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March 9, 2008
David Warsh, Proprietor

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Mineshaft Canary

Business Week raised a ruckus last December with a cover story on “The Dangerous Wealth of the Ivy League.” Provosts from eleven public universities in the Midwest wrote to protest sentiments attributed to Harvard University president Drew Faust, who was said to suggest that land-grant universities should compete less intensely for federal research dollars in basic science. Faust complained her remarks were taken out of context. Nevertheless, the imbalances are real and growing. Private universities raise tuitions at will and keep enrollments small while public universities, constrained by legislatures, must keep fees down while increasing their enrollments.

Something of a test of the balance of power may come this spring at the University of California at Berkeley, where professors in the economics department, one of the top half-dozen in the nation, are targets of ten outside offers. Every spring departments all over the country seek to improve their standing by hiring from their rivals, a little like free agent season in big league sports. Bids are always out. But the suspense at Berkeley this year is unusually intense.

Development economist Chang-Tai Hsieh already has preferred an offer from the Graduate School of Business at the University of Chicago to one from Stanford. Other targets of multiple offers include applied microeconomist David Card, a Clark medalist who is a department unto himself; husband-and-wife macroeconomists Christina and David Romer; growth economist Charles Jones; public finance specialist Raj Chetty; not to mention several members of Berkeley’s remarkable junior faculty, led by wunderkind theorist Yuliy Sannikoff and international economist Pierre-Olivier Gourinchas. Meanwhile, star information economist Hal Varian has gone off to be chief economist for Google (to whom he consulted for many years, growing wealthy from his options grants), and Nobel laureate George Akerlof, a youthful presence in Evans Hall, is retiring.

The University of California was founded in 1868 (eleven years after San Jose State was established as a normal school to train teachers for the post-gold-rush frontier), and Cal entered the national rankings of top US universities in 1906 (as number six). Its Berkeley campus has been among the top five research universities ever since. A remarkably far-sighted plan, adopted in 1960, freed the University of California at Los Angeles to compete for resources with Berkeley, beefed up four other campuses of the university (San Francisco, Davis, Santa Barbara and Riverside), created three new branches (in San Diego, Irvine and Santa Cruz), and greatly expanded the state college system.

Berkeley’s place as the brightest jewel in this crown is secure today — by one count, 28 of its 35 departments are ranked among the top six departments nationally. But its economics department is on the edge of this distribution, and with salaries for economists rapidly rising disproportionately across the land, Berkeley economics’ gallant resistance to the trend could finally begin to crumble this year, with the California state budget facing a deficit of more than $15 billion. Gov. Arnold Schwartzenegger is calling for across-the-board ten percent cuts, including education, in a budget on which the legislature is supposed to act by July 1.

Forty miles to the south, Stanford University, whose endowment grew faster than any other last year, continues to pile strength upon strength (though perhaps the most interesting news there so far this year, at least in economics, is that growth theorist Paul Romer has resigned from the faculty of the Graduate School of Business in order to pursue development policy goals).

Such is the strength of the California system that, in the current circumstances, UCLA could actually gain at the expense of Berkeley. Already the economics department there has influential macro and econometric groups. Its economic history section is among the strongest in the nation. The leaders of some of its warring factions have departed. In recent years it has built itself up considerably through alumni support and earmarked endowments. A good recruiting season in LA (and a bad one in Berkeley) could conceivably make real progress on UCLA’s boast ( of recent years of joining or even displacing its older sibling among the country’s top five or six departments.

Berkeley may yet come through; it has tottered on the precipice before. Its behavioral economists are led by Nobel laureate Daniel McFadden, Oliver Williamson and Clark Medalist Matthew Rabin. The presence of Joseph Farrell, Michael Katz, Enrico Moretti, Daniel Rubinfeld and Carl Shapiro give it a lock on a certain kind of applied industrial organization. Maurice Obstfeld, Alan Auerbach, J. Bradford DeLong and Emmanuel Saez assure that Berkeley macroeconomics won’t wink out altogether. The department has its own offers out, too, naturally, including one to James Hines of the University of Michigan. What Berkeley economics desperately needs is a faculty entrepreneur to serve as department chair, someone to wheel and deal for it the way John Dunlop did for Harvard economics in the 1960s. But the next chair has yet to be chosen.

For the moment, then, whirl is king in California. Last-minute negotiations over comings and goings are notoriously hard to predict. News of the new National Research Council rankings of economics doctoral programs is expected soon. We’ll have to wait until May to find out what happens next.

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