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at UC Berkeley The Econ Exchange Vol. 12, No.1 Spring 2009 Christina Romer’s Gone to Washington When selected Christina (President Obama’s Romer to lead the Council of Economic senior ecoomic advisor) “and the country Advisers, he tapped into her expertise on that he has colleagues who are willing and how the emerged from the able to argue with him.” . University of Chicago economics Pro- “Christina who?” wailed Politico, Wash- fessor Chang‑Tai Hsieh told the Boston ington’s 24-7 insider blog. After digging Globe: “She also has an incredible ability in, Politico learned that Dr. Romer had to take complex ideas and make them burst onto the economic scene a genera- simple.” tion earlier with her doctoral dissertation Berkeley’s Professor Bradford DeLong that fundamentally changed how econo- told the Washington Post: “She has the mists view the Great Depression. principal required characteristic of a Obama knew that. “Christina has done CEA chair: the ability to clearly explain ground‑breaking research on many of the unpleasant and somewhat complex truths topics our administration will confront, about the world to powerful people with- from tax policy to fighting recessions. out making them mad.” And her clear‑eyed, independent analyses A week after her nomination, Dr. have received praise from both conserva- Romer left for Washington where she tive and liberal thinkers alike.” worked with , Vice That Christina Romer is a cipher to President ’s economic ad- recession in half a century would worsen non‑ is a pity, Harvard econo- viser, on a paper that prompted spirited without energetic intervention, she mist Edward L. Glaeser opined in The discussion in newspapers, television, and laid out a bleak forecast—with the US New York Times. “She is among the most the Internet. Their paper provided the Continued on page 9 interesting and impressive of Mr. Obama’s backdrop for President Obama’s $867 choices… one of the world’s pre‑eminent billion plan—the American Recovery and What’s Inside? economic historians and her scholarship Reinvestment Act—passed by Congress From the desk of Gérard Roland 2 makes her particularly well‑suited for and signed into law within weeks of his Crisis panels online 2 advising a president during this tumultu- inauguration. Intended as a jump start, ous period.” the plan is the largest infusion of cash Roundtable series 3 He continued, “Her writings on eco- into the economy in US history. Make a gift 3 nomic history have been among the most Dr. Romer urged President Obama Ted Miguel’s Economic Gangsters 4 influential written in the last 30 years. … to promote policy that will keep capital Commencement 6–9 Her scholarship is deep and important. flowing through the financial system and Two faculty obituaries 9 Her intellectual tenacity and good judg- to inject government spending into the Faculty notes 11 ment give her the right temperament to economy even at the risk of ballooning Barry Eichengreen’s ‘instant’ book 11 head the economic council.” the deficit. Two books by 12 Dr. Glaeser said she “displayed plenty Before the bill became law, Dr. Romer of courage in challenging well‑established went on television and online to explain orthodoxies” and, that it is better for both the President’s plan. Saying the worst Designed and edited by Bonnie Britt.

News from the Department of Economics Econ Exchange From the desk of Gérard Roland Greetings! I am thrilled to have been asked to be Chairman of this great department for the next three years. These are challenging times for economists. For the first time since 1929, the world risks getting engulfed in another Great Depression that could lead to millions and millions of job losses worldwide and to unprec- edented spread of poverty. Never since the Great Depression has economic policy mattered so much for the livelihood of billions of people on our planet. In this context, we are very proud and also reassured, that our colleague Christina Romer was chosen to be the chair of the Council of Economics Advisers in the Obama administration. Christina Romer is one of the most distinguished macroecono- mists in the country and one of the world’s best scholars of the Great Depression. Given her expertise, it is difficult to imagine someone better equipped to chair Obama’s Council of Economic Advisers and face the challenging tasks ahead. The national and international press was full of praise for her nomination. Our colleague Barry Eichengreen, together with Richard Bald- other fields. Undoubtedly many established theories will be chal- win from the University of Geneva, put together in record time lenged and replaced by better theories providing better policy two booklets with essays by prominent economists in preparation prescriptions. Our department will strive to remain at the top for the October G8 meeting and the November G20 meeting. and be a leader in these new upcoming research debates. Ideas from these two books have had a major influence on emer- In order to do this, we need to be able to continue hiring the gency measures taken (or implemented) by European countries, best scholars, junior and senior, who will rise to the challenges in particular the idea of government guarantees of new lending of the times and achieve the needed path-breaking research. This between banks. will not be easy given the current budgetary realities in Califor- Our colleague Brad Delong has played a prominent role in nia. However, never before has the expected benefit of frontier online debates among bloggers about the right economic policies economic research in a top department like ours been so large to prevent a new Great Depression and other colleagues have also and so useful for society. been very active in these very important policy debates. Berkeley Our network of alumni and friends is an invaluable source of economists are thus strongly present on the economic policy support in helping us fulfill our role as a top economics depart- front in these exceptional times. ment. The current economic situation is also an important reality test — Gérard Roland for established theories, especially in macroeconomics but also in

Crisis panels online: Good Bank Bad Bank and Meltdown

Professor John M. Quigley moderated a panel Feb. 18 on “Good From the department, John Quigley, J. Bradford DeLong, and Bank Bad Bank: Increasing Credit Liquidity, Stemming Foreclo- Barry Eichengreen joined Aaron Edlin, professor of law and sures and Supporting the Economy.” The webcast: economics, and Nancy Wallace, Professor at Haas and Co-Chair, www.law.berkeley.edu/goodbankbadbank.htm. Fisher Center for Real Estate and Urban Economics. The video: Professor George Akerlof led a panel in October on how the www.law.berkeley.edu/files/bclbe/20081002-gfmt-bclbe-ref.mov financial market meltdown occurred, the government’s response, and the impact on American households and global markets.

 News from the Department of Economics Spring 2009

Economics Roundtable How to Make a Gift As you know, private philanthropy is One of department chair Gérard Roland’s financial instruments, and deregulation essential to carrying out our educational goals is to develop stronger relationships allowed them to put new instruments vision. Indeed, thanks in large part to with our alumni and friends. To that end, to work. The downside is that we were the generosity of our donors, Econom- he conceived the idea of holding round- exposed to a lot of vulnerability.” ics at Berkeley has long been one of the table events for the purpose of bringing Economists, Romer noted, have looked premier departments in the country. together a small group of thoughtful, long and hard at how the crash in asset Generous contributions from our knowledgeable alumni to participate in markets affected the economy. “It’s not friends have provided faculty support, informal panel discussions with outstand- the crash or the amount of wealth that graduate and undergraduate support, ing faculty members who are pursuing is destroyed,” she said. “In fact, it’s that and funded research and travel grants. cutting-edge research in their fields. the volatility in stock price (that) makes Annual discretionary support helps us Chair Roland and Dean Jon Gjerde people uncertain, nervous. If you see this seize opportunities to meet our urgent, co-hosted the first roundtable event in volatility, you spend less. You say, ‘maybe unplanned needs. the autumn, inviting some fifty Berkeley now’s not the time to buy a car at all.’ All We hope you will consider supporting alumni and Economics faculty to dis- the measures of volatility are off the charts the department this year knowing that cuss the economic outlook for the next in this episode. And that can be devastat- your gift will ensure that Economics at U.S. administration—a lunchtime event ing for consumer spending.” Berkeley will continue to thrive, now planned months ago, but which became The new administration would be wise and in years to come. particularly urgent and timely in the wake to avoid cutting taxes as a way to increase If you wish to make a gift to the de- of the housing market meltdown and consumer spending. A better approach, partment: volatile stock markets. she said, would be to invest in state infra- Faculty speakers whose research fo- structure projects like Roosevelt’s Works • You can do cuses on US and international economic Progress Administration. “We need to do so by clicking policy were featured: Christina Romer, smart spending and public investments. on the Give to Alan Auerbach, and Maurice Obstfeld. It’s cheap and people want jobs.” Economics@Cal The moderator was Hal Varian, Chief A lively interactive discussion followed button at: at Google and Professor in our the speaker presentations and all agreed http://emlab.berkeley.edu/econ/. Department of Economics. the event was engaging and informa- Your gift will support the “Econom- At the roundtable that occurred in the tive. Hal Varian said that today’s market ics Annual Fund” unless you specify weeks before her nomination to join the conditions present a “once in a lifetime “Graduate Student Support” in the Obama administration, Professor Romer opportunity for economists. At least we special instructions box at the end of the noted significant blind spots in the fore- hope it’s once in a lifetime.” online form. casting capacity of the , A complete report of this event is at • Or, you can mail a check payable particularly in areas of technological in- http://www.econ.berkeley.edu/econ/ to the UC Berkeley Foundation with novation in financial markets. roundtable102408.shtml. instructions to designate the gift for “We’re discovering we did well on For up-to-date Economics Department the “Economics Annual Fund” or for broad, macro-economics indicators, but news, drop by “Graduate Student Support.” other things were brewing in the back- http://emlab.berkeley.edu/econ/. The address is: ground that we were slow to realize,” she If you would like to be invited to future UC Berkeley Department of Economics said. events, contact Melissa Waver at 510- College of Letters & Science “Some really smart people have thought 643-1113 or at [email protected]. 2150 Shattuck Avenue, Suite 300 of creative ways to come up with new Berkeley, CA 94704 On behalf of all of us here at Cal, we are grateful for your continuing support of our efforts.

http://emlab.berkeley.edu/econ/  Econ Exchange Chief investigator, Professor Ted Miguel...

Meet the economic gangster. He’s the United poverty. Nations diplomat who double-parks his Q. You and co-author Ray Fisman Mercedes on New York City streets at rush touched a popular nerve several years hour because the cops can’t touch him—he ago with your research on the mundane has diplomatic immunity. He’s the Chinese subject of cars illegally parked near the smuggler who dodges tariffs by magically United Nations—a subject of immense transforming frozen chickens into frozen tur- concern to ordinary New Yorkers in a city keys. The dictator, the warlord, the unscru- with streets and avenues clogged with traf- pulous bureaucrat who bilks the developing fic. What triggered your interest in traffic world of billions in aid. The calculating tickets that had been routinely discarded crook who views stealing and murder as just based on diplomatic dispensation? another part of his business strategy. And, in A. A couple of years ago, I was listening the wrong set of circumstances, he might just to an NPR story about the diplomatic be you. parking problem in New York City while The Economic Department’s Ted Miguel and drinking my morning coffee, and I asked co-author Raymond Fisman are receiving myself—are the Nigerians any worse than enthusiastic reviews for their book, Eco‑ the Norwegians? It turns out that they are how in society. Think about the prob- nomic Gangsters: Corruption, Violence, and the rest is history. Ray and I wrote lem of corruption, the issue that Mayor and the Poverty of Nations. Professor up the paper and it got an insane amount Mockus tackled in Bogota. There are a lot Miguel was met with a standing room only of media attention, including write ups of different types of policies that could crowd at the Cal bookstore when it went on in , Economist, and reduce corruption. We could raise salaries sale. We stopped to question this economic newspapers literally around the world. I for bureaucrats to see if that lowered the detective, and here’s what he was asked and sometimes tell graduate students to read temptation to take bribes. We could boost answered. the newspaper if they want innovative the anti-corruption arms of police forces. thesis ideas. This is a case in point. Q. You manage to integrate grim topics Ultimately, different approaches could work better or worse in different places. of widespread violence and murder in Q. The material for the remarkable developing countries with the delightful There is no single silver bullet. What we advocate for in the book is a chapter on witch killings is based on your story of the mayor of Bogotá, Colombia, journal article connecting poverty with who ingeniously used mimes to affect more scientific and experimental approach to finding out what works in fighting eco- accusations of witchcraft and the murder attitudinal change in the citizenry. He of older women. When did you make the was able to tease out successful reform in nomic gangsterism. We strongly believe that governments, NGOs, and foreign aid connection between the scarcity of rainfall a violence-weary city by using unusual (leading to extreme poverty) and “witch” methods such as making widespread use donors should all devote more resources to the rigorous impact evaluation of their killings in certain districts in Tanzania and of mimes to control traffic crime and other areas? fatalities. That mayor, Antanas Mockus, development projects. Right now, there is was a mathematician. Is there a role for more rhetoric than hard evidence about A. I originally started working in Tanza- economists in changing destructive cul- what works. nia to study issues of ethnic divisions and tural attitudes (even if the economists do Here at UC Berkeley we have created local politics, but while doing field work not to run for public office)? the Center of Evaluation for Global Ac- in Meatu district, a very poor area in the tion (CEGA) around this central goal of country, I came face to face with witch A. There is a real role for economists in promoting impact evaluations in devel- killings. Half of all murders in the region tackling a lot of problems in international oping countries. I hope people will visit are murders of women accused of be- development, including corruption and CEGA’s Web site (http://cega.berkeley. ing witches; it’s an incredibly widespread culture. Our role as economists is to be edu/template.php?page=home ) to learn problem. We collected detailed survey providers of insight into what works and more about this tool for fighting global information in the district and found a re-

 News from the Department of Economics Spring 2009 ...on the Trail of Economic Gangsters markable correlation: attacks and murders own and of other scholars that we bring of “witches” skyrocket in years when the together in Economic Gangsters is fruit of rains fail. In this agrarian region, drought this revival in the field. comes in years when crops fail and people often literally have nothing to eat. It is Q. Would you describe your suggestion under these desperate circumstances that for Rapid Conflict Prevention Support some households attack the elderly women in violence prevention, and evaluate its in their midst, to ease the resource burden promise? on their households and ensure that younger—and presumably more produc- A. Definitely. One of the striking findings tive individuals—survive. When people are in the book is the link between economic reduced to the rational calculus of survival, downturns and civil war. The risk of civil conscience is a foregone luxury. war is much higher following a drought year relative to a good rainfall year. Crops fail, incomes fall, and a lot of people find Q. Do you foresee extending your interest themselves suddenly on the edge of sur- in the study of curbing violence in devel- vival. In those years, the risk of political oping countries to stemming violence in violence shoots up. That has implications American cities? for how we should think about climate A. The same sorts of tools, methods, and change, especially in Africa. If climate economic analysis we use to understand change makes drought years more com- violence in poor countries in Economic mon, it can increase risk of civil war in Gangsters can definitely be applied to US the coming decades. There is still debate cities. There are other economists, most about what climate change will look like famously Steve Levitt of University of in Africa, but some of the leading models Chicago but also including my colleague are quite pessimistic. So we need to take , who have made their this issue seriously. names doing just this. RCPS is one of several specific policy proposals that we develop in Economic Q. The chapter on the connection be- Gangsters. The idea behind RCPS is that tween corruption in Indonesia and the we can use foreign aid as insurance, to health of Suharto underscores the valuable stop conflicts before they start. role of detective work in identifying the Now that we understand the link run- dollar value of corruption. Did you and ning from extreme economic downturns, Ray have special training as detectives, or due to drought, and political violence, is it in your genes? aid agencies can monitor the weather and other factors—like sharp commodity price A. Ha—that’s a good one. I’ve always been movements—that could lead to sudden interested in global poverty and injustice, economic recessions. Then they should since high school. But the detective work increase foreign aid to these vulnerable is a product of training as an economist. countries, keeping their economies afloat Development economics has been an and preventing civil wars from breaking extremely exciting field in recent years, as out. It’s like preventive medicine. a new generation of researchers has started The blog is here: http://www.economic- tackling new topics, like corruption and gangsters.com/ violence and the role they play in keep- ing countries poor. The research of our

http://emlab.berkeley.edu/econ/  Econ Exchange Commencement at the Greek Theater May 22, 2008 Professor Benjamin Hermalin introduced the commencement in Public Finance field courses. The prize honors George Break, speaker, Professor Emeritus and Nobel Laureate George A. Akerlof. a leader in public finance and professor in the Economics Department for 40 years. Eliot J. Swan Prize Professor David Card pre- Competition Policy Center Prize sented the Eliot J. Swan Prize Professor Richard J. Gilbert presented to Jennifer Elizabeth Brown to Jian Li for best performance the Competition Policy Center Prize recognizing her outstanding in the first year of the Ph.D. dissertation, written on the Berkeley campus, addressing an issue of program. The prize, includ- competition policy. A committee of the faculty awarded Ms. Brown the ing cash component, recog- prize and cash component for her dissertation on “Quitters Never Win: nizes discipline and dedication. The (Adverse) Incentive Effects of Competing With Superstars.” Eliot J. Swan was a graduate Graduate Student Instructor Awards student, teaching assistant, and Professor Martha Olney presented the Graduate Student Instructor instructor in the Department Awards to Richard Crump, Jane Herr, Ashley Langer, Matthew of Economics at UC Berkeley Levy, Vikram Maheshri, Paulina Oliva, and Mike Urbancic, each of from 1932‑41. He served as them deemed to be outstanding instructors selected for these honors by President of the the Department based on teaching evaluations. Federal Reserve Bank before retiring from the bank in 1972 after 31 years of service. Awarding of doctoral degrees Journal of Development Economics Award Saurabh Bhargava. “Perception is Relative: Sequential Contrasts Professor Ted Miguel conferred the Journal of Development in the Field.” Dissertation Advisor: Professor Stefano DellaVigna. Economics Prize to Suresh Naidu in recognition of his outstanding Plans: Saurabh has accepted a position as an Adjunct Professor in the work in Development Economics completed during the academic year. Department of Economics at the University of Chicago School of With a cash component to recognize the student’s accomplishment, Business. the goal is to support students in their thesis writing. Faculty members Matias Damian Cattaneo. “Essays in Semiparametric and Non- who specialize in Development Economics decide each year’s recipient. parametric Microeconometrics.” Dissertation Advisor: Profes‑ sor James L. Powell. Plans: Matias has accepted a position as Grace Katagiri Prize an Assistant Professor in the Department of Economics at the Professor Jim Powell presented the Grace Katagiri Prize to University of Michigan. Maximilian Kasy for the best empirical metrics paper submitted by a Madhav Chandrasekher. “Discrete Models of Menu Choice.” second-year graduate student. With a cash component to recognize the Dissertation Advisor: Professor Chris Shannon. Plans: Madhav student’s accomplishment, the Grace Katagiri Prize, awarded in 2008 has accepted a position as an Assistant Professor in the Depart- for the first time, honors Grace Katagiri, longtime employee of the ment of Economics at the W.P Carey School of Business at economics department. Arizona State University. Graduate Student Award for Public Policy Eric Justin Chaney. “The Economic Effects of Tolerance.” Dissertation Research in Economics Advisor: Professor Barry Eichengreen. Plans: Eric has accepted a Professor Alan Auerbach presented to Dayanand Manoli the position as an Assistant Professor in the Department of Economics at Department of Economics Graduate Student Award for Public Policy . Research. With a cash component, this prize, which is decided by Paul Po‑Yuan Chen. “The Dynamics of the Higher Education faculty specializing in Public Policy, recognizes a student performing System.” Dissertation Advisor: Professor . Economics research relating directly to Public Policy. Emily Conover. “Essays in Development Economics.” Dissertation George Break Prize in Public Finance Advisor: Chang‑Tai Hsieh. Plans: Emily has accepted a position as Professor Alan Auerbach presented the George Break Prize in an Assistant Professor in the Department of Economics at Hamilton Public Finance to Anne Moore for outstanding performance College.

 News from the Department of Economics Spring 2009

Elise Andrea Couper. “Poor Relief in Elizabethan Norwich.” Department of Economics at Dartmouth College as he completes a Dissertation Advisor: Professor Brad DeLong. postdoctoral year at . Peter Matthew Fishman. “Essays in Psychology & Economics.” Melissa Knox. “Essays in Economic Development.” Dissertation Dissertation Advisor: Professor . Advisor: Professor Edward Miguel. Plans: Melissa has accepted a po- sition as PostDoctoral Research Associate at the Evans School of Public Keith Jacks Gamble. “Essays on Investor Behavior.” Dissertation Affairs at the University of Washington. Advisor: Professor Matt Rabin. Plans: Keith has accepted a position as a Lecturer in the Department of Economics at Yale University. Anne Nathalie Le Brun. “Essays on Immigration and Crime Dissertation.” Advisor: Professor David Card. Andrew Teruo Hayashi. “Essays in Behavioral Law and Economics.” Dissertation Advisor: Professor Botond Koszegi. Plans: Andrew has Si‑Yeon Lee. “Essays on Corporate Control.” Dissertation Advisor: accepted a position as Associate in the Tax Department of the law firm Professor Barry Eichengreen. Plans: Si‑Yeon has accepted a position Davis Polk & Wardwell in New York. as Researcher at the Korea Institute of Finance. Jane Leber Herr. “Fertility Effects on Women’s Career Paths.” Jessica Leigh Leino. “Community and Private Sector Approaches Dissertation Advisor: Professor David Card. Plans: Jane has accepted to Development in Kenya.” Dissertation Advisor: Professor Edward a position as Postdoctoral Researcher at the Harris School of Public Miguel. Plans: Jessica has accepted a position as an Economist in the Policy at the University of Chicago. Young Professionals Program at World Bank. Pamela Jakiela. “Essays in Experimental Development Economics.” Kristóf Madarász. “Essays in Game Theory and Behavioral Dissertation Advisors: Professor Edward Miguel & Professor Economics.” Dissertation Advisor: Professor Matt Rabin. Plans: Shachar Kariv. Plans: Pam has accepted a position as an Assistant Kristóf has accepted a position as Assistant Professor at the London Professor in the Department of Economics at Washington University. School of Economics. Robert Christopher Johnson. “Essays on International Trade and Dayanand Sadanand Manoli. “Essays in Public Economics.” Prices.” Dissertation Advisor: Professor Pierre‑Olivier Gourinchas. Dissertation Advisors: Professor Alan Auerbach & Professor Plans: Robert has accepted a position as an Assistant Professor in the Emmanuel Saez. Plans: Day has accepted a position as an Assistant

From left, Professors Enrico Moretti, Ben Hermalin, Alan Auerbach, and Gérard Roland. Professor Emeritus George Akerlof is in front.

http://emlab.berkeley.edu/econ/  Econ Exchange

Karen Selody. “Essays in Behavioral Finance.” Dissertation Advisor: Professor Ulrike Malmendier. Kevin Michael Stange. “Empirical Essays on the Determinants of Educational Attainment.” Dissertation Advisor: Professor David Card Plans: Kevin has accepted a position as an Assistant Professor in the Ford School of Public Policy at the University of Michigan. Sharad Alan Tandon. “Essays in the Political Economy of India.” Dissertation Advisor: Professor Pranab Bardhan. Plans: Sharad has accepted a position as an Agricultural Economist in the Economic Research Service of the US Department of Agriculture. Bing‑ru Teh. “Essays on Crime and Urban Economics.” Dissertation Advisor: Professor David Card. Plans: Bing‑ru has accepted a position as an Economist with Mathematica Policy Research. Professor Richard Gilbert enjoys the moment with his student. Undergraduate Honors University Certificate of Distinction Professor in the Department of Economics at UCLA. Professor Clair Brown presented the Certificate of Distinction Nathan H. Miller. “Essays in Antitrust and Banking.” Dissertation and cash prize to Anitha Sivasankaran, who was among five Advisor: Professor Richard J. Gilbert. Plans: Nathan has accepted a finalists for the 2008 University Medal denoting the most distin- position as a Research Economist in the Economic Analysis Group of guished graduating senior on the Berkeley campus. the Antitrust Division of the Department of Justice. Departmental Citation Suresh Naidu. “Essays in the Political Economy of Development.” & Rolph Memorial Prize Professor Pranab Bardhan & Professor Dissertation Advisors: Professor Clair Brown presented the Departmental Cita- Gérard Roland. Plans: Suresh has accepted a position as Postdoctoral tion and Earl Rolph Prize and cash component for outstand- Fellow in the Harvard Academy for International and Area Studies at ing academic achievement to Zhenyu Lai, author of the best Harvard University. undergraduate honors thesis in Economics. Earl Rolph was a Christine Pinto. “Semiparametric Estimation of Peer Effects.” Professor of Economics, 1937–77 at UC Berkeley. Recalling his Dissertation Advisor: Professor Bryan Graham. Plans: Christine has belief that incentives should guide one’s behavior, Earl Rolph’s accepted a position as an Assistant Professor in the Department of family established the prize in his memory. Zhenyu Lai gave the Economics at Universidade Federal de Minas Gerais, Brazil. Undergraduate Speech. Raul Razo‑Garcia. “Essays on Exchange Rate Regimes and Openness A.B. Honors Graduates of the Capital Account.” Dissertation Advisor: Professor Barry Ariana Tiffany Afshar, Nicholas Edward Bruce, I-Hsiang Robert Eichengreen. Plans: Raul has accepted a position as Assistant Professor Chang, Michael Louis Clark, Andrew Fleck Farris, Vu Nguyen in the Department of Economics at Carleton University. Ho, Paul Anthony Janczyk, Eric Walter Jeske, Ajay Krishnamur- thy, Yen-Ju Judy Lai, Zhenyu Lai, Cesar Lee, Hoan Soo Lee, M. Marit Rehavi. “Essays on the Political Economy and Measurement Joshua Brock Mendel, Christopher Lien Nelson, Elaine Mei- Professor Alan Auerbach of Public Finance.” Dissertation Advisors: Ling Ng, Eric Anders Petersen, Tzveta Petrov, Tom Shi Qiu, Professor David Card. & Plans: Marit has accepted a position as Priyanka Rajagopalan, Kate Maree Reimer, Maya Rossin, Alison Assistant Professor in the Department of Economics at University of Paige Sanders, Na’ama Shenhav, Anitha Sivasankaran British Columbia. Dean Scrimgeour. “Essays on Monetary Policy.” Dissertation Advisor: Professor . Plans: Dean has accepted a posi- tion as Assistant Professor in the Department of Economics at Colgate University.

 News from the Department of Economics Spring 2009 Obituaries Christy Romer continued from page 1 Professor Emeritus James L. Pierce, an expected to lose 3 to 4 million more jobs over the next year. She authority on macro- told the nation that doing nothing to reverse the decline is not economics, monetary an option. economics, and bank- In 2006, Christina Romer and Chang‑Tai Hsieh wrote in the ing, died Feb. 17. He Journal of that the US government’s inadequate wrote The Future of response during the Great Depression was a “policy mistake of Banking (1991) and monumental proportions.” Origins and Causes of In an address to an audience at the Brookings Institution in the S&L Debacle: A early March, Christy Romer spoke of parallels and important Blueprint for Reform (1993). He was executive director of the differences between the Depression era and today. National Commission on Financial Institution Reform, Recovery Excerpts from her talk follow. and Enforcement. Before joining the faculty in 1976, Dr. Pierce “The key fact is that while Roosevelt’s fiscal actions were a bold was associate director of the Federal Reserve System’s division of break from the past, they were nevertheless small relative to the research and statistics where he was credited with hiring profes- size of the problem. When Roosevelt took office in 1933, real sional economists who helped shape agency policies and regula- GDP (gross domestic product) was more than 30 percent below tions. Dr. Pierce retired in 2001 due to illness. Details of his life its normal trend line. For comparison, the U.S. economy (today) and scholarship are online at http://emlab.berkeley.edu/econ/ is somewhere between 5 percent and 10 percent below trend.” “Despite the devastating loss of wealth, chaos in our financial Professor Emeritus George F. Break, scholar of public finance, markets, and a loss of confidence so great that it nearly destroyed has died at age 88. Americans’ fundamental faith in capitalism, the economy came He wrote 11 books, among back. Indeed, the growth between 1933 and 1937 was the them Public Finance (1961) highest we have ever experienced outside of wartime. This fact with Earl Rolph, and, with should give Americans hope. We are starting from a position far Joseph Pechman, Federal stronger than our parents and grandparents were in 1933. And Tax Reform: The Impossible the policy response has been fast, bold, and well conceived.” Dream? (1975). The latter However, the complexity of today’s financial system adds to influenced the writing of the uncertainty, she said. “This is the kind of situation and the kind U.S. Tax Reform Act of 1986. of instruments… (that) are just infinitely more complicated, and He joined the Economics that’s part of why this is hard. It’s part of why coming up with Department in 1951, chaired a Financial Stabilization Plan is not a one week thing and it’s a it 1969–73, and retired in monumental task… . All of the modern innovations, we know 1990. they are a complicating factor… and one I think we will just Break was president of the power through.” National Tax Association Her remarks are online in full. 1982–84, assisted the U.S. http://www.brookings.edu/~/media/Files/events/2009/0309_les- Treasury Department’s Office of Tax Analysis, consulted for sons/0309_lessons_romer.pdf government tax agencies in the United States and , and evaluated the tax systems of Greece and Jamaica. After serving Charting troubled waters in the Royal Canadian Air Force in WWII, he married Helen While non‑economists may have known little about Dr. Dean Schnacke. A fund benefiting the Economics Department Romer before she arrived on the national stage, colleagues know has been established in his honor. Memorial contributions can that she and her husband, David Romer, are the go‑to team for be made to the “George and Helen Break Memorial Fund” at charting troubled waters. Both were members of the National UC Berkeley, College of Letters & Science, 2150 Shattuck Ave., Bureau of Economic Research business cycle dating committee, Suite 300, Berkeley, CA 94704. For questions, or to donate by the arbiter of when recessions in the US begin and end. credit card, please contact Melissa Waver at mwaver@berkeley. Seven months before Barack Obama won the presidential elec- edu or at 510.643.1113. tion, Professors Christina and David Romer were interviewed for

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David & Christy Romer are a team the September 2008 issue of Banking and Policy Issues Magazine, other hand, the Romers have shredded the conservative premise published by the Federal Reserve Bank of Minneapolis. Editor that tax cuts eventually force spending reductions (“starving the Douglas Clement prefaced his Q&A with this précis. beast.”) Instead, they concluded that tax reductions lead only to “In times of financial turmoil, it is comforting—or at a one thing—offsetting tax increases to recover lost revenue.” minimum, illuminating—to receive counsel from those with long‑term perspective. Tempered with the lessons of history, their Is this good for Cal? views extract true trend from distracting noise. Guided by prec- Berkeley could be “losing our professors to the administration edent, shaped by narrative, checked against data, the conclusions at an astonishing rate,” Professor DeLong told the Sacramento of economic historians are formed slowly and carefully. Bee, adding that Christina Romer’s appointment is a validation “In the realm of US monetary history, few economists are as of a Berkeley school of thought that government shouldn’t shrink qualified to provide such counsel as Christina Romer and David from fixing the economy. This is a change from the Chicago Romer of the University of California, Berkeley. Since 1985, school of free-market ideas of the late that have when both received their doctorates from long dominated Washington. the Massachusetts Institute of Technology, the two have co‑authored some of the field’s central analyses of Federal Reserve policy- making, based on thorough scrutiny of Fed Christy Romer is the 25th Economist documents and painstaking empirical inves- tigation. They’ve made fundamental contri- butions to the literature on fiscal policy as to chair the White House Council of well. Individually, Christina is well known for her research on the Great Depression Economic Advisers and David for his work on microeconomic foundations of Keynesian economics. While their topics and methods are orthodox, their conclusions are often unsettling.” Little about his colleague’s nomination and ascent to public office escaped Brad DeLong’s scrutiny. For example, when the How so, for example? Dec. 5 issue of Time printed a photograph on p. 30 of Christina In a 1999 article, the Romers examined the influence of mon- Romer with three hands, Prof. DeLong solemnly observed, “The etary policy on poverty and inequality, arguing that although fourth hand, of course, is invisible… .” expansionary policy induces a decline in the poverty rate, the At the Boston Globe, Scott Helman wrote: “N. Gregory decline is eventually reversed; and that monetary policy that aims Mankiw, chairman of the Council of Economic Advisers under to restrain inflation and minimize output fluctuations is likely to G.W. Bush, observed that two of the nation’s leading Great De- be associated with improved conditions for the poor over time. pression scholars—Federal Reserve Chairman is During the presidential campaign, the National Journal evalu- also expert on that era—are working together to prevent history ated Barack Obama’s economic advisors. “The Romers, a married from repeating itself. couple, often do research and take on academic responsibilities “It’s kind of fascinating that they’re both down there dealing as a team. …Experts on the workings of the US economy… they with what’s the most serious financial situation since the Great are both steeped in the history of the country’s economy and Depression,” said Mankiw, who was the best man at Romer’s have recently produced a series of papers looking at the causes wedding. “Let’s hope all those years of study have done them and effects of most of the major changes in tax policy in the last some good.” 100 years.” The department’s chaired the White House Coun- “At the same time that Obama is calling for higher income tax- cil of Economic Advisers 1993–95; Professor Emeritus Janet es on people making $250,000 or more, the Romers have found Yellen chaired the Council 1997–99. that tax increases are generally bad for economic growth and that they primarily discourage investment—the supply‑side argument that conservatives use to justify tax cuts for the rich. On the

10 News from the Department of Economics Spring 2009 Faculty News Shachar Kariv was awarded the 2006- sociation in 2006-7. The paper, “Ego Util- Daniel L. Rubinfeld received an honor- 7 UCB Social Sciences Distinguished ity, Overconfidence, and Task Choice” is ary doctorate from the University of Basel, Teaching Award and a Sloan Research online: http://elsa.berkeley.edu/~botond/ Switzerland. Fellowship. overconf.pdf Enrico Moretti received the Carlo Alex Mas was awarded a Sloan Research Maurice Obstfeld gave a keynote at the Alberto Medal—awarded to an Italian Fellowship. 15th World Congress of the International economist under the age of 40 for out- Stefano DellaVigna received the 2008 Economic Association in Istanbul, and he standing research. UCB Distinguished Teaching Award and serves as Vice President of the American David Card was awarded the 2008 a Sloan Research Fellowship for Econom- Economic Association. of the Econometric Society. ics. Gérard Roland has won the Richard F. won The American maga- Fenno Prize for co-authoring Democratic zine’s 2008 Young Economist Award and Politics in the European Parliament (Cam- a Sloan Research Fellowship. bridge University Press). It was judged the Eichengreen Effort Pranab K. Bardhan has been awarded best book published in 2007 in the field the Fulbright Distinguished Siena Chair of legislative studies. Professor Roland Led to ‘Instant Book’ at University of Siena, Italy for 2008-09. gave the keynote address, “Transposable on Worldwide Crisis He gave four major lectures last sum- and non Transposable Lessons from the mer, one on institutional economics of Transition Experience” at the conference Barry Eichengreen co-edited an instant development at the annual meeting of Experience of Transition Economies and book with Richard Baldwin on how the Canadian Economic Association in Implications for North Korea January to resolve the October 2008 crisis. His Vancouver, the second in New Delhi at a 18, 2008 in Seoul. He gave the keynote, e-mail to Baldwin in the early morning conference organized by IDEA, Sweden, “Economic Theory and Transition: What Oct. 8 resulted in a book with contribu- on Democracy and Development, the Lessons for North Korea?” at the confer- tions from 18 economists Oct. 9. It was third at the Brooks World Poverty Insti- ence of the North East Asian Intellectual downloaded by 10,000 readers and deliv- tute, University of Manchester, UK, and Society Towards the North East Asian ered to G7 finance ministers assembled the fourth to the American Committee on Community February 21, 2008 in Seoul. for an emergency meeting in Washing- Asian Economic Studies at Rimini, Italy. At the Festival of Economics in Trento, ton, D.C. Oct. 10. Suzanne Scotchmer has received a Italy, Prof. Roland’s talk was on “The The recommendations—to move three-year NSF award to study “Funding Transition to a Market Economy With urgently to recapitalize national banking R&D when Ideas are Scarce.” She gave and Without Democracy.” In September, systems and apply temporary guarantees the Jahnsson Lectures in Finland, and he gave the keynote, “Understanding the on new bank lending to restart interbank earlier, a keynote address at the European Chinese Growth Puzzle” at the conference market— were adopted by EU govern- Association for Research in Industrial Thirty years of Reform and the Chinese ments Oct. 12 and by the US Oct. 14. Economics. Prof. Scotchmer serves on the Model at Renmin University, Beijing. You can read the e-book at a link from advisory board of the Toulouse School of Professor Clair Brown and Dr. Greg VoxEU.org, a policy portal established by Economics. Linden, of the Institute for Research the Centre for Economic Policy Research Jan de Vries has returned to full-time on Labor and Employment’s Center for (www.CEPR.org) in conjunction with teaching after serving seven years as Vice Work, Technology, and Society, have a consortium of national sites. Vox pro- Provost for Academic Affairs. His book, written about the global semiconductor motes research-based policy analysis and The Industrious Revolution: Consumer industry. The working title isChange Is commentary by leading scholars. Behavior and the Household Economy 1650 The Only Constant. Their book, due out Discussion is here: to the Present, was published in July by at MIT Press in the Fall, analyzes the sur- http://voxeu.org/index. Cambridge University Press. vival methods of the engineers and firms php?q=node/2340 Botond Koszegi received the European in the chip industry as it faced a series of The book maybe freely downloaded here: Economic Association’s Hicks-Tinbergen crises over twenty years. http://www.voxeu.org/reports/crisis/cri- Medal for the best paper published in the James Powell was elected Fellow of the sis_141008.pdf Journal of the European Economic As- American Academy of Arts & Sciences.

http://emlab.berkeley.edu/econ/ 11 George Akerlof’s new books, one in print, one on way

With a modern look at a phrase made famous by John Maynard Keynes, Princeton University Press has published Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by Cal’s George A. Akerlof and Yale’s Robert J. Shiller. In their book, they discuss how fairness, corruption, money illusion and stories affect the macro economy. They ask and answer questions such as the following. Why do economies fall into de- pression? Why do central bankers have power over the economy? Why is there a trade-off between inflation and in the long run? Why is saving for the future so arbitrary? Why are -fi nancial prices and corporate investments so volatile? Why do real estate markets go through cycles? Why is there special poverty among minorities? They affirm that animal spirits “is now an economic term, referring to a restless and inconsis- tent element in the economy. It refers to our peculiar relationship with ambiguity or uncertainty. Sometimes we are paralyzed by it. Yet at other times it refreshes and energizes us, overcoming our fears and indecisions.” In a second book, also to be published by Princeton University Press, Akerlof revisits themes explored in his 2001 Nobel speech and in articles he has written with co-author Rachel Kranton. Tentatively titled More than Money: Economics and Identity, Akerlof and Kranton (Class of ‘93) explore how personal ideals and self-image influence the behavior of both organizations and individuals. He said, “If people (and organizations) live up to their ideals, they tend to be happy, and if they fail to live up to their ideals, they tend to be unhappy. What causes organizations to work? What causes schools to work? What determines how much education people get and whether that education tends to be good or bad? We look at the economics of education and why minorities tend to be impoverished, and we look at the economics of gender.”

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