Glenn Hubbard, American Economist

CNBC – Economic 'Odd Couple' Seek Jobs Boost

Glenn Hubbard, Columbia University, and Andy Stern, former SEIU president, share their plan to create jobs and improve the economy. In the end you have to make deals and find common ground, says Stern. Watch on

THE WALL STREET JOURNAL – A Financial System Still Dangerously Vulnerable to a Panic

Glenn Hubbard in the Wall Street JournalThe Federal Reserve’s powers to act as lender of last resort need to be restored and strengthened.

Dodd-Frank restrictions on the Federal Reserve’s powers to act as lender-of-last-resort, coupled with restrictions on federal guarantees for bank deposits and money-market funds, pose a threat to U.S. and global financial stability.

The heart of the 2008 crisis was a panic following the bankruptcy of Lehman Brothers. Due to its losses from this bankruptcy, the Reserve Primary Fund “broke the buck,” touching off a run on other money-market funds. Credit markets froze. The Fed stepped in and supplied liquidity to the banking and non-banking financial sector, the latter through its authority under Section 13(3) of the Federal Reserve Act. Meanwhile, the Federal Deposit Insurance Corporation expanded the limits of deposit insurance, and the Treasury Department offered guarantees to money-market funds.

Once the crisis abated, however, there was growing public concern about “moral hazard”—that government backstops and guarantees incentivized risky behavior in financial markets. The Dodd-Frank Act (July 2010) pulled back the Fed’s lender-of-last-resort powers for non-banks. They can now be exercised only with the approval of the Treasury secretary, and the Fed cannot lend to a single institution as it did with AIG . It must now only lend under a broad program, and must also meet heightened collateral requirements.

In addition, the FDIC cannot expand guarantees to bank depositors without congressional approval, and the Treasury can’t do the same to money-market funds without new legislative authority. These changes could make it difficult for the Fed and other regulatory bodies to act effectively in the next crisis.

Some claim there is nothing to worry about because of new regulations to prevent another crisis: enhanced capital requirements, new liquidity requirements and new resolution procedures. This approach calls to mind a strategy of two wings and a prayer.

Capital requirements, the first wing, only apply to deposit-taking banks and systemically important nonbank financial institutions (SIFIs), of which there are now only three—GE Capital, Prudential , and American Insurance Group. (Met Life is contesting its designation.) Regulators envision that regulatory capital for the most important U.S. banks will max out at 8% to 11.5% of risk-weighted assets. Neither this level of capital, nor any practical higher level, can assure that banks would not become insolvent in a panic after a fire sale of assets. Such fire sales were a critical feature of the 2008 crisis.

New liquidity rules, the second wing—assuring that banks have sufficient “liquid” assets such as U.S. Treasurys or foreign-government debt to cover withdrawals—are based on assumptions that these assets have low credit risk and assume certain rates of withdrawal of different types of funding. These assumptions may prove wrong in an unbridled panic. The Fed may still need to supply liquidity.

Dodd-Frank’s Orderly Liquidation Authority is the prayer. The FDIC steps in only if a financial institution on the brink of insolvency is designated by the Treasury secretary, in consultation with the president, as threatening financial stability. This determination is necessary even if the institution has previously been designated as systemically important for regulatory purposes. By the time that determination is made, and even afterward, other institutions may be attacked by runs causing their own insolvency.

To prevent runs on money-market funds, the Securities and Exchange Commission now requires institutional funds that do not exclusively invest in government securities use floating net-asset values, and not maintain a constant (if fictional) value of $1 per share. But floating net-asset values by themselves will not prevent investors from a run, since they may fear further price declines. Similarly, the powers the SEC granted to fund boards to penalize or restrict redemptions also may accelerate runs.

What stopped the runs on money-market funds in 2008 were Treasury guarantees. After the Troubled Asset Relief Program (October 2008), that solution is no longer readily available.

Some commentators believe that restrictions on the Fed’s lender-of-last-resort powers are not that important. After all, the Treasury secretary can approve using them and also approve the design of a broad program. Yes. But markets cannot know a Treasury secretary will act, and with such bailouts now in disrepute, runs are more likely in a future crisis.

The financial system is the plumbing without which an economy cannot function, and that system can be destroyed by the spreading contagion of a run. The weapons that regulators used to end the last crisis need to be restored and strengthened. Concerns about moral hazard should not bar the Fed from being the lender of last resort to solvent institutions (as best it can determine) that are panic victims, not undue risk takers.

The Fed was created in 1913 to be a lender of last resort against the background of the deep recession that followed the bank runs of 1907. Fed lending can be labeled a bailout. But history tells us this is a necessary feature, however undesirable in principle, of a stable financial system and economy.

By Glenn Hubbard and Hal Scott. This op-ed appeared in The Wall Street Journal on March 1, 2015

Mr. Hubbard, dean of Columbia Business School, was chairman of the Council of Economic Advisers under President George W. Bush . Mr. Scott is professor of international financial systems at Harvard Law School. They are, respectively, co-chair and director of the Committee on Capital Markets Regulation.


THE WASHINGTON POST – George W. Bush’s Top Econ Adviser Says Republicans Must Move Beyond Tax Cuts Alone

Few conservative economists have been as influential over the last decade as Glenn Hubbard. He was an architect of President George W. Bush’s tax cuts and of Mitt Romney’s 2012 economic plan. He has preached the importance of permanent, fundamental policy changes – such as reducing tax rates and simplifying the tax code – for improving America’s long-run economic growth prospects.

Hubbard still believes in those type of reforms, but he has taken to arguing that Republicans need more to their economic message. As the 2016 campaign begins, Hubbard believes Republicans have to worry more about encouraging people to work – given that we have an economy with a shrinking number of workers – and about economy opportunity, which has been stagnant over the last half-century.

“I’m not as vexed about inequality, as I am about opportunity.”

— Glenn Hubbard

The Republican economist's concerns  will likely leave a mark on the upcoming presidential election, starting with the Republican primary. Hubbard will not say what candidate he plans to work for, but among conservative economists, there is a strong consensus: He’ll be headlining an all-star economics group for former Florida governor Jeb Bush.

“I think this really is going to be an idea-rich campaign, in the primary and the general election,” Hubbard said in a recent interview, “because the issues – growth and opportunity – are so complicated.”

In the course of a recent discussion, Hubbard laid out a wide range of ideas for how to boost growth, encourage work and improve opportunity. He started, as often is the case with conservative economists, with tax reform. He favors lowering corporate and individual rates and expanding the Earned Income Tax Credit – a kind of cash bonus – for single workers. He also suggested an openness to capping some tax deductions for affluent households.

Hubbard said he worries about policies that encourage businesses currying money or carve-outs from Washington, instead of investing in new products or services. He often flies the shuttle between New York, where he is the dean of Columbia Business School, and Washington, and he said he is distressed by the number of executives he sees making the trip.

“We need to make sure that markets and outcomes are fair,” he said, “and that if someone gets rich, it’s because they had a great idea for a business, and not because they were politically connected.”

Improving economic mobility – the ability for children born into poverty to move into the middle class, or those born middle class to achieve great wealth – will be the hardest challenge, he said. “It takes so long.” He said policymakers must tally up “a full list” of the barriers keeping people from climbing the ladder, including a sharp focus on education and skills.

He stressed the ability of parents to send their kids to alternatives to public school, such as delivering more money to states in the form of block grants tagged for low-income children whose parents would have flexibility about where to send them. In addition, he's interested in new ways of helping displaced workers train for new jobs, such as personal re-employment accounts that workers could tap when they are thrown out of work for an extended period.

Hubbard says he worries the Federal Reserve has gone too far in its extraordinary measures to stimulate the economic recovery. He also worries that the economy may not grow as fast in the future as once expected – that it is suffering from a decline in its potential growth.

He does not worry about economic inequality. He pointed out, near the end of the interview, that he had never mentioned the word. “I’m not as vexed about inequality,” he said, “as I am about opportunity.”

By Jim Tankersley – The Washington Post on February 27, 2015


Glenn Hubbard, Dean of Columbia Business School, served in the Bush White House from February 2001 until March 2003 as the Chairman of the Council of Economic Advisers and the OECD’s Economic Policy Committee {Read more}


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In The News

Glenn Hubbard with HH Dalai Lama

Glenn Hubbard making his presentation during the first panel discussion with His Holiness the Dalai Lama at the American Enterprise Institute in Washington DC on February 20, 2014 – Read the full article on

The New York Times – Review

Morning Joe – Watch the interview

Glenn Hubbard - Balance

Squawk Box – Watch the interview

Glenn Hubbard with Charlie Rose

Charlie Rose – Watch the interview

Glenn Hubbard - Balance

Fareed Zakaria – Watch the interview

Tom Keene – Watch the interview

Glenn Hubbard in The New York Times Magazine

The New York Times – Read the article


Books by Glenn Hubbard