Occupy Wall Street With Yale Economists

Occupy New Haven has its big launch today on the Elm City's green, but six Yale economists occupied Wall Street late Thursday, spurred by the protests across the nation.

Led by Yale President Richard Levin, they gathered at the Yale Law School — on Wall Street in New Haven — for a remarkable presentation of ideas on how this politically divided nation might create jobs. Remarkable because it was, in the tradition of an engaged institute, a coming together of eminent thinkers who normally inhabit far corners of the economic universe, to look at the big picture.

Their conclusion, with some debate: The vastly unequal distribution of U.S. wealth isn't admirable, but it isn't the main reason the nation is stuck at 9 percent unemployment. Short-term stimulus to create jobs and short-term measures to stanch foreclosures are both definitely needed, but in the long run, policymakers must settle on coherent, lasting strategies to grow the economy.

"I think we can have all of these if we have an intelligent dialogue," said Levin, the moderator, organizer and Frederick William Beinecke Professor of Economics.

An intelligent dialogue in Congress these days is about as likely as a Lady Gaga presidency, but Levin and his colleagues, including the less optimistic Robert J. Shiller, are paid to generate ideas that matter, and that's what they did Thursday night. "The fact that we now have seen public protests," Levin said, "compels us to talk about the issue."

What's the right policy response to sustained anger in the streets over lack of jobs and a concentration of wealth that leaves out "the 99 percent?" Government has a strong role, five of the six agreed. But before we get too far, things could get much worse.

"We shouldn't have the idea that the next boom is right around the corner," said Shiller, Arthur M. Okun Professor of Economics , known for books such as "Irrational Exuberence," for the Case/Shiller housing price index and for identifying the housing bubble in 2003.

With 2 million families already thrown out of their houses, and 5 million more seriously delinquent on their mortgages, the threat of mass foreclosures is real, said John Geanakoplos, the James Tobin Professor of Economics. "That's when the riots are going to start," he said.

His idea calling for banks to forgive principal, not just lower interest rates on subprime loans, is not, he said, a moral hazard — a rewarding of risky behavior gone bad. That's because the forgiveness should happen for homeowners who are current on their payments, and borrowers who are not would lose remaining equity value.

William D. Nordhaus, Sterling Professor of Economics, has been on the faculty since 1967, three years before the campus was occupied by protesters. Occupy Wall Street protesters are right on the "ethical fundamentals" and he said, "their heart is in the right place" even though they lack a clear focus.

Nordhaus' prescription: "I would say the jobs bill times three." That's the same bill by President Obama that couldn't reach a vote.

Second: "Stop bashing the Federal Reserve," he said. And third, to pay for all this stimulus: A carbon tax, tax hikes on high incomes and a tax on wealth.

"Western Europe does this, has less wealth disparity and also has good pasta, a lean and fit Nordhaus said.

That didn't sit well with Aleh Tsyvinski, who oppposed a federal stimulus and preached the gospel of long-term growth, rather than short-term measures to boost employment. "Unemployment in Spain and Italy among youth is 25 percent. This could easily happen in the United States," said Tsyvinski, a citizen of Belarus. "I'm afraid that we are on the verge of something much worse."

Judith Chevalier, the William S. Beinecke Professor of Finance and Economics, made the point that the top 1 percent earned 9 percent of U.S. income in 1970 and collect more than 20 percent today. But she said CEOs account for just 3 percent of the top 1 percent, and lowering CEO pay wouldn't help create jobs.

As Levin and Shiller talked of creating a Fed-like agency to spend public money outside the authority of Congress, Chevalier said: "Our discussion seems so divorced from the political reality."

Maybe so. But where else to spark change than in the very place that trains captains of government and industry at a time when a rudderless nation watches rudderless protesters?

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