The Unassuming Economist

From Thomas J. Sargent:

“This paper recollects meetings with Robert E. Lucas, Jr. over many years. It describes how, through personal interactions and studying his work, Lucas taught me to think about economics.

Introduction

Starting in 1966, Robert E. Lucas, Jr. and other friends generously taught me about macroeconomics. This paper tells how in the early 1970s, together with Neil Wallace, I had hoped to construct, estimate, and optimally control a 1960s-style Keynesian macroeconomic model; how in 1973 Neil and I came to appreciate the way Lucas (1972a) affected our project; and how Chris Sims, Neil, Lars Hansen, and I struggled to respond constructively to Lucas’s insights by building, estimating, and evaluating rational expectations macro models. My story is full of starts and stops and accounts of once-promising dead ends. Let me summarize what might be worthwhile messages.

Recollecting parts of my intellectual journey with Bob starts in Section 2 with the story of our first meeting and my early exposure to the professional milieu around him at Carnegie, and how these interactions opened my bumpy road to rational expectations macroeconomics. In Section 3, I describe how in 1970, nine years after Muth (1961) had defined it, I was still unsure about how to define a rational expectation equilibrium, and how a conversation with Ed Prescott helped set me straight. In Section 4, I describe a large obsolescence shock, triggered by the neutrality paper (Lucas, 1972a), that hit me when I was 30 years old––actually, it was an aggregate obsolescence shock that hit the entire macro community. Section 5 provides a short story about my contribution to the creative process that led to the Lucas (1976) critique. I often encountered conflicts between evidence and theories, i.e., between empirical findings and simple models. Thus, in Section 6, I tell how in 1975, contrary to what I had gathered from talking to Neil Wallace, Lucas endorsed my estimation of an ad hoc demand function for money by saying that if theorizing to build deep foundations did not imply a demand function for money that looked much like Cagan’s, then it should be ignored. Section 7 is a story about how Bob’s idea about two factors underlying US business cycle facts, a nominal and a real one, inspired my paper on index models with Chris Sims, and why Bob didn’t publish his comment on our paper. In Section 8, I describe how Bob inspired me to apply recursive methods in a paper of mine on Tobin’s q in a general equilibrium.

The mid-1970s was the period when the Lucas critique and the theoretical and empirical work it elicited started reshaping econometric practice. After the dust had settled, macroeconometric practice was no longer what it had been before. Section 9 offers a look into this transformation process by showing that the exchange of ideas between adherents of the new approach and monetary policy was often very direct. In Sections 10–12, I describe how initially Bob urged me to pursue work that deployed the method of maximum likelihood to estimate and evaluate rational expectations macro models, how Bob later told me that this approach was rejecting too many good models, and how that led Bob largely to abandon econometrics for more forgiving calibrations in Prescott’s style. It was also thinking about the relationship between calibration and econometrics that led Lars Hansen and me to begin working on bringing concerns about robustness and model misspecification into macroeconomics. A message here is that hearing others and being open to new ideas can send you back to the drawing board and back to school. In Section 13, I tell how, late in our research careers, Bob and I revisited the idea that had originally attracted us to rational expectations––the hunch that it would be fruitful to put the model builder and the econometrician on the same footing, as John F. Muth (1961) had advocated. Section 14 denies that there has ever been a ‘rational expectations school’ that advocates and agreed upon set of policy prescriptions or a unique macroeconomic model. As an additional story, Section 15 illustrates Bob’s careful ways of thinking and writing. Section 16 contains some concluding remarks.

For me, research has always involved socializing and listening to and occasionally having the courage to talk back to larger-than-life personalities, wonderful people including Hyman Minsky, Oliver Williamson, Peter Diamond, Leonard Rapping, Neil Wallace, Chris Sims, Ed Prescott, and many others, who have strong and contending views. This adventure put a charge into learning macroeconomics.

Differences in preferences about how to do scientific economics are mainly about personalities and not about intelligence quotients. Personality differences surface in whether it is better to reason mainly in terms of English words or with mathematical expressions (see the story in Section 9 about Hyman Minsky, my mentor at Berkeley), or the primacy of theory versus econometric evidence (see Sections 10–12 for stories about interactions with Bob Lucas about econometrics and calibration; or the story in Section 15 about whether, without really thinking about it, I was behaving as a Bayesian or a frequentist). When differences in preferences do reflect differences in personalities, some disagreements across very smart researchers cannot be resolved from macro data that are too sparse along the dimensions that would be needed to resolve them.”

Link to Alvin Rabushka’s page.

From a Project Syndicate post by Robert Skidelsky:

“While systematic thinkers close a subject, leaving their followers with “normal” science to fill up the learned journals, fertile ones open their disciplines to critical scrutiny, for which they rarely get credit. Three recent biographies show how this has been the fate of three great economists who were marginalized by their profession.

Jeremy Adelman, Worldly Philosopher: The Odyssey of Albert O. Hirschman, Princeton University Press, 2013.
Charles Camic, Veblen: The Making of an Economist Who Unmade Economics, Harvard University Press, 2020.
Zachary D. Carter, The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes, Random House, 2020

LONDON – There are two types of extraordinary economist. The first type includes pioneers of the field such as David Ricardo, William Stanley Jevons, and, in our own time, Robert Lucas. They all aimed to economize knowledge in order to explain the largest possible amount of behavior with the smallest possible number of variables.

The second category, which includes Thorstein Veblen, John Maynard Keynes, and Albert O. Hirschman, sought to broaden economic knowledge in order to understand motives and norms of behavior excluded by mainstream analysis but important in real life. The first type of economist is fiercely exclusive; the second has tried, largely in vain, to make economics more inclusive.

The first type of economist rather than the second has come to define the field, owing partly to the successful drive to professionalize the production of knowledge. Economics and other social sciences are heirs of the medieval guilds, each jealously preserving its chosen method of creating intellectual products. It also reflects the increasing difficulty in a secular age of developing moral content for the social sciences in general. We lack an agreed standpoint from outside “the science” by which to judge the value of human activity.”

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From a VoxEU post by Douglas Irwin:

“Ronald Findlay, who passed away in October 2021, was one of the great trade theorists of his generation. As this column by one of his former students explains, he will be remembered for his brilliant intellect, his encyclopaedic knowledge of theory and history, and most of all for his modesty, warmth and supportive friendship.

Ronald Findlay, one of the great trade theorists of his generation, passed away in October 2021 at the age of 86. A professor of economics at Columbia University from 1969 to 2013, he anchored the international economics group there for more than four decades. He will be remembered by colleagues and students for his brilliant intellect, his encyclopaedic knowledge of theory and history, and most of all for his modesty, warmth and supportive friendship. 

Findlay was born and raised in Burma but was forced to flee the country on foot during the Second World War.¹ After the war, he returned and later received an excellent education at the University of Rangoon. A precocious student, Findlay was appointed as a teaching tutor at the age of 19, and he was giving economic advice to the Burmese government in his very early 20s.²

In 1957, Findlay went to graduate school at MIT where Robert Solow was his dissertation adviser. He was also deeply influenced by Charles Kindleberger and “the master” Paul Samuelson. As a graduate student, Findlay published several papers, including his 1959 classic with Harry Grubert, “Factor Intensities, Technological Progress, and the Terms of Trade”. This paper examined the impact of Hicks-neutral and factor-biased technological change on production and factor allocation in a simple two-good, two-factor model. This influential analysis illuminated some important features of that workhorse model, and it continued to be influential when the issue of factor-biased technical change returned to prominence in the 1980s and 1990s. 

Findlay completed his PhD in just three years and returned to Burma to teach at Rangoon.³ One early paper stepped into the minefield of the Cambridge versus Cambridge capital theory and sought to formalise Joan Robinson’s model of accumulation, something that had to be done “due to the obscurity of Mrs. Robinson’s literary presentation of what are fairly intricate quantitative relationships” (Findlay 1963). The paper not only elicited a reply from the formidable Cambridge economist, she even made a special trip to Burma (detouring from India) just to “have it out with this young Findlay guy”, as he later put it. 

This paper and other early work displayed what was a trademark Findlay approach: to provide a formal model of what was implicit in the non-mathematical writings of economists such as Arthur Lewis and Ragnar Nurkse. The goal was to provide a check on the underlying logical structure of non-traditional approaches and see under what conditions the claims for them might hold. For example, Findlay (1959) showed that a policy of “balanced growth”, as advocated by Lewis and Nurkse, would not solve the problem of increasing the returns to investment and could be counterproductive compared with international specialisation along lines of comparative advantage. 

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From a VoxEU post by Avinash Persaud:

“John Williamson, one of the icons of international economics, passed away in April 2021. This column outlines some of his many and varied contributions to economic analysis and economic policymaking. In his work on exchange rates, the international monetary system and the challenges of economic crises, transition and development, he was the consummate problem-solver and understood any problem in the round of politics, economics and institutions. 

One of the icons of international economics, John Williamson, passed away in April of this year. I had the honour of being invited by the family to say a few words about John as a colleague at his Memorial on Sunday, 7 November 2021 at “Hemlock Grove”, Woodend, Audubon Naturalist Society, where John volunteered (he was a very keen birdwatcher). The following is what I said. 

In an age in which fundamentalism no longer slips between the shadows, but openly stalks the pastures of thought, and even the ramparts of Capitol Hill, John Williamson could be counted on to be the grown-up in the room.

He was seldom ‘black or white’ in his thinking. He revelled in the grey. In the nuance. He was neither ‘Dirigiste’ nor ‘Laissez-Faire’; neither fixed nor floating; neither full nor anti capital mobility. He made the case for the intermediate, to paraphrase one of his papers (Williamson 2007). His was a Golden Mean; between two vices or two corners if you may.¹

He did not set out to arrive at balance, for the sake of balance. He was more considered than that. He got there in active pursuit of the right solution to the right problem given the time and place. He was the consummate problem-solver and understood the problem in the round of politics, economics, and institutions.²

Which is why he cared so much about refining an idea, always trying to make it better, more suited to time and place. And which is why too, his contributions seem so varied. They are spread across the critical problems of the day, which did not always arrive in logical order.

When in the 1970s, Bretton Woods collapsed into the ‘Non-System’, as he called it, he wrote about the reform of the international monetary system and later its failure (Williamson 1977). And played more than a bit part too in the development of ideas at the time.³ He was a lanyard-carrying member of the Second Row Club – that group of senior officials who sat behind their ministers trying their best to advise and nudge them to greater ambition during the day, and drowning disappointments with laughter and drink in the evenings.⁴

When the newly floating exchange rates were stretching their muscles and exploring their limits in the 1980s and 1990s, he wrote about and developed new exchange rate arrangements (Miller and Williamson 1987). For instance, he and Fred Bergsten played a significant role in the ‘reference rate’ design of the Louvre Accord of February 1987 that tried to stabilise the dollar – an effort thwarted by the October 1987 stock market crash. 

When Asia arrived, the Berlin Wall tumbled, and Latin America found its footing, he wrote about transition, development, and, of course, the Washington consensus around such matters (Williamson 1990). And when commercial debt to middle-income countries emerged as an intractable problem, he wrote in praise of new instruments that could better share the risks between borrower and creditors, like GDP-linked bonds (Williamson 2017, Benford et al. 2018).

So far, I may have given the impression that his work was largely responsive, but in truth it was just as anticipatory. My recent proposal here on Vox for the regular issuance of $500 billion of Special Drawing Rights (SDRs) in order to support the huge investment required to halt climate change (Persaud 2021), in its design, owes a debt to John Williamson’s earlier Vox column on the desirability of regular issuance of SDRs (Williamson 2009).”

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