Fallows on Orszag

by Russ Roberts on December 14, 2010

in Crony Capitalism

James Fallows is as dispirited as I am by Peter Orszag moving to CitiGroup, which is now a reality (HT: Josh Rosner):

Objectively this is both damaging and shocking.

- Damaging, in that it epitomizes and personalizes a criticism both left and right have had of the Obama Administration’s “bailout” policy: that it’s been too protective of the financial system’s high-flying leaders, and too reluctant to hold any person or institution accountable. Of course there’s a strong counter argument to be made, in the spirit of Obama’s recent defense of his tax-cut compromise. (Roughly: that it would have been more satisfying to let Citi and others fail, but the results would have been much more damaging to the economy as a whole.) But it’s a harder argument to make when one of your senior officials has moved straight to the (very generous) Citi payroll. Any competent Republican ad-maker is already collecting clips of Orszag for use in the next campaign.

- Shocking, in the structural rather than personal corruption that it illustrates. I believe Orszag (whom I do not know at all) to be a faultlessly honest man, by the letter of the law. I am sorry for his judgment in taking this job,* but I am implying nothing whatsoever “unethical” in a technical sense. But in the grander scheme, his move illustrates something that is just wrong. The idea that someone would help plan, advocate, and carry out an economic policy that played such a crucial role in the survival of a financial institution — and then, less than two years after his Administration took office, would take a job that (a) exemplifies the growing disparities the Administration says it’s trying to correct and (b) unavoidably will call on knowledge and contacts Orszag developed while in recent public service — this says something bad about what is taken for granted in American public life.

When we notice similar patterns in other countries — for instance, how many offspring and in-laws of senior Chinese Communist officials have become very, very rich — we are quick to draw conclusions about structural injustices. Americans may not “notice” Orszag-like migrations, in the sense of devoting big news coverage to them. But these stories pile up in the background to create a broad American sense that politics is rigged, and opportunity too. Why do we wince a little bit when we now hear “Change you can believe in?” This is an illustration.
* What choice did he have? He could have waited a while. He could have gone to a lucrative job at a business school or even a think tank, for perhaps half-a-million per year versus many millions. He could have written a book and gone big time on the lecture circuit. He could have taken a corporate job somewhere other than finance. He could have taken a finance job someplace other than Citibank (or Goldman Sachs or AIG etc..) There were other possibilities. I am sorry to go down a list like this, because it inevitably sounds preachy — and again, this is not about Orszag except as an example. It’s about the pattern, which people should be angry about.

In my earlier post when the Orszag move, I mentioned that part of Orszag’s value to Citi is his ability to call  people in the Administration and the regulatory apparatus to help Citi with its problems. Actually, this is “against Federal ethics rules” as this New York Times story points out (along with a lovely description of Orszag’s non-job description):

Mr. Orszag’s actual duties are murky at best. He is expected to draw on his deep knowledge of public sector financial issues and his experience overseeing the federal budget to counsel Citi’s clients on various policy actions. He is also expected to be something of a corporate rainmaker.

One client he cannot advise, however, is Uncle Sam. In keeping with federal ethics rules, Mr. Orszag is not allowed to have any contact with federal government officials.

Of course, Orszag can give other Citi folk his rolodex and they can do the calling. I also wonder how and how often these ethics rules are enforced.

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