In early 2017, shortly before Donald Trump’s inauguration, the president-elect and his aides were scrambling to put together an economic team. It raised a few eyebrows when he chose David Malpass to oversee a top Treasury Department agency, not because Malpass was inexperienced, but because his experiences made him look pretty bad.
Malpass was, for example, the chief economist at Bear Stearns, where he downplayed the risks posed by the subprime crisis, right before the subprime crisis brought down Bear Stearns.
Two years later, Trump is ready to give him a high-profile promotion.
President Trump has nominated Treasury Department official David Malpass, a vocal critic of the World Bank, to head the international financial institution.
Malpass, 62, is a conservative with longstanding ties to Trump. He once worked as chief economist at investment bank Bear Stearns, which collapsed in 2008 in the midst of the financial crisis. He also served in the Ronald Reagan and George H.W. Bush administrations. At Treasury, Malpass is currently involved in tense trade negotiations with China.
Unlike many presidential personnel choices, the World Bank’s chief isn’t confirmed by the Senate, but rather, is approved by the bank’s governing board, featuring representatives from wealthy countries around the world. The United States has always chosen the World Bank’s leader since its inception in 1944, and the Trump White House expects this tradition to remain intact.
And while the consensus, at least for now, seems to be that Malpass will be approved, he’s not exactly an obvious choice. For one thing, he’s been a critic of the World Bank and its work for years. (Trump has a curious habit of choosing people to lead departments and agencies despite their opposition to the departments’ and agencies’ work.)
For another, as the New York Times’ Paul Krugman recently noted, Malpass has been wrong about most of the major economic challenges of the last several years.
Vox published a good summary on this the other day:
In August 2007, [Malpass] wrote a Wall Street Journal op-ed titled, “Don’t Panic About the Credit Market,” in which he argued, “Neither the economy nor job growth has been dependent on housing.” He also wrote that “buyers, and likely the economy as a whole, will probably benefit over time from the wrenching return to more normal market conditions.” Within months of the op-ed’s publication, the US was in a recession. By March 2008, Bear Stearns had to be bailed out by the New York Fed and JPMorgan Chase.
Undeterred, Malpass spent the Obama years calling for the Fed to adopt higher interest rates, and in 2012 even argued that maintaining low rates would lead to a recession. The Fed kept rates low, a recession didn’t ensue, and most economists credit the steady recovery to the Fed’s willingness to maintain rates near zero. If anything, it erred in not trying hard enough to push long-term interest rates down.
Why Trump considers him such a reliable voice on economic issues is unclear, but if the World Bank’s governing board thinks twice before approving the White House’s choice, don’t be too surprised.