Mankiw Mendacity and Morality and his League of Failed Economists

By William K. Black
Quito: April 24, 2015

I met N. Gregory Mankiw for the first and only time in 1993 when he was a discussant for George Akerlof and Paul Romer’s paper on “Looting: The Economic Underworld of Bankruptcy for Profit.” The meeting was at Brookings, so it was attended by a wide range of economists. Brooking was by that time working closely with AEI on an anti-regulatory agenda, particularly in finance. Those of us old enough to recall when Brookings was referred to under Republican administrations as “the Democratic Party in exile” are very old. I attended as Akerlof and Romer’s specially invited guest because of my contributions to their article. The meeting taught me a great deal about Mankiw and the state of the economics academy.

Mankiw was generally dismissive of the importance of the paper because it refuted his dogmas. But the show stopper for someone outside the academy like me (I was a financial regulator in 1993) was this line: “it would be irrational for savings and loans [CEOs] not to loot.” I dubbed this “Mankiw morality.” The show stopper for me was not that Mankiw would say it, but that none of the economists present even blinked when he said it. To that point I had seen many failed economists like Alan Greenspan and George Benston and the law and economics specialists like Daniel Fischel and Judge Frank Easterbrook embarrass themselves in the context of the savings and loan fraud epidemics, but I had not understood until Mankiw’s pronouncement how successfully academic economists had driven even the most fundamental concepts of morality out of their departments.

Mankiw has gone on to be the author of the leading economic textbooks, chairman of the economics department at Harvard, and a Republican activist who attaches himself to Republicans whose campaigns for the presidential nomination he feels have the best prospects for success. In that role he continues to proclaim his anti-regulatory agendas that, when he was in government, made him one of the architects of the criminogenic environment that produced the three great epidemics of accounting control fraud that drove the financial crisis and the Great Recession. There is no evidence that he ever learns from the disasters he creates.

Mankiw’s latest role is as a cheerleader for the Trans-Pacific Partnership. His two recent efforts in that role are helping to organize an open letter by fellow economists who served as Chairs of the President’s Council of Economic Advisers – a rogues’ gallery that includes the leading architects of the criminogenic environments that produced our recurrent, intensifying financial crises – and writing a column in the New York Times claiming that economists have reached “near unanimity” on the need for the TPP. The rogues’ gallery includes Mankiw, Alan Greenspan and Ben Bernanke, so it is self-refuting.

In this column, the second in my series on the TPP, I focus on Mankiw’s claims that economists agree that supporting TPP is a “no brainer.” The title of his column says it all “Economists Actually Agree on This: The Wisdom of Free Trade.”

The actual purpose of his column, however, was to smear any member of Congress (and he singled out Senator Elizabeth Warren as his example) who opposes TPP as not simply economically ignorant, “failing” a “no brainer” exam, but also engaged in “mendacity.” Given that mendacity is Mankiw’s primary area of expertise – and that President Obama soon joined Mankiw in claiming that Warren was lying in her criticisms of TPP – I thought someone should respond to Mankiw.

The problem begins in his title, as I explained in my first column in this series on TPP. How can Mankiw know that the TPP represents “Free Trade?” The TPP drafts are classified and Mankiw (and the entire rogues’ gallery that signed his open letter) should have had no access (and certainly no recent access to them) other than the episodic leaks of their contents that show that it is a Faux Trade agreement primarily drafted by the CEOs’ lobbyists. Mankiw claims that it is “Economics 101” that free trade is good, but he has no way of knowing whether TPP is a free trade agreement.

It is actually “Economics 101” – and has been in writing for well over two centuries – that the CEOs’ lobbyists have never, and will never, secretly draft a “free trade” agreement. It is Economics 101 that they have always and will always secretly draft language that aids their corporate CEO clients at the expense of the public – that TPP must be another in a long, dismal line of Faux Trade agreements. That’s what theory, all human experience, and the leaked portions of the TPP draft all show. That doesn’t have “near unanimity” among economists, it has actual unanimity.

Mankiw responds to these points by never discussing them. He “assumes the can opener” – the most classic failure in economics that produced the field’s defining joke about the folly of terrible economists. He simply assumes the answer to his inherent problem even though theory, experience, and the empirical evidence of the leaked TPP drafts shows his assumption is, and always will be, false. Allowing the CEOs’ lobbyists to secretly draft a trade deal will never allow one to open a can of “free trade.” The “embalmed meat” in the can will always be as rotten as that described in The Jungle.

Mankiw quotes Adam Smith about the virtues of free trade, but Smith warned that allowing CEOs to determine the content of secret deals like TPP “ends in a conspiracy against the public, or in some contrivance to raise prices.” Smith did not assume the can opener. President Obama has already failed the Economics 101 exam by allowing the CEOs’ lobbyists to largely draft the TPP and to litter it with carefully crafted legalese meant to aid the CEOs conspire against the public. Mankiw and his group of failed economists shilling for a TPP that they have never read, much less carefully examined to root out these conspiracies against the public, literally have no basis for their support. They have failed the Economics 101 exams four times – by supporting, without the essential detailed study of the legalese of the proposed deal, a secret deal-making process largely controlled by the CEOs’ lobbyists that Smith warned in 1776 must end in a conspiracy against the public, by “assuming the can opener,” by supporting “fast track,” which removes the Senate’s normal constitutional power and duty to remove these conspiracies through careful examination and amendments deleting the provisions, and by having the mendacity to accuse Senators and the many economists who oppose TPP as another in a long, embarrassing, and harmful line of Faux Trade deals of being not only incompetent, but mendacious.

Mankiw ends by endorsing another in an endless line of screeds against democracy by a George Mason University (GMU) academic. What he does not tell you is that this type of ultra-extreme libertarian worships the market and must deny the legitimacy of the democratic decision-making to maintain his dogmas. The GMU professor seeks to deny the legitimacy by claiming that voters are inherently stupid and politicians mendacious – and that Austrian-school economists who despise democracy and the rule of law are the rare, brilliant exception who must lead the benighted masses.

Conclusion

Funny, the more economists from GMU that ally with Mankiw, Greenspan, and Bernanke and destroy our regulatory safeguards and champion trade policies drafted largely by the CEOs’ lobbyists, the more disasters their self-described brilliance produce for the public and the greater wealth for the 0.001 percent. Maybe the people are correct and the dogmatic and rabidly anti-democratic economists who have increasingly dominated our public policies over the last 30 years are the problem rather than the solution. They do create a self-fulfilling prophecy of public sector failure. But mostly they advance policies that make the worst, most criminal CEOs ever wealthier through precisely the conspiracies against the public that Adam Smith warned about.