The Unassuming Economist

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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From VoxEU post by Gérard Roland:

“The great Hungarian economist János Kornai, who passed away in October 2021, was a pioneering analyst of shortages, socialist economies and the economics of transition to a market economy. This column outlines what made him one of the most important intellectuals of the twentieth century.

The famous Hungarian economist János Kornai has left us. He was one of the most important intellectuals of the twentieth century. He suffered personally from both Nazism and communism, the two totalitarian regimes of the twentieth century. As a young Jew growing up in Budapest, he lost his father and a brother to the Nazis. Like many young Jews in Central Europe who survived the holocaust, he was for a couple of years an enthusiastic supporter of communism, the arch-enemy of Nazism. He became disillusioned after a few years, especially when learning about the Stalinist purges in Hungary in the early 1950s. He had been a journalist at that time.

His doctoral dissertation in economics, Overcentralization in Economic Administration, was full of facts about the flaws of central planning and represented a great breath of fresh air in the intellectual atmosphere of the times. He defended that dissertation just before the Soviet repression of the Hungarian revolution of 1956. His defence was attended by a big crowd and was one of the important intellectual events of that year. Given the visibility of his doctoral thesis, when the repression came, he lost his job at the Institute of Economics (later a hotbed of thinking about reforms), was interrogated, and eventually got marginal jobs, first at the Light Industry Planning Bureau and later at the Textile Industry Research Institute. 

Instead of becoming discouraged or cynical, he used the free time he had in these obscure jobs to study economics seriously and to get better acquainted with economic research that was being practiced in the West, on the other side of the Iron Curtain. His work on two-level planning with Tamás Lipták was published in Econometrica and became an important paper in the literature on the economics of planning. This earned him the recognition of top economists of the time: Kenneth Arrow, Leonid Hurwicz, Tjalling Koopmans, Edmond Malinvaud and others. The Hungarian authorities, who were more liberal than other communist regimes, even allowed him to travel to conferences in the West, albeit under heavy supervision of the secret police. 

Instead of ‘just’ becoming Central and Eastern Europe’s top economist (together with the more senior Leonid Kantorovich, the inventor of linear programming, who received the Nobel prize in 1975), he wrote in 1971 a book with the provocative title Anti-Equilibrium that represented a thorough criticism of the relevance of general equilibrium theory, the crown jewel of economic theory. That book also proposed to add considerations related to the informational sphere of the economy, developing themes such as informational asymmetry, bargaining, conventions, routines, aspirations – topics that would be developed later by other economists.”

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From a VoxEU post by Jörn-Steffen Pischke:

“The 2021 Nobel Prize in Economic Sciences has been awarded to David Card of the University of California, Berkeley, “for his empirical contributions to labour economics”, and to Joshua Angrist of MIT and Guido Imbens of Stanford University “for their methodological contributions to the analysis of causal relationships”. This column explains how the use of natural experiments in empirical economics has ushered in much progress in the analysis of causal relationships. The ensuing ‘credibility revolution’ over the past three decades has been transformational for the study of key policy challenges, including education, immigration and the minimum wage.

I once, naively, asked the late Alan Krueger about the pioneers of natural experiments in economics. His somewhat sheepish answer was that that’s like asking about the pioneers of rock music. It didn’t take much research on my part to reveal the numerous protagonists of a movement in labour economics in the 1980s and 1990s that transformed the way empirical work is done in the field and in many areas of economics beyond. Yet, like rock music, natural experiments have their Fab Four, and they are the 2021 Nobel laureates David Card, Joshua Angrist and Guido Imbens, plus the late Alan Krueger. I hope many will agree with me that this prize honours Krueger as well.

The important questions in economics are causal questions. How does immigration affect the labour market prospects of natives? What is the payoff to an additional year spent in school or to attending university? What are the effects of minimum wages on the employment prospects of low-skilled workers? But these questions are difficult to answer because we lack the right counterfactuals.”

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From Conversable Economist:

“Paul Volcker, who was chair of the Federal Reserve from August 1979 to August 1987.has died. He is generally credited, or in some cases blamed, for the set of monetary policies which both ended the inflationary period of the 1970s but also brought on the very deep double-dip recessions of 1980 and 1981-2. The New York Times obituary is here.

For an overview of those times and how Volcker perceived the choices he was facing, a useful starting point is “An Interview with Paul Volcker,” conducted by Martin Feldstein, which appeared in the Fall 2013 issue of the Journal of Economic Perspectives. Here’s a flavor:

It made a profound impression on me, if nobody else, that Arthur Burns titled his valedictory speech “The Anguish of Central Banking” (Burns 1979). That was a long lament about how, in the economic and political setting of the times, the Federal Reserve, and by extension presumably any central bank, could not exercise enough eserve, and by extension presumably any central bank, could not exercise enough restraint to keep inflation under control. It was a pretty sad story. If you were going to follow that line, you were going to give up, I  guess. I didn’t think you could give up.  If I was in that job, that was the challenge as the Chairman of the Federal Reserve. You inherit a certain challenge …

The favorite word at the time, which was very popular within the Federal Reserve, but I think popular in the academic community generally, was “gradualism.” I don’t quite remember them saying, “Don’t bring it down at all.”But instead, it was “Take it easy. It will be a job of, I don’t know, years, decades, whatever, and you can do it without hurting the economy.” I never thought that was realistic. The inflationary process itself brought so many dislocations, and stresses and strains that you were going to have a recession sooner or later.”

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Chris Wellisz (WSJ) profiles Harvard’s Edward Glaeser for IMF’s Finance & Development magazine:

“Growing up in New York City in the 1970s, Edward Glaeser saw a great metropolis in decline. Crime was soaring. Garbage piled up on sidewalks as striking sanitation workers walked off the job. The city teetered on the edge of bankruptcy.

By the mid-1980s, it was clear that New York would bounce back. But it could still be a scary place; there was a triple homicide across the street from his school on the Upper West Side of Manhattan. Glaeser was nevertheless captivated by New York’s bustling street life and spent hours roaming its neighborhoods.

“It was both wonderful and terrifying, and it was hard not to be obsessed by it,” Glaeser recalls in an interview at his office at Harvard University. Today, that sense of wonder still permeates Glaeser’s work as an urban economist. He deploys the economist’s theoretical tool kit to explore questions inspired by his youth in New York. Why do some cities fail while others flourish? What accounts for sky-high housing costs in San Francisco? How does the growth of cities differ in rich and poor countries?

“I have always thought of myself as fundamentally a curious child,” Glaeser, 52, says. Rather than “pushing well-established literature forward,” he seeks to comprehend “something that I really don’t understand when I start out.”

While still a graduate student at the University of Chicago, Glaeser made his mark as a theorist of the benefits of agglomeration—the idea that dense and diverse cities are hothouses of innovation, energy, and creativity that fuel economic growth. In the years since, his work has ranged across a breathtaking variety of subjects, from rent control and real estate bubbles to property rights, civil disobedience, and carbon emissions.

“For a couple decades now, Ed has been the leading thinker about the economics of place,” says Lawrence Summers, a Harvard professor who served as director of the National Economic Council under US President Barack Obama. “And the economics of urban areas are increasingly being seen as central to broad economic concerns.”

Glaeser and Summers are collaborating on a study of the hardening divide between well educated, affluent coastal regions of the United States and islands of economic stagnation in what they call the “eastern heartland,” the interior states east of the Mississippi River. There, in cities like Flint, Michigan, the proportion of prime-age men who aren’t working has been rising—along with rates of opioid addiction, disability, and mortality.

How can policy help? Traditionally, economists have been skeptical of the value of place-based policies like enterprise zones that offer tax breaks to investors, saying it is better to help people, not places. People, they assumed, would move to where the jobs were. But labor mobility has declined in recent decades, partly because of high housing costs, partly because demand for relatively unskilled factory work has diminished.

Breaking with economic orthodoxy, Glaeser and Summers say that the federal government should tailor proemployment measures, such as reducing the payroll tax or increasing tax credits to low earners, to fit the needs of economically distressed areas such as West Virginia. They also make the case for boosting investment in education.

As a Chicago-trained economist, Glaeser is a strong believer in the magic of free markets and opposes measures that distort incentives. “I have always been against spatial redistribution, taking from rich areas and giving to poor areas,” he says. “That doesn’t mean that you want the same policies everywhere.” Urban economics seemed like a natural pursuit for Glaeser. His German-born father, Ludwig, was an architect who taught him how the built environment shapes people’s lives. His mother, Elizabeth, was an asset manager who introduced him to economics. Glaeser recalls how she used the example of competing cobblers to explain marginal cost pricing.

“I remember thinking what an amazing and fascinating thing it is to think about the impact of competition,” he says. He was 10 years old. In high school, Glaeser excelled at history and mathematics. As a Princeton University undergraduate, he considered majoring in political science before choosing economics, seeing it as a path to Wall Street. But dreams of a career in finance ended with the stock market crash of 1987, just as he started job interviews. So he opted for graduate school, because “it didn’t seem like I was cutting off many options,” he says.”

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