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Last Modified: 2000-12-31
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Economic Puppets and Masters

J. Bradford DeLong

September, 2000

A Review of Lawrence Lindsey (1999), Economic Puppetmasters: Lessons from the Halls of Power (Washington, DC: AEI: 0844740810).

An older version of this piece...

"The age of chivalry is over," wrote Edmund Burke more than two hundred years ago in his Reflections on the Revolution in France. "The age of sophisters, economists, and calculators has succeeded." Burke viewed this change as a degeneration: "... [and] the glory of Europe is extinguished forever." However, we economists believe that Burke was more than two hundred years too early. The age of economists has not yet dawned. There are, however, signs that it is dawning--that the institutions are being built and the attitudes are being formed that will give economists a more central place in the future of politics, policy making, and policy advising. And economists, at least, see the end of the age of chivalry not as degeneration but instead as a big forward step on the road that leads to Utopia.

This book--Lawrence Lindsey's Economic Puppetmasters--is a case in point. It's author holds a position within the George W. Bush campaign that is likely to make him Assistant to the President for Economic Policy should the Republicans win the American presidency this November. A decade ago a professional economist like Lindsey would have stood no chance of holding such a position.

Moreover, this is a book that focuses on the constraints that economics places on modern decision makers. Thus one of its principal lessons is how a knowledge of these constraints--an understanding of the economics of the modern world--is an extremely important tool of government today.

They four parts of the book focus on four movers and shakers in the global economy of the past two decades: Alan Greenspan, Eisuke Sakakibara, Helmut Kohl, and George Soros. Lindsey does a very good job of describing what they do--what their jobs are--who they are, and how they think. His capsule descriptions of how they view the world are broad-brush descriptions, lacking details and subtlety, but are amazingly accurate for all that. Alan Greenspan is the contrarian, Eisuke Sakakibara is the mandarin, Helmut Kohl is the historian, and George Soros is the speculator.

But the book is more than just about these four individuals. It is a book about the institutions that they boss and serve: America's Federal Reserve (that Alan Greenspan heads), Japan's Ministry of Finance (where Sakakibara is the senior civil servant), the West German government (that Helmut Kohl stood at the top of for more than two decades), and the world of the speculative hedge funds (of which George Soros with his Quantum Fund is the most visible and public example). And this is where the value-added in the book truly lies. For no single individual, no matter how talented, can function without a staff. And no single individual whose mindset is out of sympathy with that of the staff or the environment can get much of anything done.

Lindsey's summaries of the institutional histories and of the typical patterns of thought of the Federal Reserve, the Japanese Ministry of Finance, and the other institutional locations are--I think--the best part of the book. These are matters that are almost never covered in the press. Journalists would much rather discuss the personalities of U.S. Secretary of the Treasury Robert Rubin and U.S. Secretary of State Madeleine Albright than the cultures and orientations of the people who staff the bureaucracies they head--the Treasury believing that it is engaged in a positive-sum game of maximizing international economic integration, while State believes that it is in a zero-sum negotiation of exchanging favor for favor. And these cultures are very important.

Moreover, to the extent that it is not culture but individuals that matter, it is groups of individuals: groups of people who think more-or-less alike and work together. Journalists in the United States liked to speak in the middle of the 1990s of the "Rubin Treasury." But it would be much more accurate to speak of the "Rubin-Summers-Froman-Lipton-Geitner-Wilcox-Truman-Sandberg-and a bunch of others" U.S. Treasury. Arcs of policy grow and shrink gradually over time, as the consensus least common denominator of agreement among senior policymakers armed with arguments by their staffs gradually shifts. So tracking the thoughts of the institutions rather than the off-the-cuff thoughts of individuals is very important.

The heads of such organizations are in positions in which action is much easier if taken along than across the grain because of the orientations and beliefs of those who surround them. Neverthless, they are not the puppets of their institutions. And they have powerful opportunities to surround themselves with like-minded people.

Thus my first quarrel with Lindsey's book: throughout it there is a tone of policy pessimism--that even powerful people are very tightly constrained by institutions and history, that strings are being pulled elsewhere by the system, and that the High Politicans spend most of their time frantically trying to pretend that they are leading the parade.

This certainly was not my experience in government. For example, the 1993 deficit reduction program was not dictated by history or institutional patterns but was instead an act of political will, guided by what turned out to be (we hope) correct economic theory--so far, so good. The amount of policy reform and change that can be achieved is limited, and the work is hard, but high officials are not tied down like Gulliver captured by the Lilliputians.

And, indeed, all four of the principal economic politicians whom Lindsey focuses on are masters, not puppets. They each did much more than follow Bismarck's advice to grab hold of the cloak of history when it goes past: the reunification of Germany and the construction of the European Community as we know it today, the extraordinarily successful management of monetary policy in the U.S. for more than a decade, the wealth accumulated and then deployed for political influence by George Soros, and Eisuke Sakakibara's successful finessing of points of difficulty raised by Japan's changing international economic role are all major accomplishments.

Thus I found myself wondering whether Lindsey might have been generalizing from his own experience in the Bush administration,* where there was little room for economic policy, and next to no space on which to deploy a knowledge of economics to shape economic policy for the better. But it was not the fault of the "system" that the strings were held tightly. Bush policy was tied down by its own actions. It was, in the words of the British poet John Milton, "overstrong against itself. " It was crippled by high bureaucrats who did not trust their staffs, rash convention-speech promises, and a lack of interest in economic policy at the very top of the administration.

It seems to me that the unhappy Bush administration in the U.S. of 1989-1992 was the exception, not the rule. For one of the principal lessons that all politicians have drawn from the past four decades is that their economic advisers have real knowledge, and that they are ignored at the politician's peril.

Thus I think that the tone of Lindsey's book is unwarrantedly pessimistic.. Lindsey anxiously looks back to the Great Depression, when policymakers armed with inadequate economic theories and constrained by institutions, ideologies, and politics created the worst macroeconomic disaster ever. He draws gloomy analogies between 1930 and 2000. There is, however, one very important difference between 1930 and 2000 that Lindsey does not note: we now remember what happened then. And that difference is a key difference: that we remember history means that we cannot be necessarily condemned to repeat it.

So I drew somewhat different lessons from the book than its author, Lindsey, did. Lindsey sees a world economy in peril. I, instead, see the remarkably successful deployment of knowledge about how the economy functions in order to successfully attain policy goals. Sophisters, economists, and calculators make better government administrators than those who came before them.

*I have another quarrel--more a quibble--with Lindsey's book: his analyses would be more convincing (and, I believe, more correct) if he would be less attached to defending the hard-to-defend economic policy record of the Reagan administration. As it is, his discussion of "supply shocks" muddles the concept by confusing true positive or negative shifts in potential output or the price level with changes in expected inflation. He thus attributes to the Reagan administration things that could only be done (and were done) by the Federal Reserve--as if you were to thank your plumber because the overhead light in the living room now works. The Volcker Fed's decision to press for disinflation even in the face of Reagan's overexpansionary fiscal policy was a gutsy move, and it is not fair to rob them of credit for the successful decline in expected inflation that was its principal positive result.

But let that pass...

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I just stumbled on to your terrific site - a great help to all of us amateur economists struggling to understand the drift of a global economy that at times these past five or six years has seemed on the verge of collapse. A few comments, if I may. 1. Would you not say that your statement: 'One international financial disaster every 2 years is a lot' is something of an understatement? I would have said it was disaster - it's certainly a disaster for those millions of people living through them. 2. I'd apreciate your comments on my reading of things to date. I'm an anti-globalist: I see it as a variation on 18th cent. imperialism - then it was Britain (my native land) now it's America, only this time I think there's a good chance it will bring about complete economic collapse. I do not see any extensive period of global economic equilibrium being achievable without massive and intrusive management by external agencies such as the WTO, IMF, World Bank, etc. on things such as trade and capital flows, global interest and exchange rates, etc. Since it's impossible to achieve any effective level of precision in these areas without intruding on the economic sovereignty of many countries, and since you couldn't get everyone to obey them anyway, I think we will stagger from crisis to crisis, or worse, because policymakers seem bent on crafting some sort of ersatz system on what is at bottom little more than the international commercial business strategies of a few hundred transnational corporations. Further cause for worry is the notion that Western policymakers are attempting to 'design' the economic structures of other countries is an act of intellectual hubris that one fears will end badly. No one can 'see' enough of the variables, let alone manage them. While we're looking at Mexico, or Russia or wherever, there's another Longterm Capital Mgmt. waiting in the shadows right on our own doorstep, with the right combination of avarice and recklessness to bring the whole thing clattering down. Large statements, I agree, but I'd be interested in your comments. Geoff McCaffrey Aurora, Ontari

Contributed by Geoff McCaffrey ( on July 21, 1999.

Dear Prof. DeLong,

I have just two minor comments on your Review of "Economic Puppetmasters": The Kohl-Era lasted long, but not as long as you make your readers believe. Kohl left office in 1998 after more than 16 years as head of the government. And the second half of his term (from 1990 on) he stood not on top of the West-German government but on top of the government of the united Germany.

Contributed by Udo Kreickemeier ( on July 20, 1999.

Dear Dr. De Long:

What a fantastic website you have, congratulations! All the hard work you obviously put into it paid off: I can tell I'll be spending many more enjoyable hours with it in the future. As a young woman studying politics and economics who recently finished her MA in philosophy, I must say it's so nice to see someone else interested in the larger picture as well. Once again, thank you!

I have a quick question for you: in the unfortunate event Gore loses this November, what sort of impact do you think Larry Lindsey would have at Treasury, and by extension, on the economy as a whole? What would you foresee happening to our relationship with the Bretton Woods institutions~especially if you take into account the fact that Dr. Summers will by no means be out of the picture at the Fund and elsewhere? That could get extremely interesting, I imagine...Do you think the author of "Puppetmasters" is going to even have a shot at establishing the kind of international credibility in this arena that someone of Summers' stature can take as a given? Any thoughts you have on this would be much appreciated!


Contributed by Lisa M. Jones ( on May 22, 2000.

I don't think we would have more recessions: most of the power to manage the economy on a year-by-year scale is now located in the Federal Reserve. I do think that we would have a slower-growing economy for lots of reasons...

I think Larry Lindsey will take a White House job, that John Taylor will chair the Council of Economic Advisers, and that some investment banker will be Secretary of the Treasury.

I think Lindsey would do very well for himself inside the White House. I don't think he would do well at Treasury or CEA. Policy coordination is what he does best of all, and the White House is the place to do it...

Contributed by Brad DeLong ( on May 22, 2000.

Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax

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