Does a Goldman economist worry about anything more than the small economy which surrounds Goldman--the one that can focus only on how to make more and more profits?
Goldman's economist is the public face of Goldman and his role seems to be defined very narrowly around what Goldman does. Thus, the best that an economist at Goldman can do is suggest (in 2005) that there is a problem with housing in the economy without mentioning the role that Goldman played in using subprime mortgage derivatives.
Goldman was not the least bit chagrined by using the mortgage market to commit fraud--a fraud that made all the executives at Goldman very, very rich in the process.
But when you read what Hatzius has to say about the financial crisis, his gaze is so narrow that we can hardly perceive the reality.
Hatzius understands financial sectoral balances but then does not use this knowledge to apply it to the need for government deficits in a recession. He speaks in economic generalities and in Goldman specifics.
James Galbraith understands the world in which such economists live and sees economists as refusing to see any criminality in the economy. There are "conditions that generate epidemics of financial fraud " according to Galbraith. It is certain that Hatzius would never be able to see fraud because of where he works.
The following excerpt describes where Hatzius, the economist, would fear to tread.
Who Are These Economists, Anyway?
By James Galbraith - NEA
. . . .
In the present crisis, the vapor trails of fraud and corruption are everywhere: from the terms of the original mortgages, to the appraisals of the houses on which they were based, to the ratings of the securities issued against those mortgages, to gross negligence of the regulators, to the notion that the risks could be laid off by credit default swaps, a substitute for insurance that lacked the critical ingredient of a traditional insurance policy, namely loss reserves. None of this was foreseen by mainstream economists, who generally find crime a topic beneath their dignity. In unraveling all this now, it is worth remembering that the resolution of the savings and loan scandal saw over a thousand industry insiders convicted and imprisoned. Plainly, the intersection of economics and criminology remains a vital field for research going forward.. . . .
This remains the essential problem. As I have documented—and only in part—there is a considerable, rich, promising body of economics, theory and evidence, entirely suited to the study of the real economy and its enormous problems. This work is significant in ways in which the entire corpus of mainstream economics—including recent fashions like the new “behavioral economics”—simply is not. But where is it inside the economics profession? Essentially, nowhere.
It is therefore pointless to continue with conversations centered on the conventional economics. The urgent need is instead to expand the academic space and the public visibility of ongoing work that is of actual value when faced with the many deep problems of economic life in our time. It is to make possible careers in those areas, and for people with those perspectives, that have been proven worthy by events. This is—obviously—not a matter to be entrusted to the economics departments themselves. It is an imperative, instead, for university administrators,for funding agencies, for foundations, and for students and perhaps their parents. The point is not to argue endlessly with Tweedledum and Tweedledee. The point is to move past them toward the garden that must be out there, that in fact is out there, somewhere.
Read the paper here