The Unassuming Economist

From The Grumpy Economist:

“I wrote this essay on Bob Hall and Consumption (link goes to pdf on my webpage) for the conference in honor of Bob Hall at Hoover, November 22. It turned into a more extended history of some trends in macroeconomics, which any student of macroeconomics might find useful. Why we do what we do is often obscure. If this post exceeds your email limit, finish on the website at grumpy-economist.com

Bob Hall and Consumption1

I’m going to cover just two of Bob Hall’s many pathbreaking papers, “Stochastic Implications of the Life Cycle–Permanent Income Hypothesis,” Hall (1978), and “Intertemporal Substitution in Consumption,” Hall (1988), both in the Journal of Political Economy. Along the way, this turns in to a brief history of the emergence of modern macroeconomics, and one of its central unsolved problems, intertemporal substitution.

I titled my remarks at the conference, “Consuming Hall at Chicago.” I think you know Hall has many fans at Stanford, but you might not know just how popular Bob was at Chicago. Pretty much everything I write today I learned from Bob Lucas and Lars Hansen at Chicago in the 1980s.

1 A Simple Idea

As usual for Bob, it all starts with a simple clever idea. In asset pricing, price is present value of dividends, so price follows a random walk. In the permanent income model, consumption is proportional to the present value of income. So consumption should follow a random walk too. Why not test that hypothesis just as asset pricers were doing in the 1970s, by running regressions,”

Continue reading here.

This post is different from the others on this website. Most of the website has economic content I considered noteworthy. (My curation of the content seems to have been useful to other economists, evidenced by the fact that we’ve attracted over a million visitors and chalked up over 7 million page views in our 14-year existence). This post is different. Over time, I plan to add a few posts like this one in which I will look back and take stock of some of the activities of my long (40-year) career. One activity that I invested in heavily was writing profiles of famous economists. I will discuss below why this stock-taking is more than a navel-gazing exercise and might be of some interest to our regular readers.

I just published a profile of Gabriel Zucman, the latest winner of the John Bates Clark award, the profession’s highest honor outside of the Nobel Prize. The IMF’s quarterly magazine, Finance & Development, has long had a section called Profiles in Economics, (forming the acronym pie). These profiles are hence called pies within the IMF’s Communication Department (COM), where I toiled happily from 2000 to 2008.

Why write pies?

It was unusual for an economist at the IMF to write so much for its magazine. But I was unusual. My move to COM was an unusual one, motivated by an amateur interest in writing and journalism. I realize that working for COM is as far away from real journalism as Trump is from truth, but working in COM was the closest I could get to scratching my journalistic itch. And scratch I did! I wrote 16 pies, which I suspect is the most of any writer for Finance and Development.

Why should this be of general interest? These profiles chart the course of the field of macroeconomics. In broad strokes, they show:

• The evolution of the profession: When I was in graduate school in the 1980s, the field of macroeconomics was polarized into two camps, saltwater and freshwater. Freshwater economists  tended to believe in the power of free markets and were dubious of the benefits of government policies – this economics was taught at departments that were close to rivers and lakes  such as Chicago, Carnegie Mellon, Minnesota and my alma mater, Rochester. Saltwater economists felt a healthy dose of government intervention was needed to remedy the ills of the market – this economics was taught at schools close to the coasts, such as Harvard and MIT. The profiles cover the main participants in this debate, and describe to lay readers how these economists chose to influence opinion in their favor through their academic work. While the polarization has since subsided somewhat, one still sees ripples of it when, for instance, the US Presidency and/or control of Congress shifts from Democrats to Republicans or vice versa. Democrats tend to draw from saltwater economists while Republicans favor freshwater economists.
  
• The evolution of the IMF: The IMF tended to be fairly free-market oriented. But over time, it has evolved towards a more balanced approach, for instance, by expressing some doubt about the benefits of financial globalization (the free movement of capital, i.e. companies, across national boundaries) and worrying that unfettered free markers sometimes breed excessive income inequality.
  
• The evolution of thought on specific issues: A detailed read of the profiles would show how the profession’s views have evolved on specific issues, such as why some countries (say Malawi) are so much poorer than others (say Sweden). The earlier approach, also practiced at the IMF, was to compare Malawi and Sweden along a whole host of dimensions, such as educational attainment and female labor force participation rates, and urge Malawi to make simultaneous progress along all those dimensions. This approach is described in my profile of Robert Barro. Thinking then moved on to a “growth diagnostics” approach, described in my profile of Dani Rodrik, which tried to isolate one or two critical dimensions that were holding back growth in Malawi.

How did I pick the people to profile? (I admit this part is navel-gazing, but I hope I have sucked you in by now.)

Looking back, I realize that the people I profiled fit into three categories:

• Category 1 (6 profiles): graduate school icons
• Category 2 (4 profiles): critics of the IMF
• Category 3 (6 profiles): other famous economists—economists whose professional activities I admired

Here are some observations on each of these categories and the underlying profiles.

Six of the profiles were of my graduate school icons. These are people whose work I had particularly enjoyed studying during my graduate studies at Rochester. It was efficient to profile them, as I wouldn’t have to spend hours poring over their academic work. I had already done that! It is not surprising, as a Rochester student, that I started with three freshwater icons, but I quickly crossed the aisle and profiled or interviewed three saltwater icons. I guess I was neither D or R but an Independent.

1. Martin Feldstein: Since this was my first profile, I was worried that something would go wrong: that Marty would regard the exercise as a waste of his time, that I would run out of questions, that my tape recorder would malfunction… None of that happened and yet the profile was almost derailed. After the text of the profile was in the bag, we went to get a picture of Marty taken to accompany the profile. The IMF’s photographer, Mike Spilotro, a top professional, suggested that Marty take off his glasses for the photo. Marty was equally eager that the glasses stay on. For a few minutes (which felt very long to me), we were at an impasse. Luckily, Mike backed off and I had my first profile. You can click on the hyperlink—that takes you to the profile and you can see how Marty looks with his glasses on. (Extra Credit: Can you find a picture of Marty on the web without his glasses?)

2. Robert Barro: I think this is my best profile because I was very conversant with Barro’s work; he was my macro professor for two semesters and on my thesis committee. I was happy when two of my Rochester colleagues said they loved the profile. I felt I must have gotten things right for such knowledgeable people to like it.

3. John Taylor

4. Rudi Dornbusch consented to this long interview at a time when he knew he did not have long to live – he died shortly after it appeared in print. This makes his answer to my last question particularly poignant. I asked if he had anything to add. He replied: “No, you have squeezed it all out of me.”

5. Stan Fischer: He is venerated in both saltwater and freshwater camps.

6. Olivier Blanchard: This appeared in The Globalist, and, as with my profile of Barro, benefitted from proximity. Blanchard was my boss at the IMF from 2008 to 2016 and my office was a few doors away from his. Blanchard often stopped by my office on the way to his own and talked to me a fair bit about the goal of his ongoing work.

Four of the profiled were critics of the IMF to varying degrees. It speaks well of the IMF that they were willing to let the institution’s critics be profiled in the house journal. This of course happened in part because the institution’s views evolved.

6. Joseph Stiglitz: The most strident critic, particularly of the IMF’s support for financial globalization.

7. Jeffrey Sachs: a critic of the IMF’s policy advice on Latin America and the transition economies.

8. Dani Rodrik: a critic of the IMF’s policy advice to developing economies.

9. George Akerlof: The mildest critic. I think he just wanted a “kinder, gentler” IMF. This was an aspiration I shared.

The remaining five were profiled for various idiosyncratic reasons – generally my admiration for the person’s work:

11. Nouriel Roubini (English, French and Spanish versions): I had invited Nouriel to give a talk at the IMF, at which he predicted the start of the Global Financial Crisis. After the talk became famous, it made sense to do a full profile.

12. Christopher Pissarides: Admiration for his work on labor markets – which was my specialty as well – was the reason.

13. Lars Svensson (English, French and Spanish): admiration for his work on monetary economics was the reason.
14. Assaf Razin: Admiration for the work and the man were the reason. I had gotten to know him personally.

15. Marianne Bertrand: Admiration for her work was the reason. It says something about the biases in my network that she is the only woman among the 16 people I have profiled.

16. Fred Bergsten: Admiration for the work was the reason. But in this case, the work did not consist of writing academic articles, but starting a successful think tank, the Peterson Institute.

From Noah Smith:

“Immigration is obviously one of the most important and most contentious issues of our time. The sheer amount of confusion, misconception, and misinformation is just staggering. So when I want to know the hard facts on the immigration issue, I go to Princeton economist Leah Boustan.

Boustan’s research covers far more than immigration — she’s incredibly versatile, covering labor economics, urban economics, economic history, and more. But recently, her research on immigration has garnered a lot of (well-deserved) attention. In a series of recent papers, she and her various co-authors showed that 1920s immigration restrictions hurt native-born American workers, that immigrant groups give their kids less foreign-sounding names over time, that immigrants do better economically when they move out of ethnic enclaves, and that the children of poor immigrants tend to be extremely upwardly mobile.

In her new book with Ran Abramitzky, Streets of Gold: America’s Untold Story of Immigrant Success, Boustan draws from her own research and others’ to weave a nuanced yet compelling story of how immigrants fare in the United States — and how little this has changed between the early 20th century and the early 21st. It’s a great book, and I highly recommend it to everyone.

In this interview, I ask Leah about her book, and about the immigration issue in general. Enjoy!

N.S.: I’ve been following your work for years, and you’re my favorite economist of immigration. How did you first become interested in that topic?

L.B.: First, thank you! That is so kind to say and I have appreciated all of your engagement with our work through the years. I will always associate the “before times” (immediately pre-Covid) with being able to meet in person at the ASSA conference in Jan 2020.

So, how did I become interested in immigration? Well, my first book was on the black migration from the rural South to industrial cities in the North and West (the Great Black Migration). I got interested in this topic when reading William Julius Wilson’s The Truly Disadvantaged and encountering a paragraph with what seemed like an aside, but it really is a gem of an idea. Wilson said something like “ironically, European immigrants benefited from the closing of the US border in the 1920s, but black migrants faced a lot of competition because you can’t close the Mason-Dixon line.” (This is a paraphrase!). I thought to myself – wow – I always knew about white ethnic communities in US cities, but I never really thought of the black community as a *migrant* community. So what if we – as economists – really study African-American history as migrant history? My first book was called Competition in the Promised Land, which picks up on this idea.

It was pretty natural after that to turn my attention to studying European immigrants in the late 19th and early 20th centuries. Sociologists like Wilson and like Stanley Lieberson explicitly or implicitly compare white ethnic progress with African American progress. So, after working for some time on black migrants, I wanted to learn more about European immigrants as well.”

Continue reading here.

From American Enterprise Institute:

“One of my two all-time most favorite economists—Dr. Thomas Sowell— turns 92 tomorrow, he was born on June 30, 1930. Here is Thomas Sowell’s webpage and here is his Wikipedia entry. Milton Friedman (my other all-time favorite economist) once said, “The word ‘genius’ is thrown around so much that it’s becoming meaningless, but nevertheless I think Tom Sowell is close to being one.”

In my opinion, there is no economist alive today who has done more to eloquently, articulately, and persuasively advance the principles of economic freedom, limited government, individual liberty, and a free society than Thomas Sowell. In terms of both his quantity of work (49 books and several thousand newspaper columns) and the consistently excellent and crystal-clear quality of his writing, I don’t think any living free-market economist even comes close to matching Sowell’s prolific record of writing about economics. And as I’ve mentioned previously on CD, as a writer Thomas Sowell is truly the “Master of Idea Density”—he has the amazing talent of being able to consistently pack more ideas, insight, and wisdom into a single sentence or paragraph than what typically takes an entire essay or book for even the best writer!

Even in his 80s, Thomas Sowell remained active and was writing two syndicated newspaper columns almost every week for the last 25 years until he “retired” from those weekly deadlines at the end of 2016 (see CD post here). On his birthday last year at the age of 90, Thomas Sowell released his 49th book “Charter Schools and Their Enemies” which amazingly was his 11th book since 2010 and his 24th book since the turn of the century! To honor Thomas Sowell’s 92nd birthday tomorrow, I present below 15 of my favorite quotations from Dr. Thomas Sowell and three bonus videos of the great economist:

 1. Knowledge. “The cavemen had the same natural resources at their disposal as we have today, and the difference between their standard of living and ours is a difference between the knowledge they could bring to bear on those resources and the knowledge used today.”

2. Obamacare. “If we cannot afford to pay for doctors, hospitals, and pharmaceutical drugs now, how can we afford to pay for doctors, hospitals, and pharmaceutical drugs, in addition to a new federal bureaucracy to administer a government-run medical system?”

3. Economics vs. Politics I. “Economics and politics confront the same fundamental problem: What everyone wants adds up to more than there is. Market economies deal with this problem by confronting individuals with the costs of producing what they want and letting those individuals make their own trade-offs when presented with prices that convey those costs. That leads to self-rationing, in the light of each individual’s own circumstances and preferences. Politics deals with the same problem by making promises that cannot be kept, or which can be kept only by creating other problems that cannot be acknowledged when the promises are made.””

Continue reading here.

Profile by John Fernald (INSEAD and Federal Reserve Bank of San Francisco):

“Dale W. Jorgenson has been a central contributor to a wide range of economic and policy issues over a long and productive career. His research is characterized by a tight integration of economic theory, appropriate data that matches the theory, and sound econometrics. His groundbreaking work on the theory and empirics of investment established the research path for the economics profession. He is a founder of modern growth accounting: Official statistics in many countries, including the United States, implement Jorgenson’s methods. Relatedly, without Jorgenson’s unflagging efforts, consistent industry KLEMS datasets for many countries—which have been widely used in recent decades for growth accounting, econometrics, and other applications—would not exist. Jorgenson is also a pioneer in econometric modeling of producer and consumer behavior and of econometrically estimated, intertemporal general equilibrium modeling for policy analysis.”

Also, see an article in the Wall Street Journal by James R. Hagerty: “Harvard Economist Dale Jorgenson Found Better Ways to Gauge Productivity. Professor, who has died at age 89, removed much of the mystery from studies of what drives economic growth”.