Recently, Donald Trump urged Goldman Sachs to fire its chief economist. According to the president, he was completely off with his unwelcome forecasts about the effects of the trade war on US inflation. This raises the question of how independent economists at commercial financial institutions really are.
I worked as an economist at commercial financial institutions for 35 years. I cannot speak for the experiences of others, but I can for my own. I was almost always able to work very independently, though there were a few instances of interference during those 35 years.
Devaluation of the Irish pound
The most far-reaching case was in 1992. That October I started working at a small brokerage firm in Dublin, right in the middle of the crisis in the European Monetary System (EMS). The British pound had plummeted after leaving the EMS.
Before moving to Dublin, I worked at ABN Amro. My view there was that the Irish pound would devalue, since the Irish economy was closely tied to the British one. The Irish government, however, refused to devalue and defended its currency with sky-high interest rates. There were indeed reasonable arguments for trying to prevent a devaluation.
Once in Dublin, my boss told me that our parent company had recently received government support and that we did not want to antagonize the government. Our house view was therefore that a devaluation was unnecessary, just as the government argued. I had a young family, had just emigrated with all my belongings, and carried a large mortgage. I followed the party line. That was from October through December 1992. On January 31, 1993, the Irish pound devalued by 10 percent.
An Italian guilder loan
In 1997, I returned to ABN Amro in Amsterdam, where I became head of fixed income research. In the run-up to the launch of the euro, we argued that Italy did not meet the criteria and therefore could not join the euro. The Italians, however, thought differently.
In a charm offensive, they wanted to place a large guilder-denominated loan. We would be the lead manager of this lucrative deal. The head of the dealing room came to see me. He said he knew my views on Italy’s participation in the euro but added that we might lose the deal if my department explicitly wrote that Italy could not be a founding member. He did not ask me to write something different, only to let the subject rest for a while. I did so. We did the deal, and Italy went on to join the euro.
Small banks
During the euro crisis more than ten years ago, many argued that large banks posed a threat to financial stability. The finance minister at the time therefore advocated for small banks. In an op-ed in Het Financieele Dagblad, I wrote that this was a bad idea because it would sacrifice economies of scale. Moreover, increasing regulatory pressure was making life increasingly difficult for small banks.
ABN Amro was then fully owned by the Dutch government. In a routine meeting with my boss at the time, he told me that the ministry had not been enthusiastic about my article. He added that he had argued for the importance of an independent chief economist to the ministry but asked me to consider more carefully in the future whether I might damage the bank’s relationship with the minister. In later research and op-eds, I never held back, and my boss never mentioned it again.
Falling house prices
After late 2008, a long period of falling house prices began in the Netherlands. At one point, the bank’s board asked me to stop publishing forecasts for house prices for the time being. The idea was that predictions of further declines could become a “self-fulfilling prophecy.” I thought the influence of our forecasts was exaggerated, but I complied.
A new strategy
In 2019, ABN Amro formulated a new strategy. I believed, and still believe, that a chief economist must be able to fully and convincingly endorse the bank’s strategy. But I was not enthusiastic about this new one, and I decided to leave—though a few personal considerations also played a role. The bank granted me an exceptionally honorable exit through the front door.
Over 35 years, I was almost always able to operate independently as an (chief) economist. There were a few cases of interference, always under special circumstances. I gave in to such pressure to some extent, but I am not ashamed of any of it.
Han de Jong is former chief economist of ABN Amro. He writes weekly for Investment Officer on the economy and markets. More of his views can be read at Crystal Clear Economics.