Eminent economists ii their life and work philosophies

Eminent Economists II

Michael Szenberg and Lall Ramrattan

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Eminent Economists II

The sequel to Eminent Economists, this book presents the ideas of some of the
most outstanding economists of the past half-century. The contributors, representing divergent points of the ideological compass, present their life philosophies and reflect on their conceptions of human nature, society, justice, and the
source of creative impulse. These self-portraits reveal details of the economists’
personal and professional lives that capture the significance of the total person.
The essays represent streams of thought that lead to the vast ocean of economics, where gems of the discipline lie, and the volume will appeal to a wide array
of readers, including professional economists, students, and laypersons who
seek a window into the heart of this complex field.
Michael Szenberg is Distinguished Professor of Economics at the Lubin School
of Business, Pace University. He is the recipient of many awards, including the
2013 John R. Commons Award, the Kenan Award for excellence in teaching,
and the 1971 Irving Fisher Monograph Award. Professor Szenberg is the author
or coauthor (with Lall B. Ramrattan) of more than seventeen books and many
journal articles and encyclopedia entries. He served as the editor-in-chief of
The American Economist (1973–2011).
Lall B. Ramrattan holds a PhD from the New School University. He is an
instructor at the University of California, Berkeley. He has published articles
in several major journals and has served as an associate editor of The American
Economist.

Eminent Economists II
Their Life and Work Philosophies

Edited by
Michael Szenberg
Lubin School of Business, Pace University

Lall Ramrattan
University of California, Berkeley Extension


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First published 2014
Printed in the United States of America
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Library of Congress Cataloging in Publication Data
Eminent economists II: their life and work philosophies / [edited by] Michael Szenberg,
Lall Ramrattan; foreword by Robert Solow.
pages  cm

Includes bibliographical references and index.
ISBN 978-1-107-04053-3 (hardback) – ISBN 978-1-107-65636-9 (paperback)
1.  Economists – Biography.  2.  Economics – Philosophy.  I.  Szenberg,
Michael.  II.  Ramrattan, Lall, 1951–
HB76.E452  2014
330.092′2–dc23    2013027354
ISBN 978-1-107-04053-3 Hardback
ISBN 978-1-107-65636-9 Paperback
Cambridge University Press has no responsibility for the persistence or accuracy
of URLs for external or third-party Internet Web sites referred to in this publication
and does not guarantee that any content on such Web sites is, or will remain,
accurate or appropriate.


B’H
Once again, to my mother, Sara, who gave birth to me – twice;
my father, Henoch, for his wisdom;
my sister, Esther, for bringing me to these shores;
my two children, Naomi and Avi, and
their spouses, Marc and Tova;
and my wife, Miriam
And most of all to my grandchildren,
Elki and now Chaim, Batya, Chanoch, Devorah, Ephraim, Ayala, and Jacob
And to the Righteous Anonymous Austrian-German Officer who took my
immediate family to a hiding place just days before the last transport to
Auschwitz, where most of my family perished
In Memoriam
To my late elder sister, Balwanty Deolall,
and brother, Deonarine Ramrattan,
who have always directed me on the traditional path

No bird soars too high, if he soars with his own wings.
William Blake


Contents

List of Contributors

page xi

Foreword by Robert Solow

xv

Preface and Acknowledgments

xix

Introduction

Michael Szenberg and Lall B. Ramrattan

1

1 Being There: An Intellectual Journey

14

2 Social Norms in Economics and in the Economics Profession

30

3 Personal Reflections on my Professional Life

45

4 Gray Eminence?

57

5 Biochemist to Economist

72

6 Puzzles and Paradoxes: A Life in Applied Economics

84

Alan S. Blinder
Clair Brown

John Y. Campbell

Vincent P. Crawford
Paul Davidson
Angus Deaton

7 Succeeding in Economics

102

8 My Research Strategy

111

Harold Demsetz
Peter Diamond

vii


Contents

viii

9 My Philosophy of Economics, Life, and Everything (Not!)
Avinash Dixit

118

10 Finding a Niche

129

11 Become an Economist – See the World

145

12 Practitioner of the Dismal Science? Who, Me? Couldn’t Be!!

166

13 One Job, Four Careers

187

14 My Life and Research Strategy

203

15 How I Ended Up Being a Multifaceted Economist and the
Mentors I Have Had

213

16 Searching for My Personal Philosophy

219

17 Learning About the Evolving International Economy

229

18 Confessions of a Wellesley FEM

249

19 God, Ants, and Thomas Bayes

270

20 The Path of a Monetary Economist

286

21 Learning from the Field

316

22 Order-in-and-through-Disorder: The Invisible Hand as a
Turbulent Regulator?

338

23 The Education of an Economist

352

Barry Eichengreen
Jeffrey Frankel

Richard B. Freeman

Benjamin M. Friedman
John Hull

Michael D. Intriligator
Peter B. Kenen

Anne O. Krueger
Helen F. Ladd

Harry M. Markowitz
Frederic S. Mishkin
Elinor Ostrom

Anwar Shaikh

Jeremy J. Siegel


Contents

ix

24 Faith, Science, and Religion

369

25 My Studies in International Economics

389

26 Sailing into the Wind

404

27 My Life and Work Philosophy

417

28 Scaling Fortress Economics

434

29 The Accidental Economist

448

Index

465

Vernon L. Smith
Robert M. Stern

Myra H. Strober
Hal R. Varian

Michelle J. White

Marina v. N. Whitman



Contributors

Allan S. Blinder   Gordon S. Rentschler Memorial Professor of Economics

and Public Affairs at Princeton University
Clair Brown   Professor of Economics and Director of the Center for Work,
Technology, and Society at the Institute for Research on Labor and Employment, University of California, Berkeley
John Y. Campbell   Morton L. and Carole S. Olshan Professor of Economics at Harvard University
Vincent P. Crawford   Drummond Professor of Political Economy and Fellow of All Souls College at the University of Oxford and Distinguished Professor Emeritus and Research Professor at the University of California, San
Diego
Paul Davidson   Holly Professor of Excellence, Emeritus, at the University
of Tennessee in Knoxville
Angus Deaton   Dwight D. Eisenhower Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International
Affairs and the Economics Department at Princeton University
Harold Demsetz   Professor Emeritus of Economics at the University of
California, Los Angeles
Peter Diamond   Institute Professor at the Massachusetts Institute of Technology
Lall B Ramrattan  holds a PhD from the New School University. He is an
instructor at the University of California, Berkeley Extension. He has published articles in several major journals and has served as an associate editor of The American Economist.
xi


xii

Contributors

Avinash Dixit   John J. F. Sherrerd ’52 University Professor Emeritus of
Economics at Princeton University
Barry Eichengreen   George C. Pardee and Helen N. Pardee Professor of
Economics and Political Science at the University of California, Berkeley
Jeffrey Frankel   James W. Harpel Professor of Capital Formation and
Growth at Harvard Kennedy School
Richard B. Freeman   Herbert Ascherman Professor of Economics at Harvard University, Co-Director of the Labor and Worklife Program at Harvard Law School, and Senior Research Fellow on Labour Markets at the
Centre for Economic Performance, London School of Economics

Benjamin M. Friedman   William Joseph Maier Professor of Political Economy at Harvard University
John Hull   Professor of Finance and Maple Financial Group Chair in Derivatives and Risk Management at the University of Toronto
Michael D. Intriligator   Professor Emeritus of Economics, Political Science, and Public Policy at the University of California, Los Angeles
Peter B. Kenen   Walker Professor of Economics and International Finance
Emeritus at Princeton University
Anne O. Krueger   Professor of International Economics at the School for
Advanced International Studies, Johns Hopkins University, and Senior Fellow of the Center for International Development and the Herald L. and
Caroline Ritch Emeritus Professor of Sciences and Humanities in the Economics Department at Stanford University
Helen F. Ladd   Edgar Thompson Professor of Public Policy Studies and
Professor of Economics at Duke University’s Sanford School of Public Policy
Harry M. Markowitz   Professor of Finance at the Rady School of Management, University of California, San Diego
Frederic S. Mishkin   Alfred Lerner Professor of Banking and Financial Institutions at the Graduate School of Business, Columbia University
Elinor Ostrom   Distinguished Professor at Indiana University, Arthur F.
Bentley Professor of Political Science and Co-Director of the Workshop in
Political Theory and Policy Analysis at Indiana University in Bloomington,
and Research Professor and Founding Director of the Center for the Study
of Institutional Diversity at Arizona State University in Tempe.


Contributors

xiii

Anwar Shaikh   Professor of Economics at the Graduate Faculty of the New
School
Jeremy J. Siegel Russell E. Professor of Finance at the Wharton School, University of Pennsylvania
Vernon L. Smith   Professor of Economics and Law at George Mason University, Research Scholar at the Interdisciplinary Center for Economic Science, and a Fellow of the Mercatus Center, all in Arlington, VA
Robert M. Stern   Professor Emeritus of Economics and Public Policy at
the University of Michigan
Myra H. Strober   Professor in the School of Education at Stanford University

Michael Szenberg  is Distinguished Professor of Economics and Chair,
Business and Economics, Touro College and University System. He is the
recipient of many awards, including the 2013 John R. Commons Award,
the 1983 Kenan Award for excellence in teaching, the 1987 Schalkenbach
Foundation Economic Research Award and the 1971 Irving Fisher Monograph Award. He is the author or coauthor with Lall B. Ramrattan of more
than seventeen books and many journal articles and encyclopedia entries.
He served as the editor-in-chief of The American Economist (1973–2011).
Hal R. Varian   Emeritus Professor in the School of Information, the Haas
School of Business, and the Department of Economics at the University of
California, Berkeley
Michelle J. White   Professor of Economics at the University of California,
San Diego, and Research Associate at the National Bureau of Economic Research
Marina v. N. Whitman   Professor of Business Administration and Public
Policy, Stephen M. Ross School of Business Administration, and Professor
of Public Policy, Gerald R. Ford School of Public Policy



Foreword

Only the oldest readers and perhaps a few antiquarians will remember
Helen Hokanson. She was a cartoonist for the New Yorker long ago whose
specialty was suburban matrons in flowered dresses saying things that we,
but not they, found funny. The particular cartoon I have in mind shows a
typical Helen Hokanson lady in conversation with several navy sailors, all
in blue uniforms and round white caps. She is saying, “How do you tell one
another apart?” What brought all this to mind was reading the autobiographical essays in this book. There is no such problem for economists: they
come in enormous variety, apparently no two alike. Some are breezy, some
formal, some in between; some are technical, some are meditative; some are
men and some, at last, are women. They are very easy to tell apart.

They do, however, have rather similar ideas. Economists and civilians
come at problems in distinct, recognizable, even stereotypical ways. That is
not incompatible with great diversity within the profession. We call it a “discipline” for a reason, after all. It is supposed to put some limits on “anything
goes.” From the outside, some of those limits seem pretty narrow.
What struck me particularly is that most or all of these (“eminent”)
economists seem to be skeptical about the same limitations in conventional
economics: especially rigid assumptions about greed, rationality, and the
ubiquity of equilibrium. They seem to treat them not as assertions to be
uncritically believed, but rather as convenient, simplifying starting points.
Presumably they should be abandoned when they begin to cost more than
the benefits they confer. Not always, though: you and I, who are always
paragons of intellectual detachment, know that even economists are subject
to waves of belief. As Robert Frost observed (in “The Black Cottage”): “Most
of the change we think we see in life / Is due to truths being in and out of
favor.” This is, of course, a complicated matter. It is interesting to follow, in
these essays, the various ways in which their eminent authors deal with the
xv


xvi

Foreword

interplay between the conventions of the “discipline” and their own observations, intuitions, and analytical needs.
Maybe the picture that emerges from these autobiographies is a bit too
optimistic. The institutions of academic life, especially the appointment
process, do create pressure for uniformity. Frost was right but, to coin a
phrase, there can be long and variable lags.
Here are some not quite random observations that bubble up from the
reading of these stories.

One is about the changing role of women in the profession. The older
women were clearly victims of overt and covert discrimination, conscious
and unconscious, usually casual. My wife, who is slightly older, remembers
the same or even worse: there were leading law schools that did not accept
women as students, let alone as faculty. There is much less of that now, and
what remains is at least shamefaced, in considerable part because of the
achievements of the cohort represented in the book. Here is a lead back to
what I was saying earlier. There are alternative interpretations of this piece
of progress.
One school of thought might say: there you see the market having its
usual benign effect. Another school of thought replies: the market didn’t
jump, it was pushed. Also half-truths come in and out of favor.
Another observation: I was struck by the important role that policy
applications (and other applications) play in the work even of those whose
mark has been made primarily in theory. It rings true.
In my own experience, involvement with policy issues has been a fertile
source of research questions, even fairly abstract questions, to be thought
about later. One has to hope that this is one of the mechanisms that warns
many active economists not to take those simplifying assumptions too
seriously.
I suspect that outside critics of economics are generically unaware of all
this; they are forever beating a dead horse, at least partially dead. I suppose it is natural that graduate students start off by reacting to the literature
instead of to the world. The literature is what they know about. Eventually
that changes.
Lastly, this sample of successful careers suggests that there is no single
path to success. Some of the protagonists just started off well and went from
one good idea to the next, with only a rare dead end. Others didn’t stumble onto pay dirt until considerably later, and sometimes in unexpected
places.

Foreword

xvii

Some are hedgehogs, some are foxes. My impression is that talent (or
good luck) in choosing promising problems to work on is just about as
important as talent (or good luck) in finding solutions. Of course that
insight, if it is an insight, does not offer a lot of practical help in the How to
Make Good department.
There are many interesting stories here, many people worth getting to
know, even apart from their published work. I can think of some missing
tales that I would like to hear. So can you. Maybe they will come along in
due course. Let’s hope so.
Robert Solow February 2013



Preface and Acknowledgments

Some time ago we came across Paul Sartre’s play Huis-clos (No Exit), which
contains the famous line “L’enfer c’est les autres”: “Hell is other people.”1 This
is only half true. Rereading the essays that appear in this volume and interacting with the contributors, we suggest a complementary line, “Heaven is
other people.” Juxtaposing both lines forms one of life’s great equations.
Our contributors traverse continents and cultures and disciplines, and
ultimately end up making major inroads in economics by cultivating their
own garden. They heed Voltaire’s wise words expressed in Candide, “Il
faut cultiver notre jardin.” Our interest in learning, analyzing the various
paths the contributors have taken is to discover the wellspring of creative
impulses in order to cultivate our own garden. Besides being scholarly,
the vivid mosaic essays presented here are inspiring, engaging, meditative,

affecting, and even entertaining. They point the path to scholarly success.
The scholars presented here are “round” in the way E. M. Forster describes
in Aspects of the Novel. Such characters are dynamic and “capable of surprising in a convincing way.” Robert Frost, noted that “[p]oetry begins in
delight and ends in wisdom.” The same can be said about reading the essays
written for this volume: they make us well aware how wisdom is gained in
the scholarly world. Given the turbulent times of the world we live in, we
are reminded of Anatole Frances’s line: “He is a truly great historian; he has
enriched his subject with a new uncertainty.”
This volume owes a great debt to Scott Parris, the senior editor of
Cambridge University Press, for his belief in the project and constant
encouragement. Thank you, Scott. Eminent Economists II: Their Life and
Work Philosophies is a sequel to the 1992 volume, still in print, which was
translated into many languages. This is the third book coming to fruition
under Scott’s stewardship. Also, we would like to acknowledge the cooperativeness of the contributors to this volume with thanks and gratitude.
xix


xx

Preface and Acknowledgments

We are grateful to Bob Solow, who adorns this work with an encore foreword after he did the same for our Franco Modigliani: A Mind That Never
Rests, which was also translated into several languages.
Szenberg is profoundly grateful to Ben Friedman and Victor Fuchs for
being his champions.
Our intellectual debt continues with the members of the Executive Board
of Omicron Delta Epsilon, the Honor Society in Economics, for being an
important source of inspiration, encouragement, and support – Professors
Mary Ellen Benedict, Tina Das, Alan Grant, Paul W. Grimes, Katherine
A. Nantz, Farhang Niroomand, Robert Rycroft, Joseph M. Santos, and Ali

Zadeh – and the Coordinator of the ODE Central Office, Phyllis Carter. We
are grateful for their collegiality and deep friendship.
Pace’s library is a superbly run unit where efficiency and kindness
dwell together. We are grateful to the librarians of Pace University – Adele
Artola, Yakov Bibichkov, Steve Bobich, Wanda Castaner, Amernal Denton,
Michelle Fanelli, Gladys Gonzalo, Alicia Joseph, Sanda Petre, Chloe Pinera,
Rey Racelis, and Ann Wilberton – for being extraordinarily supportive.
Thanks are extended to colleagues at Pace University: Lew Altfest, Arthur
Centonze, Natalia Gershun, Elena Goldman, Aron Gottesman, Iuliana
Ismailescu, Tamara Kelly, and Joe Salerno. They are a constant source of
affection. Szenberg would like to especially recognize Carmen Urma, the
Coordinator of the Finance and Economics Department, for her zest in
work, great assistance, and friendship. We also want to recognize Michelle
Cheung, Natalie Hedden, Elki Herzog, Batya Kunin, and Devora Szenberg.
They did their work with diligence, character, good humor, exactitude, and
patience. They all have lightened many a task. Their assistance was incalculable and we are grateful to them.
Szenberg’s heart still warms with gratitude toward Ester Robbins (Budek),
Leo Faleev, Lisa Ferraro, Laura Garcia, and Marina Slavina, my past talented and devoted graduate research assistants who have helped directly
and indirectly in more ways than I can list to make this book the offspring
of our partnership. Their input lives on in these pages.
Lastly, Szenberg’s deep gratitude is expressed to Stephen J. Friedman,
President of Pace University, for his rare combination of effective leadership, efficiency, humility, kindness, and cheerfulness.
Notes
1 It is important to note that in 1964 Sartre refused the Nobel Prize in literature. Boris
Pasternak was the only other winner in literature who declined the Nobel, in 1958.
However, he was forced to do so by the Soviet authorities.


Introduction

Michael Szenberg and Lall B. Ramrattan
The former collection of Eminent Economists edited by Michael Szenberg
(1992), profiling twenty-two preeminent economists of the preceding
decade, has been successful in whetting the appetite of readers but not satiating it. Rather, the idea of such a compilation has created such a niche for
itself among economists, readers, and students that it stands to become a
genre in itself. Just as William Shakespeare questions the law of diminishing returns in his play Twelfth Night; or, What You Will when Duke Orsino
asks for an excess of music that may sicken his appetite for love, readers
here seem to want more philosophies and stories of the lives and times of
eminent economists. Just as more music will not kill Orsino’s love for the
beautiful Lady Olivia, these compilations will keep inspiring new generations of economists bridging times.
Finance and economics combine to form the bedrock of modern-day
society, and these economists occupy an important podium attempting
to satisfy limitless human wants within the limits of Mother Nature in a
1


2

Eminent Economists II

sustainable and incremental way. They formulate ideas drawing knowledge
from other fields such as mathematics, computer technology, and human
behavior, collecting and collating hundreds of bytes of data to understand
the forces of the market and make human life just a bit better.
These eminent economists are prominent faces in electronic media today,
trying to explain the economic problem-solution paradigm to the public, in
the classroom preparing the next generation of leaders, and advising policy makers in the government. Behind the curtains they toil, burning the
midnight oil to build economic models and explain situational logic and
empirical facts. A compendium like this one is a beautiful attempt to bring
several ideologies together on a single platform so that the reader is able to

compare, contrast, critique, and perhaps identify with, and advance, a particular school of thought.
Readers can seek to identify levers that propelled these economists and how
some of them used even life-threatening experiences to evolve groundbreaking theories. Anne Krueger writes how she was influenced by news and events
of the Second World War as well as by graduate students in regard to “disguised unemployment,” which channeled her thought processes in the direction of the international economy. For another group of economists, it may
have been just a book that intrigued them enough to explore further. Harold
Demsetz was influenced by Edward Chamberlin’s Theory of Monopolistic
Competition (1933), and Michael Intriligator tells us how his teacher had him
read Roy Harrod’s Life of Keynes and how it changed his life.
In his seminal masterpiece, The Open Society and Its Enemies, Karl
Popper wrote: “The analysis of the situation, the situational logic, plays a
very important part in social life as well as the social sciences. It is, in fact,
the method of economic analysis” (Popper 2003: 107).
Quite a few of the contributors to this volume have appealed to situational logic.
Vernon Smith, anchoring his learning in faith, writes that “if the universe
had always existed it seemed that there was room aplenty for Einstein’s
impersonal God, the deism of natural rules, order, and beauty, to say nothing
of agnosticism and atheism.” His view of determinism is coupled with situations as well. For instance, his experiment revealed that the Great Recession
can be explained by the situational logic of the Great Depression: “These
data are just a rerun of comparable movements in new housing expenditures before and during the Depression, when the investment boom in
housing was shorter-lived than in the recent run . . . starting in 1922 it rose
to fraternal twin peaks in 1925 and 1926, when expenditures stood almost
60 percent above their 1929 level. By 1933 new housing expenditures had
catered to more than 85 percent below their 1929 level.”


Introduction

3

In a similar fashion Avinash Dixit writes: “Economics is all around you,

and it is not the least bit dismal. Learn to recognize it, appreciate it, and
enjoy it.” Having grown up in a Berkeley environment and always surrounded by professors, Barry Eichengreen surmises: “Put an undergraduate in an unstructured environment and he or she will go in one of two
directions. One is off the deep end, which for my classmates meant making
candles in Ben Lomand. The other is in search of more structure. This is my
best explanation for how I ended up in economics.” Drawing more upon
situational logic Clair Brown writes, “The Vietnam War helped women
enter the economics field because when the draft lottery began in 1970 and
graduate studies no longer provided draft deferment, the universities were
scrambling to replace male graduate students who were drafted and others
who decided not to apply.” In the same vein, Elinor Ostrom relates how
conditions during the Great Depression taught her “a lot about the household economics of a poor family – long before [she] studied these problems
in developing countries,” while Anwar Shaikh describes how meeting with
Joan Robinson set the stage for his important contribution known as the
“Humbug production function.”
Though only a shade away from faith, luck plays a role in states of eminence as well, and at least two of the eminent financial economists in this
compilation seem to clearly assert themselves in this category. John Campbell
opens his piece with the claim that he accidentally entered the field of economics, while John Hull emphasizes the chance events that brought him
into economics, such as: “The job at London Business School, which led to
my move back to academia, happened by chance; my move from the UK to
Canada happened by chance; my derivatives research with Alan started by
chance; and so on.” He cautions us, however, that “we should not underestimate the importance of education, industriousness, perseverance, pragmatism, search for opportunities, and taking full advantage when they present
themselves. . . . Luck tends to happen more often when we are doing what
we enjoy.”
In a similar vein, Alan Blinder, states, “This essay has emphasized how
accidents here and there shaped my career, opening some pathways while
foreclosing others.” He started studying mathematics before he switched
to economics and presented a Keynesian point of view that is grounded
in his dissertation on distribution and confronted Keynesian fiscal and
monetary policy with economic reality. In particular, when he was a member of President Ford’s Council of Economic Advisers (CEA), he got the
“Aha” sensation from Alan Greenspan, chairman at the time, that the

1973–1975 recession was sourced to a decline in inventory investment for
which Keynesian polices brought closure. But this did not square with the