“Incentives Matter,” Except To Economists: Stanley Fischer Went Straight From The IMF To $2M Citigroup Job

Economics teaches us, famously, that “incentives matter,” that human behavior tends to respond to monetary signals from the marketplace. The most notable exceptions to this foundational discovery of the science of economics are, oddly enough, economists themselves, who wholly transcend such grubby earthly concerns. 

For example, economist Stanley Fischer, who is President Obama`s nominee for vice chairman of the Fed, was the number two man at the International Monetary Fund from 1994-2001, a period in which he implemented policies that were very well received by the big banks of Wall Street. On December 20, 2001, Fischer signed a contract with Sandy Weill and Robert Rubin to become a vice chairman of Citigroup, with a minimum guaranteed compensation in 2002 of $2 million, plus other pleasant upside opportunities.

Obviously, there was no connection whatsoever between the two events: the insights of economics simply don`t apply to economists. If you can`t trust economists to not be swayed by economic incentives, who can you trust?

Yet, one deluded individual tried to call into question Fischer`s disinterestedness. This hallucinatory person`s name is Joseph Stiglitz. Granted, he has a few random professional credentials as an economist: former chairman of the president`s Council of Economic Advisers, chief economist of the World Bank, winner of both the John Bates Clark Medal in 1979 and the quasi-Nobel Prize in economics in 2001. But, obviously, he was wrong to write on pp. 207-208 of his 2002 book Globalization and Its Discontents:

Moreover, the IMF`s behavior should come as no surprise: it approached the problems from the perspectives and ideology of the financial community, and these naturally were closely (though not perfectly) aligned with its interests. As we have noted before, many of its key personnel came from the financial community, and many of its key personnel, having served these interests well, left to well-paying jobs in the financial community. Stan Fischer, the deputy managing director who played such a role in the episodes described in this book, went directly from the IMF to become a vice chairman at Citigroup, the vast financial firm that includes Citibank. A chairman of Citigroup (chairman of the Executive Committee) was Robert Rubin, who, as secretary of Treasury, had had a central role in IMF policies. One could only ask, Was Fischer being richly rewarded for having faithfully executed what he was told to do?

Fortunately, Stiglitz immediately went on to say:

But one does not need to look for venality. The IMF (or at least many of its senior officials and staff members) believed that capital market liberalization would lead to faster growth for the developing countries, believed it so strongly that it did not need to look at any evidence and gave little credence to any evidence that suggested otherwise.

 

Still, The Economist immediately jumped in to right this wrong in its review of Stiglitz`s book:

In an extraordinary paragraph, the book all but accuses Stanley Fischer, the Fund`s deputy managing director during the years in question, of corruption: he inflicted needless punishment on borrowing countries, Mr Stiglitz implies, in return for a nice fat job with Citibank, whose interests that policy served. The author himself knows this is rubbish. Mr Fischer—no less eminent an economist than Mr Stiglitz, by the way—is a man of (hitherto) unquestioned integrity, admired right across the profession. With assaults such as these, Mr Stiglitz only shreds his own credibility.

So there. Fischer is a man of unquestioned integrity so any questions about his integrity must be rendered unquestions.

The IMF`s PR guy also objected to Stiglitz`s slander of the purity of Fischer`s motivations:

Stiglitz, the IMF and GlobalizationA Speech to the MIT Club of Washington

By Thomas C. Dawson

Director, External Relations Department

International Monetary Fund

17. As part of this score-settling, Stiglitz has made some very mean-spirited observations about Fund staff and officials, past and present. One charge in particular should not go unanswered, particularly before this audience. Stiglitz notes that Stanley Fischer, the former deputy head of the IMF and former MIT professor of economics, went straight from the IMF to Citigroup. Stiglitz adds: “A chairman of Citigroup was Robert Rubin who, as secretary of Treasury, had a central role in IMF policies. One could only ask, Was Fischer being richly rewarded for having faithfully executed what he was told to do?” To anyone who knows Fischer`s utter devotion to institutions he works for, whether it was the IMF or MIT, the suggestion that he used twisted IMF policies to ensure a job at Citicorp is repugnant. Stiglitz surely knows that Fischer is regarded as a man of unimpeachable integrity and yet he cannot resist the jibe at him.

Fischer is a man of unimpeachable integrity so his integrity can`t be impeached. 

QED.

Seriously, I don`t doubt that Dr. Fischer is, relatively speaking, a fine fellow, well above average both in intelligence and morals for a Big Time economist / politician. After all, Fischer couldn`t have gotten to be the intellectual godfather of the economists running the global economy for the last two decades if he didn`t possess supple intelligence and interpersonal skills.

Hence it`s only natural that these incredibly powerful people want to reward their friend and mentor, and crush the slightest skepticism about Fischer`s right to work as a top policymaker for two separate countries in succession. Because if outsiders, or even other top economists like Stiglitz, are allowed to ask any questions about a great guy like Fischer, who knows what they could ask about the rest of our gang?