinder writes, " . . stimulus does not require larger government. Congress can use tax cuts instead—or the Fed can chip in with monetary policy. Indeed, both Ronald Reagan and George W. Bush were big Keynesians—in deeds, if not in words."
  33. ^ Regarding Bear Stearns, Blinder writes, "Bear Stearns was bleeding cash in March 2008, owing largely to rumors (based on facts!) of large losses in its mortgage businesses. In the fateful days before its shotgun marriage to J.P. Morgan Chase, Bear was about to run out of cash."
  34. ^ Regarding Lehman Brothers in Sept. 2008, Blinder writes, "Lehman Brothers showed remarkably similar symptoms: a liquidity squeeze brought on by rumors (truths?) of large losses in real estate and mortgage-backed securities. Same problem, same solution, right? Wrong. This time, the Fed judged that Lehman was not just illiquid but also insolvent."
  35. ^ Blinder writes, “Such fire sales fetch low prices, which can turn positive net worth into negative net worth. Thus illiquidity can lead to insolvency.”
  36. ^ Blinder writes, “But in the midst of a crisis, with the house on fire, it may be imperative to douse the fire first and try to persuade the occupant not to smoke later—time inconsistency notwithstanding. Yes, bailouts set bad precedents, but letting a crisis spin out of control may be far worse.”
  37. ^ After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead, Alan Blinder, Penguin Press, 2013, review by GoodReads.

External links[edit]

Government offices
Preceded by
David Mullins
Vice Chair of the Federal Reserve
1994–1996
Succeeded by
Alice Rivlin