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Oral History Center University of California the Bancroft Library Berkeley, California Oral History Center University of California The Bancroft Library Berkeley, California Sense and Economics: An Oral History with Arnold Harberger Interviews conducted by Paul Burnett in 2015 and 2016 Copyright © 2016 by The Regents of the University of California ii Since 1954 the Oral History Center of the Bancroft Library, formerly the Regional Oral History Office, has been interviewing leading participants in or well-placed witnesses to major events in the development of Northern California, the West, and the nation. Oral History is a method of collecting historical information through tape-recorded interviews between a narrator with firsthand knowledge of historically significant events and a well-informed interviewer, with the goal of preserving substantive additions to the historical record. The tape recording is transcribed, lightly edited for continuity and clarity, and reviewed by the interviewee. The corrected manuscript is bound with photographs and illustrative materials and placed in The Bancroft Library at the University of California, Berkeley, and in other research collections for scholarly use. Because it is primary material, oral history is not intended to present the final, verified, or complete narrative of events. It is a spoken account, offered by the interviewee in response to questioning, and as such it is reflective, partisan, deeply involved, and irreplaceable. ********************************* All uses of this manuscript are covered by a legal agreement between The Regents of the University of California and Arnold Harberger dated July 14, 2016. The manuscript is thereby made available for research purposes. All literary rights in the manuscript, including the right to publish, are reserved to The Bancroft Library of the University of California, Berkeley. Excerpts up to 1000 words from this interview may be quoted for publication without seeking permission as long as the use is non-commercial and properly cited. Requests for permission to quote for publication should be addressed to The Bancroft Library, Head of Public Services, Mail Code 6000, University of California, Berkeley, 94720-6000, and should follow instructions available online at http://bancroft.berkeley.edu/ROHO/collections/cite.html It is recommended that this oral history be cited as follows: Arnold Harberger, “Sense and Economics: An Oral History with Arnold Harberger” conducted by Paul Burnett in 2015 and 2016, Oral History Center, The Bancroft Library, University of California, Berkeley, 2016. iii Economist Life Stories The impact of economics in our society is hard to overstate. Economics structures government policy, guides decision-making in firms both small and large, and indirectly shapes the larger political discourses in our society. To enrich the understanding of the influence and sources of powerful economic ideas, the Becker Friedman Institute for Research in Economics at the University of Chicago set out in 2015 to capture oral histories of selected economists associated with Chicago economics. The aim was to preserve the experiences, views, and voices of influential economists and to document the historical origins of important economic ideas for the benefit of researchers, educators, and the broader public. This oral history with Arnold Harberger, conducted in seven day-long sessions in Los Angeles, CA from the fall of 2015 to the fall of 2016, is the second interview for the project. Economist Life Stories is more than a collection of life histories; it chronicles the history of a scholarly community and institutions at the University of Chicago, such as the Graduate School of Business, the Cowles Commission, and the Department of Economics. It also reflects the achievements of faculty and students in the domains of economic policymaking and private enterprise around the world. Although this project focuses on the leaders and students of the University of Chicago Department of Economics, the Graduate School of Business, and the Law School, we hope to add more stories from economists around the world as the project expands. Acknowledgments Hodson Thornber and Paul Burnett organized the project with Toni Shears of the Becker Friedman Institute, with important support from an advisory group of historians and economists. Financial support for this work was provided by Richard Elden, a member of the Becker Friedman Institute Council, whose contribution is gratefully acknowledged. iv Arnold Harberger, photograph by Anna Harberger, 2016 v Arnold Harberger is the Gustavus F. and Ann M. Swift Distinguished Service Professor Emeritus, University of Chicago and Professor of Economics Emeritus, University of California, Los Angeles. Dr. Harberger is perhaps most widely known for overseeing the Chile Project, which trained Chilean students in economics who then went on to found programs in economics and take up positions in the Chilean government. However, that story is merely one in Dr. Harberger’s sixty- five-year career in technical assistance and education around the world. He has consulted for the US government, numerous individual nation states, as well as institutions such as the US Agency for International Development, the World Bank, and the International Monetary Fund. Of equal importance is his career as a scholar, from his training and interest in international trade to his work in public finance, especially project evaluation and benefit-cost analysis. Throughout, this oral history explores his lifelong pursuit of “real-world economics,” research that both draws from and supports economic policymaking. vi Table of Contents—Arnold Harberger Interview 1: September 21, 2015 Session 1A, Morning 1 Family background — independent spirit — church — facility with math, music and languages — early employment at green-grocers — father’s employment — scholarship to Johns Hopkins — brother’s career — family support of education, yet self-directed in school — intellectual freedom and stimulation of new friends — exploration of politics and culture — initial attraction to economics as a social, rather than quantitative science — excelling at Hopkins at accelerated pace — drafted to work as a linguist during World War II — job as supervisor in German POW camp in Illinois — decision to train at University of Chicago, international relations with minor in economics — appeal of Hans Morgenthau and realist international relations — economics with Bert Hoselitz — shift from studying international relations to economics — influence of key Chicago professors, Friedman, Schultz, and Marschak — University of Chicago economics department culture in the late 1940s, impact of World War II — despite awareness of Hayek’s polemical work among the students, economics department culture not overtly political — sequence in price theory — graduate student cohort, James Buchanan and Warren Nutter — University of Chicago, mission and culture Session 1B, Afternoon 28 Dissertation research — thesis committee — comparisons of computing power and economic reasoning between 1940s and today — overreliance on technology — definition of “the Chicago School” — opportunities and culture of the Cowles Commission — stimulating seminars with Franco Modigliani, Leo Hurwicz, Tjalling Koopmans, and Kenneth Arrow — influence of Koopmans on thesis research, and differences in styles of reasoning — Harberger’s style of argumentation — investment in dealing with real-world problems — increasing epistemological humility of the economics field over the decades — increasing complexity and diminishing utility of econometric models in the 1970s — pragmatic approach in Chicago economics — Austrian “introspection” and practical reasoning — Chicago economics as applied economics, e.g., work of T.W. Schultz, D. Gale Johnson, or Arnold Harberger — comparison to exceedingly formalist training today — the need for economists to have a seat the policy table with respect to technical as opposed to political advice — Committee for Economic Development — assistant professorship at Johns Hopkins in international trade in 1949 — work at IMF in 1950 — work for the Materials Policy [Paley] Commission of the Truman Administration — T.W. Schultz hires Harberger at Chicago as Associate Professor of Economics in field of public finance — research that leads to Demand for Durable Goods — rhetorical approach to economic argumentation: “don’t try to hide your uncertainty” — contrast of Paley Commission report and Club of Rome report — Friedmanian vii lags vs. rational expectations theory and Ricardian equivalence — teaching the sequence of price theory — maintaining the price theory tradition — “a sense of touch, a sense of smell about things” — taking price theory from Friedman in the late 1940s — Harberger’s first workshop in public finance, unique nature of — unique features of Chicago workshop system — Cowles’ members’ interest in learning about Chicago’s “intuitive economics” (Koopmans and Radner) — move of Cowles Commission from Chicago to Yale Interview 2: September 22, 2015 Session 2A, Morning 65 Associate professor at University of Chicago — Monopoly paper 1954 — the beginning use of “Harberger’s triangles” to measure the excess profits due to monopoly — nature of applied economics and theoretical economics — handling objections to triangle economics — relationship to T.W. Schultz — Schultz’s “magic touch” with fundraising , integrity, and statesman-like qualities — Chicago economics and technical assistance to developing countries — T.W. Schultz and a National Planning Association
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