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July 9, 2006
David Warsh, Proprietor

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The $2 Billion Men

Ever wonder how Chicago got to be the city that it is today?  Not because it’s situated near O’Hare, the busiest airport in the world. Nor because the Union Station is located on what used to be the edge of town. Chicago started out where it did because it marks the single point at which the portage from the Great Lakes to the Mississippi River watershed is shortest — barely half a mile over a low ridge fifteen feet above the level of the lake.

In the seventeenth century, you could steer your canoe around the Lake Michigan sandbar into the little stream known as the Chicago River, paddle a few miles south to the marsh called Mud Lake, carry your gear a short distance to the Des Plaines River (or, during the wet spring, perhaps not even have to get out of your boat), and be on your way south to the Illinois River, to the Mississippi and to the Gulf of Mexico.

That’s to say that, for a couple of centuries at least, the important thing about Chicago was that it was on the way to St. Louis and New Orleans. Then the Erie Canal and the railroad changed all that.

St. Louis was the great Midwestern city in the early nineteenth century. Located on the Mississippi River near its junction with the Missouri River, less than a hundred miles north of its junction with the Ohio River at Cape Girardeau, it was a booming center of commerce for 75 years before Chicago incorporated itself — the Ohio having become the nation’s first transportation superhighway not long after the American Revolution, connecting Philadelphia (overland to Pittsburgh), Cincinnati, St. Louis and New Orleans in a grand circular trade.

Lewis and Clark jumped off from an island near St Louis to explore the west. Tens of thousands of immigrants, particularly German immigrants, arrived by steamboat to settle the fertile Missouri and southern Illinois plains. In 1853, bursting with pride, St. Louis burghers founded the first major university in the west, Washington University.

Unfortunately, about the same time, the St. Louis Chamber of Commerce, convinced that the city’s commercial future depended on her rivers, proclaimed that “the laws of trade” favored water transport and declared war on the building of bridges, especially along the Mississippi, branding them threats to navigation. Meanwhile, the completion of the Erie Canal had opened a great new avenue to the west, turning the Great Lakes into thoroughfare of commerce to rival the Ohio River, and creating a durable new relationship between Chicago and New York City.

In 1856, the first railroad bridge spanned the Mississippi, carrying trains west from Chicago to the Iowa farms, and grain from the farms east to Chicago. Then in 1862 the Union Navy blockaded New Orleans, greatly reducing the volume of the river trade.  It wouldn’t regain its peak until five years after the Civil War.

By 1870, however, Chicago had cemented its lead as a rail hub, extending its transportation network in every direction, as far west as the Pacific, as far south as New Orleans, north to Wisconsin and Minnesota, relegating St. Louis and its river network to a distant second place as a central place. (All this, and much more, is related in William Cronon’s classic study of Chicago’s economy, Nature’s Metropolis) Just as Sigmund Freud went to Worcester, Massachusetts, to lecture at Clark University in 1909, so Max Weber traveled to St. Louis in 1904 to see the World’s Fair. But these were the last widely remembered dates in the civic intellectual history of either city (with the possible exception of Worcester Polytechnic’s Robert Goddard shooting off a rocket in 1926 at his Aunt Effie’s farm.)

And yet Washington University has continued to flourish, growing steadily until today it is rated among the top ten “private” universities in the country (not counting the eight older universities of the Ivy League). Northwestern, Duke, Emory, Rice, Vanderbilt and Tulane, Carnegie-Mellon are among the other institutions that vie for this honor. Ahead of them in prestige and wealth are the Ivies, the Massachusetts Institute of Technology, Stanford University, the University of Chicago, the Johns Hopkins University and the great land-grant university systems.  Nipping at their heels are the private universities in Boston, New York, Rochester and Pittsburgh.

But for all its bright spots — philosophy and anthropology are strong there, and its German department may be the best in the nation — Washington University has often been described as a medical school with a university attached. Eighteen Nobel Prizes in medicine or physiology have garnered since 1943 by scientists who did all or part of their work there, and another three in chemistry by members of the faculty of medicine. (St. Louis’ preeminent chemical and pharmaceutical companies provided a deep well of support.)

So in 1996, Wash U. hired chemist Mark Wrighton as its chancellor from MIT, where he had been provost, and charged him with building up the rest of the university. With money flooding in ($1.55 billion raised since 1998), Wrighton and his university council decided a couple of years ago, to strengthen the economics department until it would rank in the middle of the third tier of departments, as high, say, as fifteenth in the land. (It ranks today somewhere in the fifth or sixth tier, around fortieth in most surveys.)  There are no great universities without excellent economics departments, the argument went.

For many years, the economics department had been mediocre — a few remarkable individuals pursuing their own enthusiasms standing apart from a small corps of devoted teachers and other researchers, a pudding without a theme.

There was Hyman Minsky, a cheerful “post-Keynesian” who never tired of prophesying economic collapse; Murray Weidenbaum, a specialist in regulation who served as Ronald Reagan’s first official economic adviser; Laurence Meyer, one of the shrewdest monetary economists of his generation, who parlayed a relationship with St. Louis Federal Reserve Bank and a term as governor of the Federal Reserve Board into a successful forecasting business (he left the faculty in 1996); Robert Pollack, a distinguished student of the family; and, of course, Douglass North, whose long and lonely campaign to show that institutions were crucial for economic growth led in 1993 to a Nobel Prize in economics.

But a good department must resemble a chamber orchestra: what counts is skill, balance, modulation and, above all, taste. So it took a committee of three outside experts only a short time to recommend hiring an outside chair for the department, if the university really wanted to change things. This the university did, even more quickly, putting a very large purse in the newcomer’s hands.

Enter Ping Wang, a macroeconomist who had made his reputation as a young doctoral student at the University of Rochester in the mid-1980s, then taught for fifteen years in rising departments at Pennsylvania State University and Vanderbilt. Not only had he just led a highly successful recruiting campaign at Vanderbilt (never mind the bad feelings in a department previously noted for its comity), but he fit well with the senior faculty at Wash U. on whose strengths he was expected to build.  (Mainstay Marcus Berliant had supervised Wang’s dissertation at Rochester, for example. Deputy chair John Nachbar works in game theory and general equilibrium theory as well.)

The Washington department announced its plans to hire up to a dozen economists last year in a celebrated advertisement in Job Opportunities for Economists, a professional help-wanted site. Its budget is a closely-guarded secret within the university, but the guesstimate most frequently heard at other universities is $10 million in additional salaries, though there’s no telling exactly where professional salaries leave off and staff support and lab expenses begin. Some salary offers, though, are said to be of $500,000 or more, a level only slightly below that paid to the biggest stars at the best universities, and completely unheard of even in third-tier departments

Meanwhile, a new building for economics is in the works, to house the political science department as well, at the center of Wash U.’s suburban Hillside campus, adjacent to the up-and coming Olin School of Business and the law school. When some of the new faculty members showed up at the Econometric Society meetings in Minneapolis last month, they took a certain amount of ribbing as the university’s “$2 billion men,” reflecting various blue-sky estimated of what the build-up might eventually mean to the university’s $4 billion+ endowment. Chancellor Wrighton has been both public and candid about his hopes for the buildup.

So who has been hired? Costas Azariadis  a macroeconomist from UCLA; Michele Boldrin, a macroeconomist from the University of Minnesota; Sebastian Galiani, a development economist from Universidad de San Andres; David Levine, a micro economist from UCLA; Werner Ploberger, an econometrician from the University of Rochester; and Steve Williamson, a finance theorist from the University of Iowa. There has been a conspicuous failure as well: economic historian Dora Costa and Matthew Kahn, a married team from MIT and Tufts, declined their offer. “We still have six more positions to fill,” says mathematical economist Berliant, with relish. (The results so far, with links, are posted at here.)

Of those hired, Boldrin and Levine represent the external star power. Each has plenty of the narrow work with which power is built within the discipline, especially in the highly mathematical style associated with the University of Minnesota, but together they are becoming known for a strong position they have staked out in the debate over the nature of economic growth. In “Against Intellectual Monopoly,” a book that has been slowly moving pressward for years to growing controversy, they argue that intellectual property — patents, trademarks, copyrights and the like –  isn’t  necessary for innovation and, as “a practical matter, is damaging to growth, prosperity and liberty.” Not an unheard point of view among law professors, perhaps, but among economists a highly novel point of view. (For a sample of flavor of the argument, see Levine’s: home page.)

A certain amount of skepticism will continue to surround the Washington University buildup in the years to come. Levine and Azariadis are coming from UCLA, a third-tier department where political scandals in the California state system and bad leadership at the local level led twelve senior people to put themselves on the job market last year.  Six of them have left.  But higher education has proved to be a resilient industry in California over the course of a century and UCLA, which also has a number of offers outstanding, is likely to remain among the top 20 departments. Azariadis is 63; his career as a cutting-edge researcher is over.  But might Levine return someday?  He’s keeping his California house, at least as refuge from the hot St. Louis summer.

Will Wash U. succeed in building a much better department? It won’t be clear for many years. It’s easy enough to hire professors whose stream of publications guarantee a bump up in the most na•ve sort of departmental rankings, those that depend exclusively on citation counts.  And it is possible for faculty themselves to exercise significant clout in the profession by concentrating fire on a particular problem. But real influence in the discipline is exercised through careers of graduate students — witness the extraordinary effects of the University of Rochester on the profession (and the related field of political science), or of the University of Virginia, over the course of the last forty years. The quality of students associated with an institution ordinarily lags behind the quality of faculty by many years.

Many others universities have sought to dramatically improve their standing at others’ expense through “big pushes” of one sort or another, without conspicuous success. Columbia University and its cross-town rival, New York University, are good examples (though both are steadily improving.)  So is the University of Texas, which has failed to penetrate the list of the top fifteen departments, despite its $9 billion endowment. Boston University has tried periodically, surging ahead only to fall back when other universities hire the up-and-comers they have identified. Arizona State University has been hiring aggressively, too. The only success on which nearly all can agree is the University of California at San Diego — an instance where a dozen years of remarkable talent-spotting produced a couple of Nobel Prizes, and a balanced department consistently ranked in the broad second tier.

Will Wash U.’s gamble realize a $2 billion return — the hundred-to-one payoff of which venture capitalists, and now apparently even intellectual venture capitalists, dream? Its jumpstart campaign is certain to produce reverberations for years to come. Some think that Wrighton’s quest is bizarre. Others view it as simply the latest chapter in a salutary competition among public and private institutions that has paid off handsomely for the United States in the past. Important new information will begin to make its way to the surface next week, when the National Academies’ long-delayed once-a-decade assessment of some 4,000 research doctoral programs in around 200 universities finally begins. The results aren’t expected before next year. In the old newsroom cliché, the situation bears watching.

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