NYTimes.com Article: Missing James Tobin

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Missing James Tobin

March 12, 2002

By PAUL KRUGMAN




James Tobin - Yale professor, Nobel laureate and adviser to
John F. Kennedy - died yesterday. He was a great economist
and a remarkably good man; his passing seems to me to
symbolize the passing of an era, one in which economic
debate was both nicer and a lot more honest than it is
today.

Mr. Tobin was one of those economic theorists whose
influence reaches so far that many people who have never
heard of him are nonetheless his disciples. He was also,
however, a public figure, for a time the most prominent
advocate of an ideology we might call free-market
Keynesianism - a belief that markets are fine things, but
that they work best if the government stands ready to limit
their excesses. In a way, Mr. Tobin was the original New
Democrat; it's ironic that some of his essentially moderate
ideas have lately been hijacked by extremists right and
left.

Mr. Tobin was one of the economists who brought the
Keynesian revolution to America. Before that revolution,
there seemed to be no middle ground in economics between
laissez- faire fatalism and heavy-handed government
intervention - and with laissez-faire policies widely
blamed for the Great Depression, it was hard to see how
free-market economics could survive. John Maynard Keynes
changed all that: with judicious use of monetary and fiscal
policy, he suggested, a free-market system could avoid
future depressions.

What did James Tobin add? Basically, he took the crude,
mechanistic Keynesianism prevalent in the 1940's and
transformed it into a far more sophisticated doctrine, one
that focused on the tradeoffs investors make as they
balance risk, return and liquidity.

In the 1960's Mr. Tobin's sophisticated Keynesianism made
him the best-known intellectual opponent of Milton
Friedman, then the advocate of a rival (and rather naïve)
doctrine known as monetarism. For what it's worth, Mr.
Friedman's insistence that changes in the money supply
explain all of the economy's ups and downs has not stood
the test of time; Mr. Tobin's focus on asset prices as the
driving force behind economic fluctuations has never looked
better. (Mr. Friedman is himself a great economist - but
his reputation now rests on other work.)

But Mr. Tobin is probably best known today for two policy
ideas, both of which have been hijacked - his own word - by
people whose political views he did not share.

First, Mr. Tobin was the intellectual force behind the
Kennedy tax cut, which started the boom of the 1960's. The
irony is that nowadays that tax cut is usually praised by
hard-line conservatives, who regard such cuts as an elixir
for whatever ails you. Mr. Tobin did not agree. In fact I
was on a panel with him just last week, where he argued
strongly that the current situation called for more
domestic spending, not more tax cuts.

Second, back in 1972 Mr. Tobin proposed that governments
levy a small tax on foreign exchange transactions, as a way
to discourage destabilizing speculation. He thought of this
tax as a way to help promote free trade, by assuring
countries that they could open their markets without
exposing themselves to disruptive movements of "hot money."
Again, irony: the "Tobin tax" has become a favorite of
hard-line opponents of free trade, especially the French
group Attac. As Mr. Tobin declared, "the loudest applause
is coming from the wrong side."

Why do I feel that Mr. Tobin's passing marks the end of an
era? Consider that Kennedy Council of Economic Advisers,
the most remarkable collection of economic talent to serve
the U.S. government since Alexander Hamilton pondered
alone. Mr. Tobin, incredibly, was only one of three future
Nobelists then working at the council. Would such a group
be possible today?

I doubt it. When Mr. Tobin went to Washington, top
economists weren't subject to strict political litmus tests
- and it would never have occurred to them that the job
description included saying things that were manifestly
untrue. Need I say more?

Yesterday I spoke with William Brainard, another Yale
professor who worked with Mr. Tobin, who remarked on his
colleague's "faith in the power of ideas." That's a faith
that grows ever harder to maintain, as bad ideas with
powerful political backing dominate our discourse.

So I miss James Tobin, and I mourn not just his passing,
but the passing of an era when economists of such
fundamental decency could flourish, and even influence
policy.

http://www.nytimes.com/2002/03/12/opinion/12KRUG.html?ex=1016907938&ei=1&en=9d163f5c32b325bf



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