“See Me, Feel Me, Touch Me, Heal Me” – Pete Townshend, The Who
Along with Ray Torto and Glenn Mueller—two former colleagues and men who I consider giants of the commercial real estate research industry—I recently participated in a panel discussion at the American Real Estate Society in Bonita Springs, Fla. Ray holds a special place as my friend, mentor and doppelganger (he’s the guy on the left in the above photo). I was awestruck by their war stories of literally creating CRE research and making it much more than just applied finance. They took CRE research from a back-of-the-house function to a front-of-the-house value-added service, often sitting on investment committees as fully voting members.
Though we as CRE researchers still have a long way to go for a fully equal seat at the deal table, whatever success we have sits on the shoulders of these visionaries.
The relative success of CRE-focused economists stands in marked contrast to the failure of political economists as described by Dr. Alan Blinder in his new book “Advice and Dissent.” Blinder, a Princeton University professor, former member of the Council of Economic Advisors and former vice chairman of the Federal Reserve, laments about the wide gap between good economic advice and good political decision-making.
To make his point, Blinder uses the colorful analogy that politicians use economists like an inebriated person uses a lamppost: for support rather than illumination. In other words, politicians don’t always listen to good economic advice, but often use it as a magician’s prop when it supports their policies, pulling their favorite economist out of a hat to transfix the all-too-gullible electorate. Some call this behavior “validating;” Blinder might call it “irrelevance” or worse. Blinder quotes the late Nobel-winning economist Paul Samuelson, who said “he who picks his doctors is in a real sense his own doctor. The prince often gets to hear what he wants to hear.”
The crux of the issue for Blinder is that economists and politicians have starkly different motivations. Politicians, whose primary motivation is to get elected, think short term, are parochial and base judgement on what’s directly visible versus what is longer term and more theoretical. “The sorts of changes that our political system has the hardest time digesting are those where the benefits are subtle, hidden and diffuse, but where the costs are obvious, visible and concentrated,” Blinder writes.
Economists are motivated to make the pie bigger over the long term. The short-term or “transitory” issues, such as the closing of a steel plant due to international competition, are not a consideration if the policy makes the pie bigger overall. “Few people would place [economic efficiency] high on their list of priorities, even if they understood it. Instead, the average voter is viscerally concerned with fairness, which is a terrible blind spot for some economists,” Blinder contends.
Economists are partly responsible for their political purgatory because of the way they communicate. Unlike mathematicians and physicists, who have broad and lock-step agreement on many concepts (some have gone so far as to suggest that economists have “math and physics envy”), economists are much more equivocal and stray off-message, which makes them less useful to politicians if the message hurts their electoral prospects. Further, the economist’s priority of “economic efficiency” is an intangible concept to most, but the distributional or transitional aspects are very tangible and lead directly to job losses, as described in the late great economist Joseph Schumpeter’s “creative destruction” theory. In short, job losses are a cost of doing business for many economists, but a death sentence for politicians. According to Blinder, “those people are right, not wrong, to fear trade liberalization. Economists often ignore that. Politicians do not.”
I believe that Blinder goes a bit off the rails by suggesting that economic policy is too complex for the average politician, let alone for the average voter, and as such needs to be one step removed from setting tax policy. According to Blinder, “every society must decide which policy decisions should be left to experts and which should be placed in political hands. When a task is highly technical, requires a long-time horizon and entails displeasing the voters now and then, it just might be something that Congress—or even the president—would willingly hand over to a bunch of nonpoliticians.”
Blinder also has a curious affinity for an earlier political era of the powerful congressional committee chair making cigar-chomping backroom deals through pork-barrel spending, earmarks and other oldie-but-goodie political deal-making. While “sunshine as a disinfectant” or “consent of the governed” aren’t Blinder’s top priorities, creating “political linkages” are, and many of these distasteful practices aren’t a fly in the ointment of government, but the ointment that removes the fly.
While I must admit that I am a big fan of the Fed and I hold some of the recent chairs in the highest regard, I am troubled by Blinder’s suggestion based in part on my recent experience at the American Real Estate Society in Florida. Senior real estate researchers now have a seat at the deal table and we got there not just by technical excellence but by speaking the language of the deal teams and creating actionable intelligence with facts that really matter when making investment decisions.
Blinder’s suggestion to set up a largely unaccountable, undemocratic ivory tower, where the “experts” are one step removed from voters on what is the core of fiscal policy—taxes—is a big step backward. Blinder should take his own advice and speak more English and less technobabble. He should learn to think and talk more about the concerns of ordinary people, and his goal should be to get a legitimate voice at the political deal table, not create a table of his own.