Thanks for sharing moments of your MIT years. Let me add some observations on the economists you mention. I'm older than you and all those economists. I knew Stan and Rudi in the late 1980s, and Rudi's second wife in the mid 1990s. I moved to DC when the LA debt crisis became a shock to the U.S. and European banking systems and the Bretton Woods institutions were asked to deal with it. It was in 1985 and soon I met Rudi who had entered into action trying to help the Brazilian government (I knew him because he had visited Chile for conferences and meetings with his former MIT students and soon we had opposing views of Chile’s economy between 1975 and the debt crisis which had started in June 1982). Rudi wanted to become the new LA’s Money Doctor (a reference to the advisory work of Princeton professor Edwin W. Kemmerer in the 1920s and 30s). It was a terrible time for the Brazilian government and to all other LA governments that needed urgently an extraordinary fiscal adjustment (only in Chile, the debt crisis had been the result of heavy private borrowing before interest rates jumped from 5% to 20% and the floating interest rates paid on the stock of foreign debt). Rudi was a great fighter against what he called populism but he lost —no LA country attempted a serious fiscal adjustment in the 1980s.
Stan moved to the WB in 1988 and soon had to learn to dance with a huge bureaucracy. I still remember his first participation in a loan committee. Indeed, it was a large loan that promised to support the fiscal adjustment of a large country (also heavily indebted but not a LA one). It was a close call given the country’s record but nothing compared with the fake support promised to Argentina later that year. By then, Stan had learned to dance. I’m not familiar with Stan’s participation in the IMF’s lending support to Argentina in the late 1990s but my impression is that his dancing with the Bretton Woods bureaucracy aged badly (remember that that experience ended with the famous “corralito” of December 2001). Then he spent some time far away from a bureaucracy and got ready to move to Israel, perhaps his greatest non-academic success.
They were not the only well-known academic economists moving to the U.S. government or the Bretton Woods institutions in the 1980s and 1990s. It looked like they knew something that non-academic economists, like myself, failed to understand. I assumed then they were moving out because of the great obstacles to make progress within orthodox macroeconomics and develop alternative theories. In the past 20 years, there has been little progress: we learned how flawed that macroeconomics is (I think the grotesque celebration of Piketty’s work on capital is a clear example of that failure) and there is nothing else to rely on. Most macroeconomists continue using the orthodox, “accounting” framework, expanded in several ways from the simple model of the early 1960. In turn, non-orthodox macroeconomists are still “warming-up”.
Although I participated with Rudi’s second wife in a large, expensive study of China’s state enterprises, I was already too old to play along the game of knowing what they have to do. In the early 1990s, I advised the WB and government donors on reforming Africa’s foreign aid but nothing happened as discussed years later by Bill Easterly in his book “The Elusive Quest for Growth…”. I didn’t dance with the donors’ bureaucracy but learned a few thing that helped me a lot while working in Beijing for 3 years. I tried but failed to teach those lessons to Rudi’s wife so I was not surprised that the study was ignored despite its huge cost. In particular, you have to spend a lot of time looking for the right people to help —never assume that because you can deliver a lot of other people’s money to someone else that money would be enough incentive for them to do as you want. In LA, I had been always advising people who had great projects or huge debts but when I moved to DC in 1985, I started to help government politicians and officers whose personal projects I was not supposed to help. That study turned out to be a personal project for too many people on both sides of the table.
In the 1990s, I used to be an avid reader of PK’s serious analysis but I stopped reading it when it took me too much time to figure out how serious his analysis was. Also, since I was involved in several financial and fiscal crisis, I’m familiar with the KR&CR’s book but I think it’s just a collection of poor data. They built their narrative on data over centuries when we can hardly built a good narrative of recent crises on reliable and relevant data. Also, they tried to find similarities across crises but you have to look at the differences too. If the purpose of the analysis is to build a general theory of financial crises, then focus on the similarities. But if the purpose is also to understand what government interventions are needed to end the crises, then focus on how a government should take account of the circumstances of the crisis is dealing with. Let us say that there are no two crises alike.
Thanks for sharing moments of your MIT years. Let me add some observations on the economists you mention. I'm older than you and all those economists. I knew Stan and Rudi in the late 1980s, and Rudi's second wife in the mid 1990s. I moved to DC when the LA debt crisis became a shock to the U.S. and European banking systems and the Bretton Woods institutions were asked to deal with it. It was in 1985 and soon I met Rudi who had entered into action trying to help the Brazilian government (I knew him because he had visited Chile for conferences and meetings with his former MIT students and soon we had opposing views of Chile’s economy between 1975 and the debt crisis which had started in June 1982). Rudi wanted to become the new LA’s Money Doctor (a reference to the advisory work of Princeton professor Edwin W. Kemmerer in the 1920s and 30s). It was a terrible time for the Brazilian government and to all other LA governments that needed urgently an extraordinary fiscal adjustment (only in Chile, the debt crisis had been the result of heavy private borrowing before interest rates jumped from 5% to 20% and the floating interest rates paid on the stock of foreign debt). Rudi was a great fighter against what he called populism but he lost —no LA country attempted a serious fiscal adjustment in the 1980s.
Stan moved to the WB in 1988 and soon had to learn to dance with a huge bureaucracy. I still remember his first participation in a loan committee. Indeed, it was a large loan that promised to support the fiscal adjustment of a large country (also heavily indebted but not a LA one). It was a close call given the country’s record but nothing compared with the fake support promised to Argentina later that year. By then, Stan had learned to dance. I’m not familiar with Stan’s participation in the IMF’s lending support to Argentina in the late 1990s but my impression is that his dancing with the Bretton Woods bureaucracy aged badly (remember that that experience ended with the famous “corralito” of December 2001). Then he spent some time far away from a bureaucracy and got ready to move to Israel, perhaps his greatest non-academic success.
They were not the only well-known academic economists moving to the U.S. government or the Bretton Woods institutions in the 1980s and 1990s. It looked like they knew something that non-academic economists, like myself, failed to understand. I assumed then they were moving out because of the great obstacles to make progress within orthodox macroeconomics and develop alternative theories. In the past 20 years, there has been little progress: we learned how flawed that macroeconomics is (I think the grotesque celebration of Piketty’s work on capital is a clear example of that failure) and there is nothing else to rely on. Most macroeconomists continue using the orthodox, “accounting” framework, expanded in several ways from the simple model of the early 1960. In turn, non-orthodox macroeconomists are still “warming-up”.
Although I participated with Rudi’s second wife in a large, expensive study of China’s state enterprises, I was already too old to play along the game of knowing what they have to do. In the early 1990s, I advised the WB and government donors on reforming Africa’s foreign aid but nothing happened as discussed years later by Bill Easterly in his book “The Elusive Quest for Growth…”. I didn’t dance with the donors’ bureaucracy but learned a few thing that helped me a lot while working in Beijing for 3 years. I tried but failed to teach those lessons to Rudi’s wife so I was not surprised that the study was ignored despite its huge cost. In particular, you have to spend a lot of time looking for the right people to help —never assume that because you can deliver a lot of other people’s money to someone else that money would be enough incentive for them to do as you want. In LA, I had been always advising people who had great projects or huge debts but when I moved to DC in 1985, I started to help government politicians and officers whose personal projects I was not supposed to help. That study turned out to be a personal project for too many people on both sides of the table.
In the 1990s, I used to be an avid reader of PK’s serious analysis but I stopped reading it when it took me too much time to figure out how serious his analysis was. Also, since I was involved in several financial and fiscal crisis, I’m familiar with the KR&CR’s book but I think it’s just a collection of poor data. They built their narrative on data over centuries when we can hardly built a good narrative of recent crises on reliable and relevant data. Also, they tried to find similarities across crises but you have to look at the differences too. If the purpose of the analysis is to build a general theory of financial crises, then focus on the similarities. But if the purpose is also to understand what government interventions are needed to end the crises, then focus on how a government should take account of the circumstances of the crisis is dealing with. Let us say that there are no two crises alike.
Arnold's reminiscence posts are fun.
Nice change of pace. Thanks for sharing.