Back to the World: Berkeley’s Economists Attack Policy Issues With Unusual Gusto

Berkeley is having prospective PhD students visit the economics department today, so I wanted to share an old gem on Berkeley’s “real world economics”

WALL STREET JOURNAL (J) 12/01/95 Copyright (c) 1995 Dow Jones & Company, Inc. By Thomas T. Vogel Jr. Staff Reporter of The Wall Street Journal BERKELEY, Calif. —

Activists have taken over at Berkeley, again. The school that was synonymous with 1960s tie-dyed radicalism is once more in the vanguard. This time it’s shaking up the economics profession, and the rebels are on the faculty, the 42 Ph.D.s in the Department of Economics at this University of California campus.

Their battle cry is “real-world economics,” and they talk and write about today’s hot-button issues, such as jobs and wages, immigration policy, the dollar and currency markets, business cycles and technology’s role in economic growth. While intellectually rigorous, many of their pursuits are a sharp departure from the esoteric realms of many academic economists, who churn out papers strewn with Greek- letter formulas understood by few and interesting to even fewer.

The Berkeley economists’ focus on policy issues has turned the school, which nearly sank into obscurity a dozen years ago, into one of America’s most influential. Nearly a quarter of the economics faculty has gone on leave to Washington in the past two years. With so many professors ladling out so much advice, Berkeley has become a formidable challenger to economic-policy power centers such as Harvard, Princeton, Chicago and Stanford. And with Berkeley’s Laura Tyson now heading President Clinton’s National Economic Council, the university seems to some observers like a hotbed of managed trade and other Clinton-administration enthusiasms. Many others, however, contend Berkeley doesn’t show the ideological fervor of, say, the University of Chicago and its laissez-faire approach. What distinguishes most Berkeley economists, by contrast, is a willingness to get their hands dirty. Theory is important, they say, but not in and of itself. The application of theory to real-world problems most interests them, and this attitude pervades the school. Other top universities are trying to steal Berkeley’s real-world thunder by hiring away some of its brightest stars. “I spent three years fending off raids from other top-ranked schools,” including the University of Pennsylvania, Chicago, Harvard, Yale and Princeton, says John Quigley, who finished a stint as department chairman this summer. Some noted economists view Berkeley’s real-world emphasis as possibly the start of a trend — one long overdue. Nobel laureate James Tobin of Yale sees signs of a “pendulum swing” back to earlier concerns. “Sometimes the methodology that was developed in the last 20 to 25 years gets in the way,” he says. Typifying Berkeley’s new breed is Alan Auerbach, who was recruited from the University of Pennsylvania last year to start Berkeley’s Burch Center on Tax Policy and Public Finance. Mr. Auerbach says he moved partly out of disappointment with the way many economicsfaculties have become increasingly divorced from real problems and do a lot of theoretical work that “may bear very little relationship to the world we live in.” At Berkeley, a faculty member isn’t looked down on for both being active in policy making and doing scholarly research, “as you can see from the number of Berkeley people in Washington right now,” Mr. Auerbach says. At many schools, he complains, “it was becoming difficult for a newly minted economist to become what I would view as a well-rounded scholar.” Mr. Auerbach was the deputy chief of staff of Congress’s Joint Committee on Taxation in 1992 and is now on a National Research Council panel on the economic and demographic effects of immigration. Among other Berkeley economists getting their hands dirty are Janet Yellen, a Federal Reserve governor who has an appointment at the university’s business school, and her husband, George Akerlof, who divides his time between the Brookings Institution in Washington and a class he teaches at the school. Michael Katz is chief economist at the Federal Communications Commission. Richard Gilbert recently finished a stint in the Justice Department, where he played a key role in the Microsoft Corp. antitrust case. He was replaced by Carl Shapiro, another Berkeley faculty member. And when Ms. Tyson headed the President’s Council of Economic Advisers, she brought several other Berkeley economists to Washington to serve on the CEA staff. “At one point I thought we should have department meetings out there,” Mr. Gilbert jokes. In addition, many Berkeley faculty members have taken on influential work outside the Beltway. Christina Romer has done research debunking the notion that U.S. business cycles are becoming less volatile, and Paul Romer (no relation) has written extensively about the role of technology in spurring economic growth. Noting the school’s “powerful influence,” Ms. Tyson says a lot of the ideas influencing “the first part of this administration and certainly throughout our trade policy and our technology policies actually had their birth in Berkeley” or were studied closely at the school. Not surprisingly, some economists don’t agree that the profession has become too theoretical. One is Chicago’s Robert Lucas, who won a Nobel Prize this year for his theoretical work on rational expectations and was a member of an American Economics Association panel that produced a report on graduate economics programs in the U.S. At the end of a section of that 1991 report, about how the programs seemed to screen out students weak in advanced mathematical skills more readily than those weak in undergraduate economics skills, Mr. Lucas asked, “Why is it regarded as a concern?” He says the report exaggerated “the amount of math that is being required to make it seem excessive” and provided no hard evidence to back this criticism. But his colleagues who helped assemble the report, including Alan Blinder, the vice chairman of the Federal Reserve but then a professor at Princeton, were concerned nonetheless. An “underemphasis” on the links between economic tools and real-world problems “is the weakness of graduate education in economics,” the report concluded. Graduate “programs may be turning out a generation with too many idiots savants, skilled in technique but innocent of real economic issues.” At one unnamed “leading” university, graduate students couldn’t “figure out why barbers’ wages have risen over time,” but they could easily “solve a two-sector general equilibrium model with disembodied technical progress in one sector,” the report noted. Things haven’t changed very much since the report came out. “The economics profession is really in wonderland,” says Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis. “I have tried several times to hire Ph.D. students. They knew everything about rational expectations but not about economic forecasting or how the financial system works.” Just a dozen years ago, Berkeley graduates tended to be a bit short on reality, too. In the 1960s and 1970s, the school was considered a center of high-brow theory; in 1983, Berkeley’s Gerard Debreu won a Nobel for theoretical work on how prices operate to balance supply and demand. But by then, the school was no longer ranked among the top 10, or perhaps even the top 20, graduate economics programs in the U.S. In a 1981 review, a group of outside economists said it was “a shame that the status of the Department of Economics has deteriorated over the last 20 years on the Berkeley campus.” Part of the problem was an odd polarization of the department, which in the late 1970s was top-heavy with professors near retirement age. In one camp was a group of theorists, ensconced in Evans Hall, and in the other, macroeconomic generalists and historians, across the campus in Barrows Hall. At times, the macroeconomists called the theorists mathematicians, and the theorists called the macroeconomists sociologists; neither group thought the other was doing real economics. The schism was perpetuated by longtime professors in both camps who tended to vote in blocs for job candidates who specialized in their favorite fields. “It was discouraging,” says Jeffrey Frankel, who joined the faculty in 1979 but contemplated leaving just five years later. But after the 1981 review and a number of others, the faculty began hiring in a wider range of specialties. Later, the university bought out a number of tenured professors as part of a schoolwide cost- cutting program. The result: a flood of young blood and a dramatic drop in the faculty’s average age from the 60s to somewhere between the early 40s and early 50s. About 80% of the current faculty wasn’t around in 1979 — a huge turnover in academia. Once again, Berkeley is considered one of the top five to seven economics faculties nationally. And, of course, it hardly neglects theoretical work now. Last year, Berkeley’s John Harsanyi shared a Nobel for his work on game theory. But the faculty’s changed character is typified by the Colloquium for Research on International Politics and Economics. The interdisciplinary seminar, led by Mr. Frankel, invites experts to discuss current issues ranging from U.S. trade policy to developing nations’ debts. Last month, nearly two dozen students and professors sipped soda, nibbled sandwiches and discussed the Mexican currency crisis. They heard Bradford De Long, a U.S. Treasury official during the crisis, and Professors Frankel and Barry Eichengreen, experts in international economics, give a play-by-play review and analysis. Handouts included a copy of the Treasury Department’s press release for the $50 billion financial-support package to keep Mexico from defaulting on its debt. Mr. De Long, an expert on financial markets who played an advisory role on the package, told how he stopped what he considered a serious misstep: The Treasury’s public-relations aides planned to try to drum up lobbying support for the package by telling some businesspeople about it before most others were informed. “I made a sprint down the hall to stop them,” he said. Such experiences color many Berkeley professors’ attitude toward policy issues. “You come back from Washington in one of two moods,” Mr. De Long says. “The first is hopelessness: Let me work on something abstract and avoid economic policy completely. The second is: My God, there is so much to be done!” Berkeley’s real-world emphasis also extends to the undergraduate introductory course taught by Christina Romer. She kept the attention of 900 students packed into an auditorium recently by making fun of the artificial examples in the textbook. She also sprinkled references to the 1970s oil crisis and other events into her discussion of shifts in short-run supply curves. Then, she asked the students for a few real-world examples of their own. “I hate textbooks, so there are no `widgets’ in my course,” she said after the class. “Why make things up when there are so many interesting things going on?” The changes seem to attract better students. The percentage of publishable papers produced in one graduate course has risen to 50% from 10% in four years, notes Daniel McFadden, the department’s current chairman. “That’s an awful lot.” And Fabio Ghironi, a graduate student who turned down nine other schools, including Chicago, Yale and Minnesota, to come to Berkeley, says, “I want to be an international economist and do theory and find some way to apply it to reality. I don’t want to be only a theorist.”

 

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About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar. http://faculty.chicagobooth.edu/owen.zidar/index.html
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