Wow! You have a PhD from MIT! Oh, I didn't realize it was in economics.

I have two degrees in mechanical engineering.  As someone who studied engineering, I laugh when people talk about discussions they had in their classes.  In engineering, as soon as class begins the fire hose is turned on.  You spend all your energy just keeping up with what the professor is saying.  The entire notion of scratching you chin and entering into some nuanced discussion on the theological implications of the second law of thermodynamics is pretty farcical.  I was lucky enough that all my classes were taught by professors.  Because of their mastery of information I was struggling to learn, I had a great deal of respect for them.  A large fraction of my professors had PhDs from MIT, so it is hardly unusual that I, like many others, looked at an MIT PhD as a milestone of academic achievement and technical skill. 

While I still hold MIT PhDs in technical fields like engineering, mathematics and the sciences in very high regard, nothing could be further from the truth when it comes to MIT PhDs in economics.  In this week's article, the contribution of six MIT PhD economists to the 2008 financial crisis will be reviewed.  The six MIT PhD economists are Ben Bernanke, Alan Blinder, Austan Goolsbee, Paul Krugman, Frederic Mishkin, Jeremy Siegel.

Ben Bernanke (Fed Chair, Ivy League economics professor)

• "I agree with most of the commentary that the strong fundamentals support a relatively soft landing in housing."  (March 2006 FOMC meeting)
• "So far we are seeing, at worse, an orderly decline in the housing market." (May 2006 FOMC meeting)
• "But I agree that the economy, except for housing and autos, is still pretty strong, and we do not yet see any significant spillover from housing." (September 2006 FOMC meeting)

Alan Blinder (Fed official, Ivy League economics professor)

• Authored a book with Janet Yellen called The Fabulous Decade, in it he mistook the 1990s tech bubble and hedonic adjustments to GDP for legitimate economic growth. 
• He was an ardent support of the 'cash for clunkers' program.  In this program, automobiles - which had economic value and were fully functional - weren't traded in; they were destroyed!  Somehow, destroying things with economic value was the first step on the path to prosperity.  (Among real economists, the obvious errors that Blinder endorsed have become known as the 'broken window fallacy.')

Austan Goolsbee (economics advisor to President Obama, University of Chicago professor)

• On March 29, 2007 Goolsbee authored an editorial in the New York Times that extolled the virtues of “irresponsible” mortgages because they opened the doors to home ownership.  In the article he cited a report from two Federal Reserve economists and a Princeton economics professor who credit sub-prime mortgages for “making the mortgage market more perfect, not more irresponsible.”

Paul Krugman (New York Times columnist, Ivy League professor, Nobel Prize Winner)

• Paul Krugman thinks the economy can be flawlessly controlled by merely manipulating interest rates; "The point is that recessionary tendencies can usually be effectively treated with cheap over the counter medication: cut interest rates a couple of percentage points, provide plenty of liquidity, and call me in the morning."  (New York Times, December 27, 2000)
• He praised the interest rate cuts that were fueling the housing bubble (he called it a 'boom' in housing purchases and mortgage financing); "Its true that Alan Greenspan and his colleagues made a much better start than their counterparts in Japan.  They knew that the Bank of Japan cut interest rates too slowly, and by the time it realized the seriousness of the country's problems it was too late: even a zero interest rate wasn't enough to spark a recovery.  So the Fed cut rates early and often; those 11 interest rate cuts fueled a boom in housing purchases and mortgage financing, both of which helped keep the economy from experiencing a much more severe recession."  (New York Times, October 1, 2002)
• He believes girding for war makes society richer; "If we discovered that space aliens were planning to attack, and we needed a massive build-up to counter the space alien threat, and inflation and budget deficits took secondary place to that, this slump would be over in eighteen months." (August 2011)

Frederic Mishkin (FOMC member, Ivy League professor)

• He judged Iceland 'stable' from a financial standpoint, just before it suffered the largest banking collapse, (adjusted for the size of the economy), in world history.  “(Iceland’s) financial regulation and supervision is considered to be of high quality… There are three traditional routes to financial instability that have manifested themselves in recent crises…None of these routes describe the current situation in Iceland.   Our analysis indicates that the sources of financial instability that triggered financial crises in emerging market countries in recent years are just not present in Iceland, so that comparisons of Iceland with emerging market countries are misguided.”
• His views on the US economy were little better.  "Since the spring of 2006, however, the expansion of the US economy appears to have been undergoing a transition to a more moderate and sustainable pace....Looking ahead, the most likely outcome for the coming quarters is, in my judgement, a continued moderate rate of economic expansion accompanied by some easing of pressure on resources...I continue to believe that the current stance of monetary policy is likely to foster sustainable economic expansion."  (April 2007 speech at Bard College)

Jeremy Siegel (Wharton professor and CNBC favorite)

• "I think the actual number of delinquencies next year will be below what the market predicts, as investors have overreacted to the mortgage crisis. (emphasis added) When this happens it could lead to a nice recovery in financial stocks... And I believe that financial stocks, which have plummeted 18% so far this year, will outperform the S&P500 index next year as the crisis faces..."  (Yahoo Finance, December 14, 2007)

If I had a PhD in mechanical engineering from MIT, I'd be circulating a petition among my fellow alumni to have the graduate school of economics closed!

 

 

Peter Schmidt
December 06, 2020
Sugar Land, TX

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