Praise for THE PASSIONATE ECONOMIST "In this powerful and insightful book, Diane Swonk brings economics to life. I highly recommend The Passionate Economist to anyone who wants to use the lessons of our past to create a better future." -Charles R. Schwab Chairman and Co-CEO The Charles Schwab Corporation "Leave it to Diane Swonk to put a soul in statistics. Diane figured it out a long time ago. People matter. Their fears matter. Their hopes matter. Their dreams matter. Diane takes us into a world never before explored by an economist . . . the real one. A great read. A great book." -Neil P. Cavuto Vice President, Anchor and Managing Editor Business News, Fox News Channel "Growing up in Detroit, Diane Swonk saw friends and neighbors suffer hardship as a result of layoffs and corporate downsizing. Leveraging her intimate knowledge of the Midwestern economy, Diane rose to the top of her profession, applying insights into human nature to predict financial markets, economic policy, and key shifts in the global economy. This powerful and personal story by one of America's leading economists shows how economics touches the lives of real people. It explains where the American economy has been and where it is likely heading." -Janet Yellen Trefethen Professor of Business and Professor of Economics at the University of California at Berkeley Former Governor of the Federal Reserve and former Chair of the Council of Economic Advisers
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About the Author
DIANE SWONK is the Director of Economics/Chief Economist and a Senior Vice President for Bank One Corporation in Chicago. Swonk currently manages the bank's Corporate Economics Group, has published several nationally acclaimed studies, and teaches for DePaul University's top-rated MBA program. She serves on several boards for both professional and civic organizations, and is a past president of the National Association for Business Economics (NABE), a title Alan Greenspan shared. Swonk is seen regularly on network and cable television, and is often quoted in leading print media including the New York Times, The Wall Street Journal, and the Financial Times. She earned her master's in economics with honors from the University of Michigan, and her MBA with honors from the University of Chicago.
Read an Excerpt
The Passionate EconomistFinding the Power and Humanity Behind the Numbers
By Diane Swonk
John Wiley & SonsISBN: 0-471-26996-4
Chapter OneTHE FORREST GUMP SYNDROME
As I mentioned in my author's note, I see the economy as an experience-based science-one that improves with the depth and spectrum of one's experiences in life. Consequently, it isn't all that surprising that I often feel like some sort of an economic Forrest Gump, the fictional character whom Tom Hanks played in the movie of the same name. He kept inadvertently showing up in key moments in history, without realizing it. I can't say I was in as many places as he was, but it seems that I had more than my fair share of front-row seats to critical times in economic history, and those times had a fundamental impact on how I view the economy.
The most memorable event to date was, not surprisingly, September 11, 2001. It may seem a strange place to start, but I can't think of any single event in history that makes the powers of economics so clear as that fateful day. It not only had dramatic and immediate ramifications for the U.S. and global economies, it also demonstrated the dangers of a world economy that expanded unevenly.
Before I relive my experiences of that day and the insights they provide, I want to give some background on myself. For as long as I can remember, my father was only truly afraid of two things: flying and terrorism. He inherited his fear of flyingfrom my grandmother, who carried her fear of heights to her grave. Indeed, his fear was so deep that when my parents decided to vacation in Mexico in 1973, we drove all the way from Detroit, Michigan, to Mexico City in an Oldsmobile 98. (I'm not kidding!) Fortunately, that year the Olds 98 was the same size as the Cadillac, and I could stretch out in the back without bending my knees.
His fear of terrorism was more deep-rooted and experience-based. My father was compulsive about foreign affairs, and when OPEC (Organization of Petroleum Exporting Companies) exercised its might in 1973, crippling his beloved auto industry, he began focusing almost all his energy on the Middle East. The hostage situation with Iran in the late 1970s only underscored the problems with fundamentalist extremism in the region. I mention this because it somehow seems fitting that I found myself in the midst of the events of September 11, 2001. In some ways, we all relive the sins of our fathers (and mothers), and I instinctively knew that we were under terrorist attack the moment the first plane struck the building.
Perhaps it was fate, bad timing, or the consequences of ignoring my instincts. (My mother's instincts were always very good; she could sense danger a mile away, yet I chose to ignore mine.) I had just chosen the Marriott World Trade Center as the site of the 43rd annual meeting of the National Association for Business Economics (NABE), to be held in 2001. I was on my ascent to the presidency, and this was one in a series of decisions I would make to reposition the association. NABE had always been a player in economics, with a list of members that crossed the top echelons of the economic elite, yet it seemed to be one of the "best kept secrets" in town. My mission was to change that. I had my misgivings about the spot, since it had already been a target of terrorism. Was I crazy to put others in such peril? Still, such fears were easy to dismiss. The 1993 car-bombing had left the place a fortress with guards everywhere, and the damages caused by that bombing gave us a newly redecorated hotel in a highly visible Wall Street location. It seemed a perfect place to hold NABE's annual meeting-its most prestigious event.
The following account of the events of that horrendous day was written for my family and friends on December 22, 2001, the first time I could put pen to paper, or my fingers to my key pad, to share it. Some of the people mentioned were dear friends and colleagues, others I met in the hours and days before. All of us, however, have found we are bound in some way for life by what happened to us.
I hope to give a sense of what those moments were like, although the number of people mentioned represents only a fraction of those of who were actually with me. Art Murray is my husband. Liza McCaulliffe is a Philippine student whose passport was from the United Arab Emirates, the only one that I couldn't replace. Jamie Dimon is the CEO of Bank One Corporation. Karen Fairbanks is his devoted assistant. Adolfo Laurenti is an Italian student, finishing his doctorate in economics. Tim O'Neill is the president of NABE and a good friend. Mike McKee, another treasured friend, is the economic editor for Bloomberg, a financial news service. Anett Hansen is a NABE member from Norway (her passport was issued September 11, 2001) and my soul sister for life. Rosalind (Ros) Walker has worked with me for more than a decade and is more than a coworker could ever be. And Kathleen Hays, formerly the "Bond Belle" of CNBC, now with CNNfn and Lou Dobbs of CNN's Money Line, is as good a friend as anyone could hope for in a time of crisis.
My pamphlet-sized agenda for the "NABE in a New York Minute" Annual Meeting read:
SEPTEMBER 11, 2001 7:30 A.M.-12:15 P.M. Exhibit Hall Open
8:00-9:30 A.M. NABE Leaders in Business Breakfast
Grand Ballrooms I & II
Robert Scott, president and chief operating officer of Morgan Stanley Dean Witter, was slated to provide the keynote address, while Dick Berner, U.S. chief economist for Morgan Stanley Dean Witter, NABE's 2000-2001 president, provided the introductions. (See Exhibits A and B.)
Now that I have had some time to digest the events of that day, I am struck with how much I knew about what could happen yet ignored because of my own insecurities ... and fears that people would think of me as a nut case. One experience sticks out most clearly. I took an undergraduate course while at the University of Michigan that was supposed to be one of those filler courses you take for easy credit. This one was in sociology, and most of the projects were designed to replicate "real life" experiences so we would be more prepared to handle those experiences once we graduated.
One exercise was unique from the rest. The professors of several classes divided us into different social and economic groups. The goal was to simulate possible scenarios that might arise in a world of gross income inequalities. The "winning" group was the one that obtained the greatest number of "happiness" and "wealth" chips from the others. I was in the wealthiest group, so our task seemed pretty easy: Preserve as much wealth as possible, while also trying to maintain and gain some happiness chips. The only problem was that other groups also wanted our wealth chips. We quickly discovered we could trade some wealth for happiness chips. First, we did this because we thought we were being "nice." Later, we found ourselves responding with charity to ward off what appeared to be a growing discontent among the underclasses.
Looking back, I guess we were just paying them off to stay quiet for a time, and then we would cross our fingers that they would stay in their place and leave us alone for the rest of the game. We even had diplomats who tried to reason with them.
Over time, however, the uprisings by the lowest income strata got more frequent. Moreover, they seemed to be building alliances with other groups, and their demands were escalating. They didn't want charity. They wanted access to jobs, dignity, and opportunity in their own right. They wanted into our club. This seemed silly to us, since we were the well-educated economy, with lots of resources. Wasn't it just natural selection that we do well, while they struggled? Particularly notable was our callousness, given the liberal bent of the university and the fact that none of us was wealthy in the first place.
Ultimately our charity fell on deaf ears, and a revolution ensued. (They turned their wealth chips in for weapons.) The upper class was ousted, factions in the lower class struggled for power, and the world that we created ended in a sort of Mad Max type of chaos. (For those who don't know the "Mad Max" sagas, they revolved around a chaotic world, which was reduced to fighting factions when the world ran out of oil. Of course, my love of the movie probably centered on my attraction to the young Mel Gibson, who starred as the good guy in an evil world.)
I can't say that I believe such a simple game in a classroom is 100 percent enlightening, but it seems notable that every time it was played, from Harvard to community colleges, it ended the same. At least, that is what our professors told us. The message was clear: The ending could have been different if the lowest income classes were given access to opportunity as well as sustenance, and that would require economic as well as social reform. The only hope we have of truly eradicating or at least mitigating terrorist activity will require intervention in the workings of impoverished nations that goes well beyond military support. How does that old saying go? Give a hungry man a fish, and you can feed him for a day. Teach him to fish, and he can feed himself for life.
Who would have thought that I would have gained so much insight out of a filler course? Later, I realized that much of what I was truly passionate about in my studies came easiest and somehow linked to my own personal experiences as a human being. Economics epitomizes that to me. I came on it almost by accident; it was intuitive rather than abstract and seemed to provide so much order to a world that I previously saw as chaotic.
The sun was shining. The weather was beautiful. Would I have time to enjoy it? Not today-my schedule was too hectic. I had a television interview and was late to the breakfast. I wound my way through the ballroom to a table near the front, where the students were seated. One young woman brought her camera to take a picture of me to show her friends. It didn't seem that long ago that I was looking up to the few women in my profession.
Then it hit. Was it a bomb? The crystal above us gently chimed. The floor shook. Bread spilled from preciously dressed tables. All hesitated, waiting for the moment to stop ... it didn't. The attack had just begun. My stomach sunk. When lightning strikes twice, the second time should not be a surprise. I knew from the first moment that the room moved that this was no accident.
What to do? Get out, with as many people as possible. Keep the students calm. Stay focused ... the horror of it all would have to be dealt with later. Now was the time to act. Thousands of pieces of paper are gently floating to their graves below. Glass is shattering, and pieces of debris are falling to earth. The magnitude of the damage is temporarily masked by the chaos that surrounds it.
Focus. Run to the water-no high buildings there. Call Art. He informs me that it was not a bomb, a plane ... the bodies, the parts, no time, must get away from danger. We are cut off. Liza can't move, paralyzed by fear and asthma. Her medication, with everyone else's belongings, is in the hotel.
The sirens are loud, and there is another noise ... another plane. It's so loud, and then it hit. Bodies flew with bits of glass, plane, and more papers ... so many papers for an information age.
Closer to the water, urban legend is flying. A small radio reports that the Pentagon was hit. Was the Empire State Building also attacked? Military jets are in the air. The island is secure, at least that is what I tell the others and myself.
Call, call, call again ... find a line out ... any line out. Jamie's office rings and answers. Karen patiently takes numbers of all those around us ... it is our only link out. I ask about the New York office. It is still open. We had a home base, if we could only get to it.
Then the true horror begins. People jump to escape the inferno that burns inside the Twin Towers. They leave in pairs, some holding hands all the long way down. What races through their minds as they drop? At least they are not alone. We are all painfully there with them, every second of their decline.
The first building falls, as if hit by an enormous bomb. Adolfo watches the wind. He is a sailor and sees it shift. He knows the debris is coming our way. We try, but there is no escape. The sun disappears. Panic strikes and we lose some of our people to a stampeding group of high school students. A woman pushing a wheelchair tries to get help, but people ignore her pleas. A mob scene breaks out at a glass restaurant. We move away as quickly as possible.
Somebody is handing out face masks. Liza gets as many as she can. People are tearing their shirts, breathing through ties, anything to filter the debris from their lungs. We find more from our group as we move toward FDR Drive. Find as many as possible, hold hands, don't lose any more.
Mike appears from the shadows. He was on his way to the meeting when the first plane hit and began reporting the scene for Bloomberg. He was there when the building collapsed. (Covered in an inch of soot and blood, he finds us in the chaos.) Grass is embedded in his clothes, presumably from the impact as he hit the ground. We try to clean his wounds. Anett feebly tries to cover his injuries with a bandage she found in her purse.
Soon, he is off. He runs to catch the Bloomberg truck and keep working. The show must go on.
The air is still thick, but we can see the sky again. A woman in front of us is struggling on a crutch. The panic-stricken selfishly push her to move faster. I give up my mask, and Tim and I fasten it to her face. The tides of refugees now fill the roads and are crossing the bridges. I stop an ambulance-too many asthmatics already-no help for Liza.
It is a long walk to our midtown offices, but we can make it. Then a bus stops. The passengers usher us on. Everyone inside is so clean. By now, the soot is embedded in my being.
It is still a long trek to the office, with many stops along the way. Why are people so hesitant to ask for help? I bang on a door to get to a bathroom. A restaurant provides water and a place for Liza to rest.
We make it to our midtown offices. It is a place to rest, get food, and medication. We organize to find transportation, housing, passports. I know the consulates and start working on replacing the passports. Others work on housing and transportation. I get the incidentals: toothbrushes, toothpaste, makeup remover, deodorant, and the precious medication that Liza needs to battle her asthma.
We call other midtown offices to locate friends and reunite husbands and wives. Art calls me at the very moment I was calling him. Ros calls just to hear my voice. I am confused. Why the worry? I am fine but have more work to do. Must not stop ... must not think.
I am the last to leave.
Excerpted from The Passionate Economist by Diane Swonk Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
1. The Forrest Gump Syndrome.
2. Igniting a Passion.
3. The First in White-Collar Downsizing.
4. Doing Economics Right: A Road Map.
5. Tapping the Power with Applications.
6. Testing Our Credibility.
7. Getting Further Established.
8. Moving Out of the 1980s.
9. The "Jobless" Recovery.
10. Changes Under Way in Credit Markets and at the Fed.
11. A "Virtuous" Cycle.
12. Crisis at Home and Abroad.
13. The Second Shoe Drops.
14. Fertile Ground for Asset Bubbles.
15. Y2K and Other Monsters of 2000.
16. The Economics of the Internet.
17. Old Rules for the New Economy.
18. Applying Rules 1 and 2.
19. Hitting a Wall.
20. Applying Rule Number 3.
21. Risk Management at the Fed.
22. Benchmark Revisions.
23. A Scapegoat or an 800-Pound Gorilla?
24. The Quiet before the Storm.
25. A Recessionette?
26. A Fundamental Disconnect.
27. Framing the Outlook.
28. Structural Change.
29. A Shallow Pool of Answers.
30. Reading the Tea Leaves.
31. The Optimism and Devotion of the Young.
Appendix A: An Op-Ed Piece on the Enron Debacle.
Appendix B: Not a Profitless Recovery.
Appendix C: Revolutionary Monetary Policy.
Appendix D: Annable's Take on Executive Insecurities.
Appendix E: The Tug of War between Wages and Profits.