Larry Summers and the Subversion of Economics

Lawrence H. Summers (right) joined Secretary of the Treasury Timothy Geithner as President Obama spoke about the nation's financial health in January.

By Charles Ferguson

The Obama administration recently announced that Larry Summers is resigning as director of the National Economic Council and will return to Harvard early next year. His imminent departure raises several questions: Who will replace him? What will he do next? But more important, it's a chance to consider the hugely damaging conflicts of interest of the senior academic economists who move among universities, government, and banking.

Summers is unquestionably brilliant, as all who have dealt with him, including myself, quickly realize. And yet rarely has one individual embodied so much of what is wrong with economics, with academe, and indeed with the American economy. For the past two years, I have immersed myself in those worlds in order to make a film, Inside Job, that takes a sweeping look at the financial crisis. And I found Summers everywhere I turned.

Consider: As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws.

After Summers left the Clinton administration, his candidacy for president of Harvard was championed by his mentor Robert Rubin, a former CEO of Goldman Sachs, who was his boss and predecessor as treasury secretary. Rubin, after leaving the Treasury Department—where he championed the law that made Citigroup's creation legal—became both vice chairman of Citigroup and a powerful member of Harvard's governing board.
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Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency. During this time, Summers became wealthy through consulting and speaking engagements with financial firms. Between 2001 and his entry into the Obama administration, he made more than $20-million from the financial-services industry. (His 2009 federal financial-disclosure form listed his net worth as $17-million to $39-million.)

Summers remained close to Rubin and to Alan Greenspan, a former chairman of the Federal Reserve. When other economists began warning of abuses and systemic risk in the financial system deriving from the environment that Summers, Greenspan, and Rubin had created, Summers mocked and dismissed those warnings. In 2005, at the annual Jackson Hole, Wyo., conference of the world's leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other people's money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a "full-blown financial crisis" and a "catastrophic meltdown."

When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a "Luddite," dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.)

Soon after that, Summers lost his job as president of Harvard after suggesting that women might be innately inferior to men at scientific work. In another part of the same speech, he had used laissez-faire economic theory to argue that discrimination was unlikely to be a major cause of women's underrepresentation in either science or business. After all, he argued, if discrimination existed, then others, seeking a competitive advantage, would have access to a superior work force, causing those who discriminate to fail in the marketplace. It appeared that Summers had denied even the possibility of decades, indeed centuries, of racial, gender, and other discrimination in America and other societies. After the resulting outcry forced him to resign, Summers remained at Harvard as a faculty member, and he accelerated his financial-sector activities, receiving $135,000 for one speech at Goldman Sachs.

Then, after the 2008 financial crisis and its consequent recession, Summers was placed in charge of coordinating U.S. economic policy, deftly marginalizing others who challenged him. Under the stewardship of Summers, Geithner, and Bernanke, the Obama administration adopted policies as favorable toward the financial sector as those of the Clinton and Bush administrations—quite a feat. Never once has Summers publicly apologized or admitted any responsibility for causing the crisis. And now Harvard is welcoming him back.

Summers is unique but not alone. By now we are all familiar with the role of lobbying and campaign contributions, and with the revolving door between industry and government. What few Americans realize is that the revolving door is now a three-way intersection. Summers's career is the result of an extraordinary and underappreciated scandal in American society: the convergence of academic economics, Wall Street, and political power.

Starting in the 1980s, and heavily influenced by laissez-faire economics, the United States began deregulating financial services. Shortly thereafter, America began to experience financial crises for the first time since the Great Depression. The first one arose from the savings-and-loan and junk-bond scandals of the 1980s; then came the dot-com bubble of the late 1990s, the Asian financial crisis; the collapse of Long Term Capital Management, in 1998; Enron; and then the housing bubble, which led to the global financial crisis. Yet through the entire period, the U.S. financial sector grew larger, more powerful, and enormously more profitable. By 2006, financial services accounted for 40 percent of total American corporate profits. In large part, this was because the financial sector was corrupting the political system. But it was also subverting economics.

Over the past 30 years, the economics profession—in economics departments, and in business, public policy, and law schools—has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And it's due not just to ideology; it's also about straightforward, old-fashioned money.

Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Department's Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates.

In my film you will see many famous economists looking very uncomfortable when confronted with their financial-sector activities; others appear only on archival video, because they declined to be interviewed. You'll hear from:

Martin Feldstein, a Harvard professor, a major architect of deregulation in the Reagan administration, president for 30 years of the National Bureau of Economic Research, and for 20 years on the boards of directors of both AIG, which paid him more than $6-million, and AIG Financial Products, whose derivatives deals destroyed the company. Feldstein has written several hundred papers, on many subjects; none of them address the dangers of unregulated financial derivatives or financial-industry compensation.

Glenn Hubbard, chairman of the Council of Economic Advisers in the first George W. Bush administration, dean of Columbia Business School, adviser to many financial firms, on the board of Metropolitan Life ($250,000 per year), and formerly on the board of Capmark, a major commercial mortgage lender, from which he resigned shortly before its bankruptcy, in 2009. In 2004, Hubbard wrote a paper with William C. Dudley, then chief economist of Goldman Sachs, praising securitization and derivatives as improving the stability of both financial markets and the wider economy.

Frederic Mishkin, a professor at the Columbia Business School, and a member of the Federal Reserve Board from 2006 to 2008. He was paid $124,000 by the Icelandic Chamber of Commerce to write a paper praising its regulatory and banking systems, two years before the Icelandic banks' Ponzi scheme collapsed, causing $100-billion in losses. His 2006 federal financial-disclosure form listed his net worth as $6-million to $17-million.

Laura Tyson, a professor at Berkeley, director of the National Economic Council in the Clinton administration, and also on the Board of Directors of Morgan Stanley, which pays her $350,000 per year.

Richard Portes, a professor at London Business School and founding director of the British Centre for Economic Policy Research, paid by the Icelandic Chamber of Commerce to write a report praising Iceland's financial system in 2007, only one year before it collapsed.

And John Campbell, chairman of Harvard's economics department, who finds it very difficult to explain why conflicts of interest in economics should not concern us.

But could he be right? Are these professors simply being paid to say what they would otherwise say anyway? Unlikely. Mishkin and Portes showed no interest whatever in Iceland until they were paid to do so, and they got it totally wrong. Nor do all these professors seem to make policy statements contrary to the financial interests of their clients. Even more telling, they uniformly oppose disclosure of their financial relationships.

The universities avert their eyes and deliberately don't require faculty members either to disclose their conflicts of interest or to report their outside income. As you can imagine, when Larry Summers was president of Harvard, he didn't work too hard to change this.

Now, however, as the national recovery is faltering, Summers is being eased out while Harvard is welcoming him back. How will the academic world receive him? The simple answer: Better than he deserves.

While making my film, we wrote to the presidents and provosts of Harvard, Columbia, and other universities with detailed questions about their conflict-of-interest policies, requesting interviews about the subject. None of them replied, except to refer us to their Web sites.

Academe, heal thyself.

Charles Ferguson is director of the new documentary Inside Job and the 2007 documentary No End in Sight: The American Occupation of Iraq.

Source:
http://chronicle.com/article/Larry-Summersthe/124790/

Argentina to file formal complaint to UN over Malvinas issue

UN Security Council renewed criticism



Argentine Ambassador to the United Nations Jorge Argüello assured the country is to file a formal complaint to UN Secretary-General Ban Ki-Moon as a way of deepening the claim over the military action being deployed in the Malvinas Islands. Previously, President Cristina Fernández de Kirchner channeled the protest through British Ambassador in Buenos Aires.

According to Argüello's words, "Argentina will request UN Secretary-General to hand a copy of the formal complaint to every British employer working in the island, as a way of stating the claim, which we consider a violation to the United Nations resolution."

Argüello went further: "We plan to renew our claim to the General Assembly, for he had already requested for aid to be sent as regards restoring the British-Argentine bilateral relations." The Argentine UN Ambassador assured "the United Kingdom has been failing to comply with several UN resolutions all these past years, for example, the country should not refuse to negotiate diplomatically over the islands sovereignty."

Argüello concluded: "President Fernández de Kirchner has been pointing out the issue before the UN General Assembly for years. We need to democratize the United Nations, for the Security Council should not be deciding on matters it is competent about."

Source:
http://www.buenosairesherald.com/BreakingNews/View/47826

U.S. Apologizes for Syphilis Tests in Guatemala

By DONALD G. McNEIL Jr.



From 1946 to 1948, American public health doctors deliberately infected nearly 700 Guatemalans — prison inmates, mental patients and soldiers — with venereal diseases in what was meant as an effort to test the effectiveness of penicillin.

American tax dollars, through the National Institutes of Health, even paid for syphilis-infected prostitutes to sleep with prisoners, since Guatemalan prisons allowed such visits. When the prostitutes did not succeed in infecting the men, some prisoners had the bacteria poured onto scrapes made on their penises, faces or arms, and in some cases it was injected by spinal puncture.

If the subjects contracted the disease, they were given antibiotics.
“However, whether everyone was then cured is not clear,” said Susan M. Reverby, the professor at Wellesley College who brought the experiments to light in a research paper that prompted American health officials to investigate.

The revelations were made public on Friday, when Secretary of State Hillary Rodham Clinton and Health and Human Services Secretary Kathleen Sebelius apologized to the government of Guatemala and the survivors and descendants of those infected. They called the experiments “clearly unethical.”

“Although these events occurred more than 64 years ago, we are outraged that such reprehensible research could have occurred under the guise of public health,” the secretaries said in a statement. “We deeply regret that it happened, and we apologize to all the individuals who were affected by such abhorrent research practices.”

In a twist to the revelation, the public health doctor who led the experiment, John C. Cutler, would later have an important role in the Tuskegee study in which black American men with syphilis were deliberately left untreated for decades. Late in his own life, Dr. Cutler continued to defend the Tuskegee work.

His unpublished Guatemala work was unearthed recently in the archives of the University of Pittsburgh by Professor Reverby, a medical historian who has written two books about Tuskegee.

President Álvaro Colom of Guatemala, who first learned of the experiments on Thursday in a phone call from Mrs. Clinton, called them “hair-raising” and “crimes against humanity.” His government said it would cooperate with the American investigation and do its own.

The experiments are “a dark chapter in the history of medicine,” said Dr. Francis S. Collins, director of the National Institutes of Health. Modern rules for federally financed research “absolutely prohibit” infecting people without their informed consent, Dr. Collins said.

Professor Reverby presented her findings about the Guatemalan experiments at a conference in January, but nobody took notice, she said in a telephone interview Friday. In June, she sent a draft of an article she was preparing for the January 2011 issue of the Journal of Policy History to Dr. David J. Sencer, a former director of the Centers for Disease Control. He prodded the government to investigate.

In the 1940s, Professor Reverby said, the United States Public Health Service “was deeply interested in whether penicillin could be used to prevent, not just cure, early syphilis infection, whether better blood tests for the disease could be established, what dosages of penicillin actually cured infection, and to understand the process of re-infection after cures.”

It had difficulties growing syphilis in the laboratory, and its tests on rabbits and chimpanzees told it little about how penicillin worked in humans.

In 1944, it injected prison “volunteers” at the Terre Haute Federal Penitentiary in Indiana with lab-grown gonorrhea, but found it hard to infect people that way.
In 1946, Dr. Cutler was asked to lead the Guatemala mission, which ended two years later, partly because of medical “gossip” about the work, Professor Reverby said, and partly because he was using so much penicillin, which was costly and in short supply.

Dr. Cutler would later join the study in Tuskegee, Ala., which had begun relatively innocuously in 1932 as an observation of how syphilis progressed in black male sharecroppers. In 1972, it was revealed that, even when early antibiotics were invented, doctors hid that fact from the men in order to keep studying them. Dr. Cutler, who died in 2003, defended the Tuskegee experiment in a 1993 documentary.
Deception was also used in Guatemala, Professor Reverby said. Dr. Thomas Parran, the former surgeon general who oversaw the start of Tuskegee, acknowledged that the Guatemala work could not be done domestically, and details were hidden from Guatemalan officials.

Professor Reverby said she found some of Dr. Cutler’s papers at the University of Pittsburgh, where he taught until 1985, while she was researching Dr. Parran.
“I’m sifting through them, and I find ‘Guatemala ... inoculation ...’ and I think ‘What the heck is this?’ And then it was ‘Oh my god, oh my god, oh my god.’ My partner was with me, and I told him, ‘You aren’t going to believe this.’ ”

Fernando de la Cerda, minister counselor at the Guatemalan Embassy in Washington, said that Mrs. Clinton apologized to President Colom in her Thursday phone call. “We thank the United States for its transparency in telling us the facts,” he said.
Asked about the possibility of reparations for survivors or descendants, Mr. de la Cerda said that was still unclear.

The public response on the Web sites of Guatemalan news outlets was furious. One commenter, Cesar Duran, on the site of Prensa Libre wrote: “APOLOGIES ... please ... this is what has come to light, but what is still hidden? They should pay an indemnity to the state of Guatemala, not just apologize.”

Dr. Mark Siegler, director of the Maclean Center for Clinical Medical Ethics at the University of Chicago’s medical school, said he was stunned. “This is shocking,” Dr. Siegler said. “This is much worse than Tuskegee — at least those men were infected by natural means.”

He added: “It’s ironic — no, it’s worse than that, it’s appalling — that, at the same time as the United States was prosecuting Nazi doctors for crimes against humanity, the U.S. government was supporting research that placed human subjects at enormous risk.”

The Nuremberg trials of Nazi doctors who experimented on concentration camp inmates and prisoners led to a code of ethics, though it had no force of law. In the 1964 Helsinki Declaration, the medical associations of many countries adopted a code.
The Tuskegee scandal and the hearings into it conducted by Senator Edward M. Kennedy became the basis for the 1981 American laws governing research on human subjects, Dr. Siegler said.

It was preceded by other domestic scandals. From 1963 to 1966, researchers at the Willowbrook State School on Staten Island infected retarded children with hepatitis to test gamma globulin against it. And in 1963, elderly patients at the Brooklyn Jewish Chronic Disease Hospital were injected with live cancer cells to see if they caused tumors.

Elisabeth Malkin contributed reporting from Mexico City.

Source:
http://www.nytimes.com/2010/10/02/health/research/02infect.html

Médicos de EE UU inocularon sífilis y gonorrea a prisioneros y enfermos mentales de Guatemala

El experimento, aprobado por el Gobierno local, se llevó a cabo en los cuarenta para probar la eficacia de la penicilina



YOLANDA MONGE - Washington - 01/10/2010

La inminente publicación de un estudio sobre cómo cientos de presos, soldados y pacientes de hospitales psiquiátricos fueron utilizados como cobayas humanas ha provocado que el Gobierno de Estados Unidos pida perdón a Guatemala, país en el que se realizó el experimento entre 1946 y 1948. Médicos del servicio de salud pública estadounidense infectaron con sífilis y gonorrea -sin su conocimiento o consentimiento- a 696 guatemaltecos para estudiar los efectos de esas enfermedades venéreas y cómo la penicilina podía combatirlas, según el estudio de Susan Reverby, profesora de la Universidad de Wellesley.

Hoy, la secretaria de Estado norteamericana, Hillary Clinton, y la secretaria de Salud, Kathleen Sebelius, ofrecieron una disculpa pública por las acciones de EEUU. "El estudio conducido en Guatemala entre 1946-1948 de inocular enfermedades de transmisión sexual claramente carecía de ética", aseguraron Clinton y Sebelius en un comunicado conjunto. "A pesar de que estos actos ocurrieron hace más de 64 años, estamos indignados por el simple hecho de que semejante proyecto fuera auspiciado por el sistema público de salud de EEUU". Tanto la secretaria de Estado como la de Salud concluyeron: ""Lamentamos profundamente que esto sucediera y pedimos perdón a todas las personas que fueron afectadas por tan horrendas prácticas".

El objetivo del estudio de los años cuarenta en Guatemala -que nunca llegó a publicarse- era buscar nuevas fórmulas para prevenir las enfermedades de transmisión sexual -gonorrea, sífilis, cancroide o chancro blanco- y se produjo en los albores del uso de la penicilina y la necesidad del Gobierno de EEUU de saber si éste antibiótico era efectivo y además de curar podía prevenir la sífilis. En los experimentos de Guatemala, se utilizó a prostitutas con gonorrea o sífilis para contagiar a presos de cárceles o pacientes de manicomios. Pero cuando se comprobó que eran muy pocos los hombres que se habían contagiado, se pasó a la inoculación directa, inyectando la bacteria de la sífilis en el pene, el brazo o la cara de los 'conejillos de Indias'.

Los trabajadores de las instituciones médicas o penitenciarias tenían conocimiento del experimento pero a los sujetos del estudio nunca se les informó del propósito del mismo ni tampoco dieron su consentimiento. Según el estudio de la profesora Reverby, a una vasta mayoría de los inoculados se les dio penicilina tras contraer la enfermedad aunque no se sabe si alguien llegó a curarse o recibió un tratamiento adecuado. Al menos un paciente falleció durante las pruebas aunque no está claro si la muerte se debió a la enfermedad o a otros problemas médicos.

Uno de los médicos de EEUU que formó parte del experimento humano en Guatemala fue el doctor John Cutler, funcionario del Servicio de Salud Pública de EEUU e investigador clínico en el proyecto de triste fama conocido como 'Tuskegee', en el cual a cientos de ciudadanos negros de Alabama que ya estaban contagiados de sífilis se les negó intencionadamente tratamiento para que los médicos pudieran ver el desarrollo de la enfermedad y sacar conclusiones.

El presidente de Guatemala: "Son crímenes de lesa humanidad"
El presidente de Guatemala, Álvaro Colom, calificó hoy de "espeluznantes" y de "crímenes de lesa humanidad" los experimentos hechos por Estados Unidos entre 1946 y 1948, que infectaron intencionalmente a guatemaltecos con sífilis y gonorrea, y por los cuales Washington pidió perdón este viernes.

El gobernante aseguró que se realizará una "profunda investigación" de los hechos que afectaron a más de 1.500 guatemaltecos, adelantó que se analiza presentar una denuncia para exigir un resarcimiento al país, y reconoció la "hidalguía" de la Casa Blanca al pedir perdón. Según Colom, las víctimas de esas "prácticas antiéticas" y "deleznables" fueron en su mayoría soldados, presos, prostitutas y enfermos mentales.

El mandatario ordenó a sus ministros de Salud, Defensa y Gobernación, "ubicar" y "resguardar" los archivos de los años en que ocurrieron los hechos, los cuales servirán de base para "realizar una investigación" junto con el gobierno estadounidense. Además dijo estar consciente de que esos experimentos "no forman parte de una política del actual gobierno" de los Estados Unidos, y que junto a funcionarios de alto nivel de la Casa Blanca "convenimos hacer una investigación conjunta".

Fuente:
http://www.elpais.com/articulo/sociedad/Medicos/EE/UU/inocularon/sifilis/gonorrea/prisioneros/enfermos/mentales/Guatemala/elpepusoc/20101001elpepusoc_3/Tes

Gov’t demands UK to ‘avoid’ military tests in Malvinas Islands

Vice-Foreign Minister Alberto D'Alotto announced



The government rejected United Kingdom's plan of performing military tests in Malvinas Islands and cualified it as an "unacceptable new provocation and likely to lead to an armed situation in the region."

Deputy Foreign Minister Alberto D'Alotto announced during a press conference held at the Government House that the Naval Hydrographic Service received a report from the UK which stated the possibility of "performing missile tests from the islands."

"The Argentine government expresses its formal and energetic protest to this planned military exercise and demands the British government refrain from carrying it out," D'Alotto said, reading from the letter.

President Cristina Fernández condemned the plan via her Twitter account, saying it represented "a militarization of the South Atlantic."

Nearly 30 years after the two countries fought a war over control of the British-ruled islands, tensions have increased this year because Argentina is angry British firms are searching for oil and gas in the seas around them.

In 1982, Britain sent a naval force and thousands of troops to reclaim the islands after Argentine forces occupied them. About 650 Argentine and 255 British troops died in the 10-week conflict.

Britain has a permanent military presence on the islands, called Las Malvinas in Argentina, and maintains a force of 1,076 troops and four ships in the region.

Source:
http://www.buenosairesherald.com/BreakingNews/View/47660