Photographs: Clockwise, From Orszag, Patrick Mcmullan; William Plowman/NBC Newswire/Getty; Jonathan Ernst/Getty; Alex Wong/Getty; Win Mcnamee/Getty; Dennis Brack/Newscom; Andrew Harrer/Bloomberg/Getty; Jb Reed/Bloomberg/Getty; Scott Olson/Getty; Jonathan Fickies/Bloomberg/Getty; Mark Wilson/Getty; Joshua Roberts/Bloomberg/Getty; Mark Wilson/Getty; Scott Ferrell/Congressional Quarterly/Getty; Alamy (Street Signs)
Before taking the job, Orszag sought the counsel of Rubin and others among his numerous mentors on Wall Street, in government, and in academe. “I did my due diligence. The view was Citi is not fully recovered, but it’s like this,” Orszag told me over lunch, tilting his hand in an upward trajectory. Certainly, the prospect of making serious money was hard to ignore. Wall Street insiders estimate that Orszag is pulling down $2 million to $3 million a year.
For an ambitious economist like Peter Orszag, going to work for Citigroup represented a choice. As a young staffer working in the Clinton White House, he saw laid before him two different paths: Stiglitzism and Rubinism. There were both intellectual and career-arc components to these. While both are liberal Democrats, Rubin was the consummate insider, whose philosophy was that the free markets, balanced budgets, and limited regulation would create a rising tide that would lift all boats (or at least make Wall Street not complain too much about Clinton’s social programs). Stiglitz, the public intellectual, is as concerned with the boats as with the tide.
Orszag certainly had a lot in common with Stiglitz’s academic mien, having grown up in an intensely intellectual family in Lexington, Massachusetts, outside Boston. His father is a celebrated Yale math professor. But Orszag possessed an ambition that would take him beyond the ivory tower. He ultimately chose Rubinism. It makes perfect sense that Orszag would have been drawn toward Rubin. It must have been incredibly seductive seeing this world, watching the Rubin wing of the Democratic Party move so easily from government to Wall Street boardrooms to the table with Charlie Rose.
When Citi announced that Orszag was joining the bank as a vice-chairman in December 2010, an angry chorus of progressive columnists immediately howled that he was a sellout, cashing in on his Washington connections. Orszag’s critics were animated by their belief that Obama had failed to get tough on Wall Street—and now one of his central economic players was reaping the rewards. Even Orszag’s mentors raised their eyebrows. “I was surprised. I thought he would stay involved in the public sector,” the Princeton economist Alan Blinder, a former professor of Orszag’s, told me. Stiglitz sees the issue as structural, part of the system. “[In the nineties] we tried to get regulation to stop the revolving door, and it’s very, very difficult,” he said. “The appearance is troublesome even if you think these individuals are not affected. Economists find it difficult to believe that incentives don’t matter. What is interesting is these people claim to be economically informed, and yet they believe incentives matter for everyone else, but not themselves.”
When I asked Orszag about the gulf between his two mentors, he told me he doesn’t see a binary choice between the Stiglitz and Rubin worldviews—he still hopes to change the system from within. “I am getting exposed to lots of different issues and problems, and that will then better inform my thinking and public writing,” he told me. “Direct experience need not undermine one’s intellectual integrity; sometimes it can even bolster it.”
The close alliance among Wall Street and the economics departments of the major universities and the West Wing of the White House is the military-industrial complex of our time. That it has an effect on our governance is beyond question. How pernicious and distorting these effects are, how cynical many of its participants might be, and what might be done to change the system are being fiercely debated in Washington.
In fact, to the layperson, the most surprising thing might be the degree to which people like Peter Orszag see the government and Wall Street as, essentially, parts of the same industry. Aside from some bad publicity, going from one to the other is not a leap at all, not any kind of sellout, but a natural progression for a member in good standing of the supermeritocracy like Peter Orszag. In this sense, the last two years have been confusing for these people, because you need public servants who understand capital markets, and who understands markets better than Wall Street? “If you think that someone’s past work on Wall Street disqualifies them from playing a role in something as complex as government, you’ll essentially have people who have no understanding how financial markets operate,” a former senior Goldman Sachs partner who spent time in Washington told me. “That’s a dangerous and scary thing.”
But another way of looking at this is that Wall Street has Washington over a barrel—and the values of one can’t help but be the values of the other. Even in Democratic administrations like the current one, once and future Wall Streeters are in position to pull the teeth out of regulations—for what they see as perfectly sensible, perfectly ordinary reasons. There’s no need to cue the scary music; it’s not a conspiracy. It’s just that having lived in the same worlds, read the same textbooks, imbibed the same maxims, been tutored by the same mentors, attended the same confabs in Aspen and Davos—and, of course, been paid with checks from the same bank accounts—they naturally think the same thoughts. To these people, the way things are done is, more or less, the way they have to be done. To change the system, you have to change the people; but the people are the only ones who know how the system works.