| “Just as opening the St. Lawrence River to the Great Lakes produced both great economic benefits (the North American Midwest could export grains, iron ore, machinery to the world on ocean-going ships) and some undesirable side effects as well (the introduction into the lake system of lamprey eels and zebra mussels), so sending a team of Harvard University experts to advise the Russian government of Boris Yeltsin in the 1990s improved markets in the former Soviet republic, but at the cost of importing to Harvard certain unattractive Russian folkways…” writes David Warsh in the March 5 newsletter at economicprincipals.com
Warsh refers to “How Harvard Lost Russia,” a real-life high finance crime thriller by David McClintick in the January 13 issue of Institutional Investor, attached. In brief, Harvard economics professor Andrei Shleifer, his associate and their wives engaged in egregious self-dealing while advising Russians under a US AID contract. “In August, after years of litigation, Harvard, Shleifer and others agreed to pay at least $31 million to settle a lawsuit brought by the U.S. government. Harvard had been charged with breach of contract, Shleifer and an associate, Jonathan Hay, with conspiracy to defraud the U.S. government. Shleifer remains a faculty member in good standing. Colleagues say that is because he is a close longtime friend and collaborator of [Larry] Summers.”
As Warsh notes, “The Marketplace of Perceptions” by Craig Lambert in the latest issue of Harvard Magazine celebrates–with no hint of irony–Shleifer and Summers’ genius in applying behavioral economics to the markets. It’s a good article; finally the economics profession is catching up with those of us who long ago concluded that the species homo economicus does not include landowners.
According to Warsh, McClintick’s article has produced an explosion of outrage at Harvard, with accusations of anti-Semitism, notably from Shleifer’s student, urban economist Edward Glaeser. Glaeser is subject of an adulatory piece, “Home Economics,” in last week’s Sunday March 5 New York Times Magazine. Glaeser comes down hard on zoning and other regulations for messing up urban land markets, but the review gives no hint that he has ever considered the effect of tax and subsidy policies. He has advocated abandoning New Orleans; he has also discovered why everyone doesn’t immediately leave declining areas like Detroit: housing is durable!
Two other worthwhile articles in the same Sunday issue: “Amsterdam House: This Very Very Old House” by Russell Shorto, on the long run Herrengracht house price index, based on 400 year old houses on Amsterdam’s fashionable “Gentlemen’s Canal.” The index, cited by Robert Shiller, suggests that house prices are also subject to “irrational exuberance” and in the long run must fall. Then there’s “Tax Break: Who Needs the Mortgage Interest Deduction,” how the mortgage interest deduction dramatically favors the wealthy, by Roger Lowenstein. (He’s the author of the all-time best financial thriller, When Genius Failed, the story of Long Term Capital Management.)
Meanwhile, Jeffrey Sachs, Shleifer’s boss during the Russian shenanigans, has decamped to Columbia. In “Investing in Development: Here We Go Again!”, David Ellerman writes, “One of the world’s most gifted self-publicists, Jeffrey Sachs, has yet again burst into the public spotlight with a blitz of reports, books, and articles (including a Time magazine cover story) resulting from his role as the director of the UN’s Millennium Project…” Continued in attachment, published in NORRAG News.
Ellerman, a former World Bank economist, himself has a new book out on development: Helping People Help Themselves: From the World Bank to an Alternative Philosophy of Development Assistance (Evolving Values for a Capitalist World), forward by Albert O Hirschman. Now in paperback, $24.95 on Amazon.
Thanks to David Ellerman and Mason Gaffney for the Harvard gossip.
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