Steve Pearlstein often wrote thoughtful pieces when he was a reporter, and this has been the case in more recent years with his columns. For this reason, I was overcome by shock and awe (hence the 2 day delay in writing) when I read what could only be described as sycophantic praise in a column marking the 25th anniversary of the founding of the Institute for International Economics (IIE). Pearlstein devoted his whole column to explaining how IIE is simply the best, and how he often got grief from his editors for being too dependent on IIE sources (this is what is known as �good grief�). I have nothing against IIE. There are plenty of good economists who work with the Institute and I have often found their research useful, but let�s take a look at the track record. IIE was at the forefront in producing work showing that NAFTA would both increase U.S. exports and lead to more rapid growth in Mexico. For more than a decade, IIE has been producing papers predicting a collapse of China�s banking system. Many of the key papers associated with the Washington Consensus model came out of IIE, as did predictions of dire consequences for countries (i.e. Argentina) that broke with this model. And, IIE was probably the foremost promulgator of the �twin deficits� story � that the large U.S. trade deficit was attributable to the large budget deficit. There was some evidence to support this case in the eighties and early nineties. The case became considerably weaker as the trade deficit soared to a record share of GDP in 2000, even as we ran the largest budget surplus in the post-war era. Pearlstein�s editors were right to harass him. It is fine to report the views of the economists associated with IIE. But, they are frequently wrong. Articles that are too heavily dependent on IIE economists will mislead readers, as much Post reporting on these issues did.
--Dean Baker