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Economist brings White House experience to MSU students
November 22, 2006 -- by Carol Flaherty
MSU News Service
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| Dino and Suzanne Falaschetti on the south lawn of the White House during welcoming ceremonies for the Japanese Prime Minister in June 2006. |
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Dino Falaschetti spent last year at the White House briefing the President and White House officials on the effects of economic policy. Now the economist is spicing his Montana State University lectures with glimpses of the potential -- and limits -- of economic analysis.
Falaschetti taught economics at MSU for three years before being chosen as a senior economist for the President's Council of Economic Advisers. During his year-long tenure with the council, he used the tools of microeconomics to analyze issues ranging from pension fund problems in America to how to allocate resources to fight terrorism and to help areas struck by Hurricane Katrina.
Now that he is back at MSU as an associate professor, he is showing students that economic tools can be used to predict and analyze.
"Economics doesn't just look backward like an armchair quarterback . . . . we can use these tools to analyze emerging issues," he told students in his undergraduate microeconomics course recently. However, he added, "there are persistent political forces that work against rational economic policies. These forces aren't good or bad, they just are. If we want to make good economic policy, we need to respect them just as physicists respect gravity."
After his students read about the bail-out of Savings and Loan institutions in the 1980s, Falaschetti described how the S&L problems were similar to current pension funding problems. His year at the White House coincided with the last months of the pension debate, and he helped prepare options for Congress to consider. Even though he said there were some relatively clear alternatives, the Pension Reform Bill finally passed by Congress was more of a political creation than a solution.
"We needed to restrict the investment options of these pension plans," he said. "For a number of reasons, that didn't happen. We had a chance to stop this, and we didn't. We slowed it down and put some lipstick on it, but I think it will be a problem again soon."
He added that there is no legal requirement for the federal government and U.S. taxpayers to bail out any pension system, but that the politics make such a bailout nearly certain.
Another issue Falaschetti helped analyze for the White House was terrorism. Microeconomic analysis adapts quite well to counterterrorism strategies, he said, though at first it may seem an unlikely target.
"The idea is how do you allocate your security resources without simply shifting the threat," Falaschetti said. It's relatively easy for terrorists to shift a target. "You see examples of it all the time. Think of the bomber in Israel who saw a security guard at a McDonald's restaurant. She simply went into a different business nearby. Or the terrorist in a vehicle bomb approaching London. He saw a security checkpoint and turned toward Manchester instead, which is where he detonated the bomb."
"In the worst case, we experience the terrorism but also pay for the security. . . . If you make New York City into a fortress, don't think you will have gotten the security benefits you're expecting. You are going to shift the risks. It doesn't cost the terrorists much to shift a target, so you want to make it costly for them to shift. We were able to put together computer simulations to describe the nature of the risk shifting," he said.
Hurricane Katrina hit about a month after Falaschetti arrive in D.C. Falaschetti said that he served as "one of the Gulf Coast redevelopment guys." One question was whether the government could offer economic incentives to people to get them to return to New Orleans without creating economic distortions.
"That was easy. The answer was 'no.' You couldn't do it without creating the distortions, but also, if you create that incentive, you may be putting people in harms way. That was not abstract. People's lives were at risk, and that is what made it very clear to us," he said.
Falaschetti said his objective as a teacher is to turn students into thinkers.
"Students think of applying economics to finance, but when you can show them how the tools can be applied to Katrina and counterterrorism strategies, it opens their minds. The economic way of thinking is not compartmentalized. It can help folks productively address and shape change."
Contact: Dino Falaschetti at dino@montana.edu
Hi-Resolution Images or PDFs Available:
| [View or Download] | 1. | Dino and Suzanne Falaschetti on the south lawn of the White House during welcoming ceremonies for the Japanese Prime Minister in June 2006. | | [View or Download] | 2. | Dino Falaschetti in MSU's Renne Library in 2005. Photo by Carol Flaherty |
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