Spring Trading

Posted in Issues

Springtime, and economic departments around the world are jockeying for position.

They are hiring each other’s newly-minted PhDs, interesting young men and women who have come onto the job market for the first time.

They are making offers to a relative handful of established senior faculty at competing institutions, inviting them to switch sides.

They are discreetly disparaging their rivals.

And they are waiting to see who among their applicants will accept their offers of admission, hoping to win a share of the most promising candidates.

The goings-on in the first two markets generate plenty of gossip among economists every year. Economics is a village, after all. But it is on the strength of what happens in the competition for entering students today that the great departments eventually will rise or fall.

For some among today’s newest students will turn out to be tomorrow’s stars — as well as tomorrow’s specialists, utility players and coaches. Indeed, for recruiters in economics departments — for recruiters in most departments of most research universities — life this weekend resembles the hectic routine of a college coach who annually must persuade potential stars among student athletes to choose his school. That means a blur of comparing the details of aid packages, holding hands and promising much, but not too much.

This weekend is the climax of the process. The frenzy ends on Tuesday April 15. That’s the deadline by which students must accept or reject their offers. They will show up then in the late summer to begin their studies.

But where the careers of most college basketball players are finished four years after they first walk onto the court — another five or ten years if they are fortunate enough to be drafted into the professional leagues — it takes a dozen years for entering economists to sort themselves out and confidently produce a stream of new ideas.

The economics PhD often is described as a four-year program. Two years of coursework ordinarily are required to prepare for general examinations, at least two more while writing a dissertation, during which teaching usually is required. Massachusetts Institute of Technology’s economics department says that more than 70 percent of its students complete their degrees within five years. One man on the job market this year went through Harvard in six years — six years total, that is, three for college, three for PhD.

Pressure to be admitted is intense. Among the top schools — Harvard, MIT, Princeton, Chicago and Stanford have the best faculties, with Berkeley and Yale not far behind — 700 applications are not unusual, with as many as 40 admissions necessary to yield 25 enrollments. Another dozen programs around the world are only slightly less competitive.

Generally speaking, veteran professors say that two kinds of students are chosen. There are those who may have been serious about economics through much of their undergraduate careers. They have taken many courses, demonstrated an aptitude, and may have worked as a research assistant to an established professor for two or three years.

There are others who have spent their college years acquiring a fluency in mathematics, the language necessary to speak technical economics, but whose acquaintance with the field itself is not yet very great.

How good are admissions committees at forecasting who eventually will succeed? At least when they have finished their schooling and entered the job market? When Alan Krueger and Stephen Wu of Princeton University a few years ago compared the credentials presented in applications with the relative prestige of jobs obtained upon graduation, they concluded that the purely quantitative material in application folders — Graduate Record Exam scores, the quality of the college, the prominence of the recommender — predicted professional placement slightly better than did the subjective ratings of admissions committees.

On the other hand, Krueger and Wu noted, neither method was close to perfect. “The randomness in selecting successful graduate students should be a cause for humility for members of admissions committees and of encouragement for rejected applicants,” they wrote. Their working paper (Number 403) was subsequently published in the Journal of Economic Education.

So each summer, the students arrive. They take courses for two years. Something happens to them the third year, or fails to happen. They write their dissertations. Then as economists, they go out into the world.

How do successful university departments compete? To begin with, most of the students at the best departments arrive with a free ride — counting tuition, packages of student aid routinely total $45,000. Some students bring coveted National Science Foundation fellowships with them — allotted on the basis of test scores and recommendations. Others are supported by the schools.

A conspicuous exception is the University of Chicago, which, true to its market orientation, admits a much larger number of students than the rest, most of them unsupported, and permits more than half to leave with a master’s degree.

(One of the best gauges of reputation is which departments enroll the most NSF fellows year after year.)

But the financial support that is offered is just the beginning. For many years, departments barely acknowledged their students’ existence before they arrived (and, in some cases, not for several years thereafter.) MIT alone enjoyed a reputation as a nurturing place.

Then, perhaps a decade ago, Stanford University quietly staged a surprise, flying out all of its admitted students, whereupon a large fraction of the NSF winners that year agreed to enroll as a bloc. MIT and Harvard were rocked back on their heels. The next year prospects had dinner at faculty homes.

“Pearl Harbor Day,” as it quickly became known, touched off an arms race. It may have settled down, but it certainly hasn’t ended.

Today, everybody does the same. Departments stage intense weekends to which their admitted students are invited. The invitees stay with graduate students, hear special seminars, talk to faculty, are wined and dined in local restaurants, receive phone calls afterwards. Offers to favored applicants are sweetened.

Email may have all but revolutionized the process. Talented kids can find themselves having detailed online exchanges with professors in several different schools, even before they are admitted.

Schools also boast about their placement rate, the success their students have in finding good jobs. Of its 15 new PhDs this year, for example, Princeton placed one apiece at Harvard, MIT, Stanford, Chicago and Yale — a banner year by any standard. Every once in a while, the spotlight falls on one of these school-leavers — almost always a mixed blessing to the annointed.

Some years ago, for example, the New York Times wrote up a newly-minted Stanford Ph D named Susan Athey as being the most promising woman candidate to have entered the job market in many years. The effect was to give her title even before she had a job. MIT hired her soon after.

Today, Athey is back at Stanford as a full professor, a prominent microtheorist deeply involved in research and teaching. She says, “Creativity is the most important part of being an economist.  If you get called a star before you’ve done a lot, everything you write is supposed to be great, so it’s much harder to take risks. On the other hand, having a high profile certainly gets people to read and follow your research, so there’s a bigger chance to have influence.”

Most subtly, departments strive to convince entrants that they are riding the wave of the future, that students will not only receive an education but will enter a network of researchers who are tackling the next big problem just as it becomes tractable. Concerns like these motivate the bidding wars that sometimes break out between institutions.

Thus Harvard is known to be preparing to make offers to three of MIT’s brightest young professors — Daron Acemoglu, Abhijit Banerjee and Senhil Mullaintahan, all on the cutting edge of development economics. That’s scary enough. The offers may not be accepted, of course, but scarier still will be if Harvard makes a sequel offer next year to some of MIT’s highly talented women.

Then again, you’d never know that the state of California had an acute budget crisis, from the retention rate at the University of California at Berkeley. Not only are Nobel laureates Gerard Debreu, Daniel McFadden and George Akerlof still there, as well as former Clinton administration chief economist Janet Yellen and many of the most distinguished regulatory economists in the country. But Clark Medal winner Matthew Rabin, a behavioral economist, turned down his offer from MIT as well.

And Yale? Yes, the campus is plagued by severe labor problems — which is why it is said to have dramatically raised its offers of student aid this year. All part of the ongoing struggle for share of the best young kids.

The one thing on which almost all schools seem to agree is the value of mixing it up. Nobody hires their own PhDs to teach, at least not right away. (A rare exception is Esther Duflo, one of those coveted women at MIT and another development expert.) And hardly anyone accepts their own undergraduates into graduate programs. That means that nearly everyone in the field has been filtered through at least three different sensibilities — college, graduate school and the highly-important first teaching job — before they finally set up shop to profess.

The exception here is Harvard, which over the years has permitted a number of the very bright young kids who enter its college to continue straight on in Harvard economics to the PhD. Such scholars are sometimes viewed as if they spoke only a single language and, therefore, had been insufficiently immersed in slightly different points of view.

Harvard, bent on dominion, rejects this principle of diversification. If you are already working in the best department, they say, why bother to go somewhere else? So the pressure upon the 6-year Harvard man to contribute to economics undoubtedly will be greater than if he had gone elsewhere to graduate school. Then again, such rapid progress to the frontier is just another way of turning over life’s doubling cube.

So for a couple hundred students entering the best graduate programs, and uncounted others who will earn their right to compete from less-famous programs that are nearly as good, Tuesday is the beginning of a long process of maturation that will end only a dozen years later, when they begin to be considered for tenure.

Then, they’ll impatiently enter the larger world and, in many cases, the glare of publicity. Until then, may they labor away in relative anonymity.