Some Excerpts from Within “[That] every movement in the stock market must have a rational founda- tion...is one of the greatest errors in the history of economic thought.” Robert Shiller, Yale University, author of Irrational Exuberance “After the Ethiopian war and the fascist intervention in the Spanish Civil War, I began to develop a strong antifascist sentiment and the intent to leave Italy, but the final step was the close alliance of Mussolini with Hitler, which resulted in anti-Semitic laws, [and] made it impossible to live in Italy in a dignified way.” Franco Modigliani, Nobel Laureate, MIT “Trade is confirmed to be a substitute for massive immigration from poor to rich countries. U.S. labor has lost its old monopoly on American advanced know-how and capital . Nowadays every short-term victory by a union only speeds up the day that its industry moves abroad ...A ‘cowed’ labor force runs scared under the newly evolved form of ruthless corporate governance.” Paul Samuelson, Nobel Laureate, MIT “I had a session with Nixon sometime in 1970 ..., in which he wanted me to urge Arthur [Burns] to increase the money supply more rapidly [laughter] and I said to the President, ‘Do you really want to do that? The only effect of that will be to leave you with a larger inflation if you do get reelected.’ And he said, ‘Well, we’ll worry about that after we get reelected.’ Typical. So there’s no doubt what Nixon’s pleasure was.” Milton Friedman, Nobel Laureate, Hoover Institution, Stanford University “One of my close friends was not only arrested, but tried and executed. Many of my best friends were arrested . I was attacked as a ‘traitor’ to socialism . the horrible crimes the system had committed—the imprison- ment, torture, and murder of innocent people—made my most sincere beliefs seem naïve and shameful.” János Kornai, Harvard University and Collegium Budapest, Hungary “Like number theory, knot theory was totally, totally useless. So, I was attracted to knots . Fifty years later, the ‘absolutely useless’—the ‘purest of the pure’—is taught in the second year of medical school.” “Kennedy was influenced by the game-theoretic school . [and he] is now praised for his handling of that [Cuban missile] crisis . Kissinger spoke about game-theoretic thinking in Cold War diplomacy . People were really afraid that the world was coming to an end.” Robert Aumann, Nobel Laureate, Hebrew University of Jerusalem ITEA01 1 8/15/06, 2:56 PM Praise for Inside the Economist’s Mind “A tour de force.” Oded Galor, Brown University, Providence and Hebrew University of Jerusalem, Israel, Editor, Journal of Economic Growth “. a unique insider view . fascinating reading to anyone interested in contemporary economics and its role in modern society.” Seppo Honkapohja, University of Cambridge, Cambridge, UK “. an intellectuals’ People Magazine—complete with !%$!!’s and pictures.” Roger Farmer, University of California at Los Angeles “These remarkably candid interviews are exemplars . this superb col- lection is mandatory reading.” Adrian Pagan, Australian National University, Australia “They curse. They dish on their colleagues. They give the inside scoop.” Lawrence Journal World H ITEA01 2 8/15/06, 2:56 PM INSIDE THE ECONOMIST’S MIND Conversations with Eminent Economists Edited by Paul A. Samuelson and William A. Barnett ITEA01 3 8/15/06, 2:56 PM © 2007 by Blackwell Publishing Ltd BLACKWELL PUBLISHING 350 Main Street, Malden, MA 02148-5020, U.S.A. 9600 Garsington Road, Oxford OX4 2DQ, U.K. 550 Swanston Street, Carlton, Victoria 3053, Australia The right of Paul A. Samuelson and William A. Barnett to be identified as the Authors of the Editorial Material in this Work has been asserted in accordance with the U.K. Copyright, Designs, and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the U.K. Copyright, Designs, and Patents Act 1988, without the prior permission of the publisher. First published 2007 by Blackwell Publishing Ltd 1 2007 Library of Congress Cataloging-in-Publication Data Inside the economist’s mind: conversations with eminent economists / edited by Paul A. Samuelson and William A. Barnett.—1st ed. p. cm. Includes bibliographical references. ISBN-13: 978-1-4051-5715-5 (hardcover : alk. paper) ISBN-10: 1-4051-5715-1 (hardcover : alk. paper) 1. Economists— Interviews. 2. Economists—Biography. 3. Economics. 4. Economics— History—20th century. I. Samuelson, Paul Anthony, 1915– II. Barnett, William A. III. Title: History of modern economic thought. HB76.157 2007 330.092′2—dc22 2006017115 A catalogue record for this title is available from the British Library. Set in 10/12.5pt Galliard by Graphicraft Limited, Hong Kong Printed and bound in the United Kingdom by TJ International Ltd The publisher’s policy is to use permanent paper from mills that operate a sustainable forestry policy, and which has been manufactured from pulp processed using acid-free and elementary chlorine-free practices. Furthermore, the publisher ensures that the text paper and cover board used have met acceptable environmental accreditation standards. For further information on Blackwell Publishing, visit our website: www.blackwellpublishing.com ITEA01 4 8/15/06, 2:56 PM Contents About the Editors vii Coeditor’s Foreword: Reflections on How Biographies of Individual Scholars Can Relate to a Science’s Biography Paul A. Samuelson viii Coeditor’s Preface: An Overview of the Objectives and Contents of the Volume William A. Barnett xi History of Thought Introduction: Economists Talking with Economists, An Historian’s Perspective E. Roy Weintraub 1 The Interviews 1 An Interview with Wassily Leontief 15 Interviewed by Duncan K. Foley 2 An Interview with David Cass 32 Interviewed by Stephen E. Spear and Randall Wright 3 An Interview with Robert E. Lucas, Jr. 57 Interviewed by Bennett T. McCallum 4 An Interview with János Kornai 67 Interviewed by Olivier Blanchard 5 An Interview with Franco Modigliani 85 Interviewed by William A. Barnett and Robert Solow 6 An Interview with Milton Friedman 110 Interviewed by John B. Taylor v ITEA01 5 8/15/06, 2:56 PM vi Contents 7 An Interview with Paul A. Samuelson 143 Interviewed by William A. Barnett 8 An Interview with Paul A. Volcker 165 Interviewed by Perry Mehrling 9 An Interview with Martin Feldstein 192 Interviewed by James M. Poterba 10 An Interview with Christopher A. Sims 209 Interviewed by Lars Peter Hansen 11 An Interview with Robert J. Shiller 228 Interviewed by John Y. Campbell 12 An Interview with Stanley Fischer 261 Interviewed by Olivier Blanchard 13 An Interview with Jacques Drèze 278 Interviewed by Pierre Dehez and Omar Licandro 14 An Interview with Thomas J. Sargent 307 Interviewed by George W. Evans and Seppo Honkapohja 15 An Interview with Robert Aumann 327 Interviewed by Sergiu Hart 16 Conversations with James Tobin and Robert J. Shiller on the “Yale Tradition” in Macroeconomics 392 Conducted by David Colander ITEA01 6 8/15/06, 2:56 PM About the Editors William A. Barnett is Oswald Distinguished Professor of Macroeco- nomics at the University of Kansas. He was previously Research Eco- nomist at the Board of Governors of the Federal Reserve System in Washington, DC; Stuart Centennial Professor of Economics at the Uni- versity of Texas at Austin; and Professor of Economics at Washington University in St. Louis. William Barnett has been a leading researcher in macroeconomics and econometrics. He is one of the pioneers in the study of chaos and nonlinearity in socioeconomic contexts, as well as a major figure in the study of the aggregation problem, which lies at the heart of how individual and aggregate data are related. He is Editor of the Elsevier monograph series International Symposia in Economic Theory and Econometrics, and Editor of the journal Macroeconomic Dynamics, published by Cambridge University Press. He received his BS degree from MIT, his MBA from the University of California at Berkeley, and his MA and Ph.D. from Carnegie Mellon University. He has published 17 books (as either author or editor) and over 130 articles in professional journals. Paul A. Samuelson was the first American to win the Nobel Prize in Economics. He is Professor Emeritus of Economics and Institute Pro- fessor at the Massachusetts Institute of Technology; Institute Professor is the highest rank awarded by MIT. His landmark 1947 book, Founda- tions of Economic Analysis, based upon his Ph.D. dissertation at Harvard University, established him as “the economists’ economist” by raising the standards of the entire profession. Paul Samuelson’s classic textbook, Economics, first published in 1948, is among the most successful text- books ever published in the field. The book’s 16 editions have sold over four million copies and have been translated into 41 languages. He received his BA degree from the University of Chicago and his MA and Ph.D. from Harvard University. As one of the profession’s most produc- tive scholars for over a half-century, he remains an intellectual force of towering stature. ITEA01 7 8/15/06, 2:56 PM Coeditor’s Foreword Reflections on How Biographies of Individual Scholars Can Relate to a Science’s Biography Paul A. Samuelson This book adds up to more than the sum of its parts. When W. Somerset Maugham opined that “to know one country you must know two coun- tries,” he was saying in a different way that 1 + 1 can exceed 2. Adam Smith and Allyn Young categorized this as “increasing returns to scale.” When a discipline—economics, chemistry, or acupuncture—is in a dynamic stage of rapid growth, its up-front cyclists care little whether it was Newton or Leibniz who “invented” the calculus.