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Economists Are Out. Goldman Is Back In.

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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It looks like Gary Cohn will be leaving Goldman Sachs Group Inc., where he is president and chief operating officer, to become director of Donald Trump's National Economic Council. This is not a unique career trajectory!

The first director of the NEC, which President Bill Clinton created in 1993 to coordinate economic policy among the sometimes-warring government agencies responsible for it, was Robert Rubin, the former co-chairman and co-senior partner of Goldman (which didn't believe in titles like "president" or "chief executive" back in those pre-initial-public-offering days). Then, in 2002, the other half of Rubin's Goldman-running duo, Stephen Friedman, became director of George W. Bush's NEC. If Cohn in fact takes the job, there will have been as many former top Goldman executives in charge of the NEC as Ph.D. economists.

Goldman Versus the Economists
Backgrounds of National Economic Council directors
 
Sources: Wikipedia, media reports
* Does not count the two top Goldman Sachs executives (Robert Rubin and Stephen Friedman) with law degrees.

The continuing prominence of Goldman Sachs alumni in Washington is a remarkable thing. In the throes of the financial crisis it seemed hard to imagine that the old Goldman-to-Washington pipeline could continue to operate. But while President Barack Obama clearly leaned more toward Google than Goldman, he still appointed a Goldman alumnus, Gary Gensler, as head of the Commodity Futures Trading Commission. With Cohn at the NEC and former Goldman partner Steve Mnuchin as Treasury secretary, Trump will have former Goldmanites in what for the past quarter century have usually been the two most important economic policy jobs in an administration.

So Government Sachs is back! Or maybe it never went away. This is testament to the interest in policy and public service that the firm seems to continue to inculcate in its partners. But it's also kind of creepy -- and profoundly at odds with the populist message of Trump's campaign.

As for the Ph.D. economists, who in the 1990s and 2000s were taking over more and more top policy roles in Washington and around the world, it seems clear that the Trump era is going to be a time of much-reduced influence -- as will likely be true for policy wonks in all fields. I have mixed feelings about this. Back near the apex of academic economists' influence and clout, in 1999, I talked to then Treasury Secretary Lawrence Summers about why econ-doctorate-holders such as he had become so powerful:

Ultimately there's no alternative to judgment -- you can never get the answers out of some model. But the reason there are many, many more good economists in positions of influence in the world is that one can understand the issues more sharply and clearly, and can pose the tradeoffs and can make more accurate judgments within a clear analytic framework.

That "clear analytic framework" was probably too narrow, though. The economists in power largely ignored risks to the financial system, income inequality, trade imbalances and other issues that didn't really fit their worldview. So did most other people in power, of course, and since the financial crisis academic economists have produced tons of research challenging the field's earlier views. Economists can be good to have around! But it's good to have people of other backgrounds and "analytic frameworks" helping make economic decisions as well.

To some extent, that's been the thinking all along with the National Economic Council. Even in the very wonky, credential-heavy Obama administration, only the first NEC director -- Summers -- had an economics Ph.D. The current director, Jeff Zients, is a former corporate CEO. So clearly, there's nothing radically different about having Cohn in the job. What will be different is all the other former business executives who will be surrounding him in the Trump administration. I'm guessing that Cohn will sometimes find himself to be the wonkiest person in the room -- and wish that there were more economists around.

  1. The chief competitor would be the chairman of the Council of Economic Advisers, a job which is not really intended for former business executives and has almost always been held by someone with an economics Ph.D. The one exception I can think of, Alan Greenspan, didn't get his doctorate until after he had served as CEA chairman for Gerald Ford.

  2. Of the Advisory Board, the consulting/research firm founded by David Bradley, who now owns Atlantic Media.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Stacey Shick at sshick@bloomberg.net