Friday, October 21, 2011

Joseph Stiglitz & Peter Orszag- Upward Failures?

The Wall Street Journal features a brief daily column entitled Notable & Quotable. Recently, Mark A. Calabria of the Cato Institute was quoted on the shifting arguments of liberal Nobel Economics laureate Joseph Stiglitz.

"Speaking before a group of protesters in Zuccotti Park, Nobel economics prize winner Joseph Stiglitz urged on the crowd, telling them they are "right to be indignant." Professor Stiglitz goes on to explain, correctly in my view, that we have a financial system of socialized losses and privatized gains.

What the good professor fails to mention is only a few years ago . . . he was denying this very fact. In 2004, along with Jonathan and Peter Orszag, Professor Stiglitz wrote a paper for Fannie Mae in which he "estimated" that the "risk to the government from a potential default on GSE debt is effectively zero." The paper goes on to argue "that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million." Now I understand his Nobel is in economics, not math, but $2 million sounds nowhere near the actual cost so far of $160 billion."

Ah.....Peter Orszag again. I can't quite figure that guy out.

It's bad enough that Stiglitz, who won a Nobel, with Michael Spence for work on markets with asymmetric information, has strayed far afield. But Orszag is significantly less accomplished.

When I saw Orszag's name affixed to the Fannie Mae paper, I was reminded of a long-ago humorous piece in Life Magazine entitled Upward Failure. Though I can't find anything on the internet about it, it ran in the late 1960s or early '70s. I recall the essence of the piece very clearly. The tongue-in-cheek article purported to track the progress of a CEO who had failed spectacularly on every major project in his career, including while serving in WWII. From a Himalayan mission which lost nearly all the C-47s which flew, to the failure of a men's suite made from synthetic fabric which caused a rash, the subject of the piece was promoted from failure to failure.

Now we have Peter Orszag, going from co-author of a wildly-inaccurate and misleading paper which understated the true costs of government guarantees of GSE debt, to ineffectual budget director of the current administration, to, finally, a senior executive at Citigroup.

Almost as if one failure deserves another.

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