Saturday, January 21, 2012

Interests, Ideas, and MIT Economists

. Saturday, January 21, 2012

Over at Bloomberg, Rich Miller and Jennifer Ryan have an article that should make constructivists smile:

At MIT, [Mervyn] King, 63, and then-professor Ben S. Bernanke, 58, had adjoining offices in 1983, spending the early days of their academic careers in an environment where economics was viewed as a tool to set policy. Earlier, Bernanke and European Central Bank President Mario Draghi, 64, earned their doctorates from the university in the late 1970s, Draghi with a thesis entitled “Essays on Economic Theory and Applications.” 
[Stanley] Fischer, 68, advised Bernanke’s thesis on “Long-Term Commitments, Dynamic Optimization and the Business Cycle,” and taught Draghi. Greek Prime Minister and former ECB vice president Lucas Papademos and Olivier Blanchard, now chief economist for the International Monetary Fund in Washington, earned their doctorates from MIT at about the same time. 
Other monetary policy makers who have passed through MIT’s doors include Athanasios Orphanides, head of the Central Bank of Cyprus, Duvvuri Subbarao, governor of the Reserve Bank of India and Charles Bean, King’s deputy in the U.K.
This almost immediately brought to mind Jeffrey Chwieroth's 2007 article -- expanded in his book Capital Ideas -- "Neoliberal Economists and Capital Account Liberalization in Emerging Markets" (ungated). Chwieroth analyzed the behavior of IMF staffers and argued that their policy recommendations was highly influence by where they received their postgraduate education: economists that came from "neoliberal" economics departments advocated for neoliberal policies.

When I first read the paper I focused a lot on what constituted a "neoliberal" economics department. It seemed a bit arbitrary. Chwieroth's list of neoliberal departments included eight important schools: Cal-Berkeley, Brown, Carnegie Mellon, Chicago, Harvard, Hebrew (Jerusalem), Johns Hopkins, NYU, Northwestern, Penn, Princeton, Stanford, Wisconsin, and Yale. These came from a previous article by Chwieroth, in which he presents a methodology for linking abstract concepts to empirical identities.

I don't know what is an appropriate test of the validity of this methodology, but a list that includes both Chicago and Berkeley as normatively similar raises an eyebrow. As does one that includes Harvard and Princeton but not MIT. This certainly cuts against the "saltwater vs. freshwater" story that folks like Krugman tell. (Krugman was also at MIT during this period.) Perhaps Chwieroth's classification works for the specific issue he's considering -- capital account liberalization -- and not more generally.

In any case, the Bloomberg piece also made me recall Krugman's talk of the "Dark Age of Macroeconomics", in which freshwater economists have forgotten everything they were supposed to know about how the economy works. Krugman complains about the belief in "confidence fairies" and "expansionary austerity", and about how "wise men" who are setting policy are making such significant mistakes that we are doomed to at least one lost decade and maybe more.

As the article points out, in an impressive number of cases these policymakers are saltwater economists, from MIT, who think of economics in the same way that Krugman does and received the same education from the same people at roughly the same time as he did. What does this tell us?

It could be that everyone in the world except for Krugman is an idiot, or it could be that everyone in the world but Krugman is a vicious liar. Or it could be that policymakers are highly constrained by the fact that economic issues are highly contentious. Particularly in democracies, political interests and ideas are often much more important than economic training or even ideology. In the end, it matters much less that some central bankers went to MIT in the 1970s than that the interests of the median Greek are divergent from the interests of the median German.

And if that's true, then why does everyone spend so much time talking to economists about political dynamics?


LFC said...

"Particularly in democracies, political interests and ideas are often much more important than economic training..."

This could well be. I don't know enough about the ins-and-outs of the economics profession and its divisions to sort this out really. (Nor have I read the linked article.) But one possibility is that policymaker X who went to MIT, say, and studied w/ a 'saltwater' economist might change his/her views after he or she is exposed to colleagues w different backgrounds in e.g. the IMF or some other place. (?)

I happen to know that Bernanke went to Harvard for undergrad b/c some for some reason I looked up his senior thesis once (anyone w an internet connection can do that on the Harvard library site btw). Brilliant student, judging from his summa degree. I think his undergrad thesis prob had some econometrics in it, which wd make it pretty much incomprehensible to me.

Interests, Ideas, and MIT Economists
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