Thank You Allan Meltzer

Allan Meltzer passed away this week. He was one of the great economists I was lucky to have known and to have occasionally worked with. My colleague Jim Dorn wrote a very nice summary of his scholarship and influence here. Jim also recounts his close work with Cato over the years. Jerry O’Driscoll offers a remembrance here.

My own thinking on economic development benefitted substantially from Allan’s work on international debt, foreign aid, and financial crises. I benefitted even more from Allan’s guidance and interest in my work on those issues. He always took whatever time needed to discuss economic and policy topics with me, and recommend readings and research ideas. When Mexico experienced its 1994-95 peso crisis, Allan was an invaluable and generous resource. At the time, few market advocates in Washington criticized the proposed bailout of Mexico. The country, after all, had been considered a star reformer, and the government there was deemed worthy of U.S. support. We at Cato dissented and published a strong critique against “rescuing” Mexico because we thought it promoted moral hazard, it was a use of public resources that was unfair to ordinary Mexicans and Americans alike, and it supplanted and undermined superior market solutions to the crisis. From his perch at Carnegie Mellon University and the American Enterprise Institute, Allan was one of the few making the same arguments. It was useful to have him on our side and to employ some of the arguments he developed.

A few years later, when the Asian financial crisis erupted and the International Monetary Fund began bailing out not only countries in that region but also Russia, Argentina, and Brazil, the consensus finally started to shift. Allan was one of the more prominent voices in Washington critical of giving the IMF the capital increase it was requesting. The Congress finally did approve an increase, but as part of the deal, it set up a special bi-partisan congressional commission to look into the effectiveness of the leading international financial institutions. Allan headed up the group, which became known as the Meltzer Commission.

The commission’s final report received widespread attention and was influential. Among other things, it found a 55% to 60% failure rate of World Bank projects. As part of its proceedings, Allan asked me to provide an overview paper on the effectiveness of the IMF. (See my testimony here.) I was proud to have contributed analysis that made it into the final report and helped change the debate about IMF effectiveness and even the IMF’s own self-perception. Among my findings was that the IMF, set up to be a temporary lender to countries experiencing short-term economic problems, was in practice a long-term lender. Most countries that began borrowing from it did so for decades at a time—not a sign that it was fulfilling its stated role. My view of the IMF’s role during the Third World debt crisis was also revisionist. I provided evidence to support Anna Schwartz’s observation that official intervention “prolonged and worsened the debt problem.” And by then, experience itself was providing support for the view that massive bailouts were bad policy. Allan provided his moral and intellectual support to all of those arguments.

One time Allan invited Fed Chairman Alan Greenspan to AEI for a small meeting with top economists. He also invited me. Greenspan provided initial comments for about 25 minutes, after which I turned to Anna Schwartz, one of the world’s leading monetary economists who was sitting next to me, and I confessed that I really didn’t understand much of what he said. She looked at me calmly and said, “That’s alright, I didn’t understand him either.” As was my experience with Allan, I was lucky to have known and occasionally worked with Anna on many of the same issues. And as with Allan, Anna never made me feel academically inferior, though that was clearly the case. I could see why Allan and Anna were friends and colleagues.

Over the years, I would see Allan at meetings like the yearly Alamos Alliance gathering of Chicago-tradition economists in Mexico or Cato’s annual monetary conference. I almost always learned something from Allan, and it was always good to see him since he would typically be in good spirits.

The economics profession and those who knew him will miss him. Thank you Allan for being so generous.