Friday, November 06, 2009

Economists' best friends are at Treasury 

I worry less than did some of the other bloggers about the Treasury awareness of major economic problems going forward. As governmental institutions go, Treasury has a real incentive to a) worry about the fiscal future, and b) worry about worst-case scenarios, including for financial institutions. Their daily interaction with the bond market gives them a longer time horizon and a more economics-friendly perspective than most of their bureaucratic counterparts. The problem is Congress.
Tyler Cowen, commenting on the big pow-wow between Treasury and some financial economists. He provides a link to other commentary. When I have worked overseas, when it's been the US government who issued the contract the agency was USAID, part of State. In my first long-term post in Ukraine I found the most reasonable people were the ones assigned from Treasury followed by World Bank, IMF and last, State Dept. That pretty much worked everywhere else too, with some flipping of IMF/WB depending on personalities. Certainly Cowen's b) point fits all my experience (in those countries, too, the worst-case was really bad.) And I don't know colleagues who would disagree with this ranking.

That doesn't necessarily mean Treasury will generate good policy, though. I remember reading (cannot remember where right now) a description of central bank research staffs post-WW2, and one place that had a very good staff that generated professional research respected throughout its country was the Bank of Italy. Unfortunately its leadership never took the advice of that research.