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How Simon Johnson Was Radicalized

Tim Fernholz has an interesting essay/profile of the ubiquitous Simon Johnson over at The American Prospect. Others, like Dani Rodrik, have noted the irony of a former IMF true-believer critiquing the administration's economic policies from the left (and the exercised left at that). Tim actually asked Johnson what prompted his evolution from semi-orthodox neoliberal to raging populist:

He recalls, early in his time at the IMF, signing off on a report about liberalization in developing countries. "I didn't disagree with this at the time: If you have strong institutions and a well-run regulatory structure, you can and should move towards capital market liberalization," he says. But after an "oh-my-goodness" moment one evening last September, as the full impact of the Lehman failure and the U.S. takeover of AIG became clear, he changed his mind. "Now," he says, "that's not my view. We should go back and look at everything, and wonder about if anybody has the regulatory structures able to withstand what happens when you liberalize."

It's such an abrupt shift you almost want to hear more about that eureka moment.

I think it's hugely helpful to have a voice like Johnson's out there raising critical political economy questions, and Tim's profile does a great job highlighting this contribution:

Unfortunately, Johnson posits, the economic specialty that deals with business cycles and recessions -- short-run macroeconomics -- hasn't yet acquired the tools to assess the influence of political interests on their policy proposals. ...

A fluid speaker who peppers his conversations with interruptions of "and another thing," Johnson recalls that when he was appointed to his IMF position, The Economist wrote a snarky piece criticizing his approach to economics. The magazine suggested his consideration of political issues was unsuited to the IMF's needs at a time when the institution was focused on macroeconomic liberalization and the World Bank was better known for its political focus on development and poverty. Now he feels vindicated.  

As I've said before, I'm just a little uncomfortable with the leaps Johnson makes when discussing the United States. The logical chain is typically something like: 1.) I've seen corrupt elites prevent governments from resolving financial crises in emerging markets. 2.) The finanical crisis dogging the United States shares some features with emerging-market crises--for example, overleveraged institutions enjoyed an outsize share of corporate profits prior to imploding. 3.) Ergo, it must be the case that corrupt elites are preventing the U.S. government from resolving the crisis.

Problem is, the third point doesn't necessarily follow from the second. Logically, it's like saying: 1.) Cancer patients don't get well when they're treated by witch doctors. 2.) The top oncologist at Mass General has lost a few patients lately--some of them inexplicably, under mysterious circumstances. 3.) Ergo, the top oncologist at Mass General was practicing witchcraft. Maybe, but it would be much more persuasive if you could establish causality.

--Noam Scheiber