A Conversation With Robert Johnson


I interviewed Robert Johnson at the Institute of New Economic Thinking's annual conference in Hong Kong. Johnson is the President of the Institute and a man with a fascinating background.

He received a Ph.D. and M.A. in Economics from Princeton University and a B.S. in both Electrical Engineering and Economics from the Massachusetts Institute of Technology. He was a Managing Director at Soros Fund Management where he managed a global currency, bond and equity portfolio specializing in emerging markets.

Currently, he serves a Senior Fellow and Director of the Global Finance Project for the Franklin and Eleanor Roosevelt Institute in New York. What's more, Johnson was an Executive Producer of the Oscar winning documentary, Taxi to the Dark Side, directed by Alex Gibney, and is the former President of the National Scholastic Chess Foundation.

In this interview, Johnson talked about how old models of financial markets are not adequate to govern our society and markets in the future. In particular, his two lessons on staying humble and using music as a source of inspiration stand out

Patrick Daniel: Are we changing the guard?

Robert Johnson: There are certain dimensions in which we are. One is that father time kills off older generation and hands it over to the new. And in that respect we are inevitably changing. The recent experience and continued experience with emerging economies relative to developed economies suggests there has been a very profound balance of power shift. And I would also say that within economics itself, mechanistic obsession with models and statistics is giving way to a more textured, more institutional, more historical approach. More human qualities, and less false precision. So I think there is an intellectual change. Also within the realm of economic ideology the simplistic model that markets exist and that politics and government are distinct and separate is giving way to a more organic sensibility about political economy. The integration of state and markets, incentives and relationship with the government, whether rules are enforced or not, enforced on the powerful or just on the weak, all of these questions can now be addressed with more vigor. So there is a changing in the guard towards reaffirmation of the political economy.

Daniel: What is an important truth or something you believe that few people agree with you on?

Johnson: There are very few people that agree with me on the limitations of the models. I believe much more like Frank Knight that people are vulnerable to manipulation, propagandistic techniques and things in this nature. People are like electoral systems that depend on campaigns that can be distorted. People don't disagree with me on that part, but they disagree with me on the capacity of a large body politic to make decisions. There is a romance about democracy. It makes it hard because you get these very hopeful people on the liberal end of the spectrum they are always: "Make it more democratic." I once teased a guy at the Federal Reserve. [I asked him], do you think we should all go on the Internet and vote on what to do with the Federal Funds rate every six weeks? Or do you want to delegate it to 12 people? I think I would like to see equality but I don't know that democracy would produce equality. The final thing I would say is that they have not examined the tension between large scale enterprise as efficient on cost basis and therefore justified as the most competitive in the economy and the implications of this large institutions juxtaposed against people in the political context where they have resources, PR, they can resort to propaganda and lobbying. So the large corporates can disenfranchise the individual and that creates very awkward distortion of politics. I don't know if many people dwell on that. It is a different concern of mine probably because I worked in government.

Daniel: Do you think there is a question that nobody is asking? An issue that needs more attention?

Johnson: What do you do when you have no idea what the future looks like with financial regulation? In other words there is no stable anchor from equilibrium in the future. There is no way of understanding what the structure will be. There might be radical uncertainty. And how do people behave when there is no anchor? It is very important to design financial institutions, financial systems, what role things play like lender of last resort. All of these things will be drawn into a different focus if you don't find a future to anchor with.

Daniel: Is there any topic or issue that is really on your mind?

Johnson: What's on my mind at the moment is a new thought of mine. I think people have a yearning for order. They want to understand what the rules are. What happens in a society that is unfair is the moralization. What happens in a society where nobody understands the rules? It raises anxiety. And the anxiety persists. It allows legitimacy to authoritarian behavior. And I think this is a very dangerous time of transitioning this function that has been prolonged. The trust is broken down in governments. It is not the task of the government to maintain the relationship between multi-national enterprises and society. Let me tell you about Tim Geithner. I pick on him because he left office. He's got to get up every morning and convince the world he is in control of something, the world financial markets, which he knows he is in not control of. So the fear that is engendered by chaos is only counteracted by believing in something.

Daniel: On a more personal note, what has been a transformative experience when you were young that shaped your life in a tremendous way?

Johnson: The writings of Martin Luther King. Martin Luther King had this inspirational spirit, philosophical deep awareness. Second thing. I grew up in a family of sailors. And when you go off shore, you have no choice but to be humble. Whether its a thunderstorm or big seas, you know that God can take your life. And so I think there is a humility that comes from being at sea that marked my approach to life. And I think the sense is that humility is actually a survival tactic when you are at sea. Because if you are really afraid, or act like I am not scared, you are a fool. Somehow being scared and not being a fool of working with your fear is a good lesson.

Daniel: That's very interesting. Where do you draw your inspiration from?

Johnson: Music. It's always [been] music, meshed with all the other arts. Sometimes its just a miracle, sometimes its a movie sound. Whether its the lyrics from Bob Dylan or a saxophone playing. John Coltrane, Lee Armstrong or old blues. The defiance that is contained in music is quite inspiring. When I stirred up and don't know what I think, I try to swim through different types of music to start to realize how it is that I feel. That's my way of working through this.

Daniel: Thank you.