Until quite recently, Robert Litan was a nonresident senior
fellow in the Economic Studies Program at the Brookings Institution, a
bipartisan Washington think tank with a sterling reputation. The Institution’s
website describes him thus: ”a widely recognized expert in regulation,
antitrust, finance, among other policy subjects.”
But he is no longer a fellow there, because he had the
misfortune to disagree with Senator Elizabeth Warren.
No Proper Risk
Assessment
The subject of the criticism, as it happens, was financial
regulation, specifically new rules proposed by the Department of Labor (and
supported by Senator Warren) that would impose fiduciary obligations on brokers and financial advisors who
provide advice for IRAs. A fiduciary
obligation, of course, would be a big step up from the present level of
obligation under SEC authority. The latter holds merely that those
recommendations must be “suitable” for investors, judging suitability by
income, assets, and expressed risk preference.
Litan, first in a paper co-written with Hal Singer and later
in Congressional testimony restating the gist of that paper, maintained that
the Department of Labor has not done a proper cost-benefit
assessment of the fiduciary obligation rule.
Apparently, just as Voldemort is the
he-who-must-not-be-named of the Harry Potter world, the balance of costs and
benefits is now a that-which-must-not-be-discussed of the world of financial
regulations. Because Litan did discuss
it, he has lost his position with Brookings, due to the intercession of Senator
Warren combined with the fecklessness of the leadership of that famous
institution.
Attacks Instead of
Substance
Warren’s response to Litan’s argument didn’t meet it on its
substance at all. She didn’t say, “yes, the Department of Labor already
considered all these points and reasonably decided that the benefits of the
rule still outweigh the negatives.” Nor did she say, “he’s right on the
procedural issue, but if the Department had done a better cost-benefit
assessment, it would nonetheless have shown a positive balance, and here is
why….” Nor again did she say, “risk-benefit analyses aren’t all they’re cracked
up to be, and in such a situation as this we should ignore them.”
Instead of saying anything like that, she employed a
standard response of someone with a very weak case on the merits: she attacked
the person on the other side of the debate.
Likewise, in the closing days of 2013 The New York Times ran an article criticizing two prominent
scholars on the theory that they had sold out to “Wall Street” (as the headline
writer put it), or to the “energy companies and traders,” as the author of the
article, David
Kocieniewski, put it. The
story/analysis focused on these scholars, Craig Pirrong and Scott Irwin,
because they had taken public positions at odds with a then-fashionable bit of
scare mongering about the consequences of speculation in the energy markets. They were, so to speak, tranquil about
speculation. And that tranquility was not to be allowed.
But Kocieniewski’s article didn’t contend that they were
wrong on the facts they cited, or wrong on the inferences they drew from those
facts. No, he argued that their views shouldn’t be heard, because they were
hired hands – the hirelings of those evil speculators. He attacked the men, not the ideas. For
Kocieniewski to do this was a sign of intellectual weakness, a failure to make
a proper case on the merits – just as it is when a sitting Senator does it.
Final Thoughts
Of course it is more dangerous when a sitting Senator does
it.
This looks very much like a civil war on the left side of
the political aisle. The Brookings Institution itself has a lot of connections
with a certain politically prominent family that one thinks of as center-left. Laura
Tyson, once a key economic advisor to President Clinton, is nowadays a member
of the board of Brookings. The president
of the organization is Strobe Talbott, who was a Deputy Secretary of State in
that distant era. Litan himself was the deputy assistant attorney
general who supervised the first Microsoft litigation, during Clinton’s
first term – the one that resulted
in a consent decree.
This is the sort of person whom Warren considers it
necessary to silence?
Yes. It is a fair inference that Warren is carrying water
for Bernie Sanders, and that Litan as a target is serving as a surrogate for a
quite recent Secretary of State.
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