Private Equity and Monetary Thinking

There has been a kind of fun exchange between the think tank Third Way — which says it offers “fresh thinking”, although it looks pretty stale to me — and Elizabeth Warren. Third Way published a remarkably clumsy attack on economic populism, singling out the senator and Bill DeBlasio for special ire; Warren then raised the question of who, exactly, supports Third Way. The answer, big surprise, is Wall Street.

But Felix Salmon argues that there’s a broader point here: the “2-and-20 crowd” — private equity and hedge funds — is putting a lot of money into sponsoring economic research. Some of it seems fairly detached from self-interest — the money George Soros and Bill Janeway have put into the Institute for New Economic Thinking doesn’t seem designed to make them even richer. But that’s not true across the board.

And I have to say that Salmon gives me the chills when he notes that a lot of this funding seems to be heading into the study of monetary policy. What happens when a bunch of 2-and-20 guys plus economists who benefit from their largesse weigh in on monetary policy? You get something like the infamous Bernanke-is-debasing-the-currency letter of 2010. Strange to say, people who are either big rentiers themselves, market their services to rentiers, or both, are big on finding reasons why yields should go up even in a weak economy. One shudders to imagine the kind of “research” they’re likely to sponsor.

http://krugman.blogs.nytimes.com/2013/12/05/private-equity-and-monetary-thinking/