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May 2, 2010
David Warsh, Proprietor


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Peter Diamond Ate My Homework

An old joke among psychologists, anthropologists and sociologists has it that economics is the study of economic models. Lingering doubts that things are changing will be dispelled by the selection of Esther Duflo, of the Massachusetts Institute of Technology, as winner of this year’s John Bates Clark Medal, awarded annually to the economist nearing forty judged to have made the most distinctive contribution to the field. Duflo, 37, who has worked as a development economist in India, Indonesia, Cote d’Ivoire, South Africa and Kenya, is an authority on various techniques of randomized field experimentation that have swept the field in the last fifteen years.

Two of the last three Clark medalists have been women (Duflo and Susan Athey, of Harvard University); two of the last three have been French (Duflo and Emmanuel Saez, of the University of California at Berkeley); all of the last three have been applied economists (at least if you count the part-time work that theorist Athey is now doing as chief economist for Microsoft Corp.) Indeed, if you include Steven Levitt, of the University of Chicago, and Daron Acemoglu, of MIT, (the former, coauthor of Freakonomics and Superfreakonomics, is the profession’s most successful impressionist, the latter something of a prodigy who defies easy classification), then all five Clark medal winners have been applied economists.  Saez, who works on public finance and income distribution, has a strong empirical bent, as well.  Chalk up the changes to a revolution in methods predicated on a powerful new tool – the computer – and to the fact that, at a point or another, all five were graduate students or junior faculty at MIT.

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On the eve of an historic election, Martin Wolf, principal economics commentator of the Financial Times, last week asked whether Great Britain, facing a huge fiscal deficit, would become “a big Greece or a big Netherlands”? He urged his countrymen to accustom themselves to play a more modest role among the nations of the world. As a model, he suggested the Dutch. Wolf wrote, “The Netherlands was the UK’s forerunner as a commercial, naval and imperial power.  The country has been in decline, relative to other powers, for three centuries, against just one and a half for the UK. But it has also been a success, economically and politically. It is Atlanticist, stable and democratic, despite its complex coalition politics.  It has a sound economy, successful companies, and a robust external position. After two centuries of relative decline, vis-à-vis the UK, it has been richer for most of the past half century.”

Just so. Next, if the Germans would begin to pattern themselves after the Swedes.

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The Vietnam War ended thirty-five years ago last week. A certain amount of hashing-over naturally took place. A friend, who had been badly wounded in an ambush while protecting a boatful of South Vietnamese troops, who were themselves seeking to extract an American infantry company (an action for which he received the Medal of Honor), told me this story.

A sailor, also deeply involved in the battle that day, had become a frequent visitor to Vietnam in recent years.  Sometimes this man visited places where he had seen action or where friends and acquaintances had been killed. On a trip to Kien Hoa province, he found on the bank of the canal where the fighting had occurred that day a statue of two Vietnamese soldiers in the act of firing a rifle-propelled grenade – presumably the very two who had threatened the mission that day. The sailor reported to my friend that he had spat on it. My friend laughed, No, I think it’s great. They won the right to their country, and to their version of events.

This is, I think, the dominant feeling among the Americans who were swept up in the war – at least the ones I know. The sense that we were fighting on the wrong side was fairly pervasive in those days, even if, as was frequently said, it was for “the right reasons.”  Most of those of us involved look on the Vietnamese with a special affection, I suspect, and marvel at what has become of the country since its unification, with its inevitable exercise of exit, voice and loyalty, was achieved. The resemblance to the 1950-53 Korean War – on which the American intervention in Vietnam was premised – could hardly have been more remote.

Still, thinking about such bonhomie as exists today between American and Vietnamese men of military experience reminded me of the Yale historian David Blight and Race and Reunion: The Civil War in American Memory, probably the best book about war that I have read in many years. Blight showed how the armies of the Union and the Confederacy became great chums as the distance from the war increased – at the expense of former slaves on whose behalf the war was ostensibly fought.  The forces of the reconciliationist version of the war overwhelmed the emancipationist version and permitted the white supremacist version to survive more or less intact for eighty years – until the emancipationist view reemerged as the civil rights movement after World War II and transformed American society. 

Here’s hoping that Blight’s book or at least his sensibility, will be translated into Vietnamese.

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April is meeting season, and EP has been to a lot of them recently, including a conferences inspired by Peter Diamond’s multifaceted career in economics at MIT.  Diamond, 70, has been the department’s intellectual leader since Paul Samuelson and Robert Solow passed the torch. Among other things he is an expert on retirement systems. President Obama nominated Diamond last week to a 14-year term as governor of the Federal Reserve Board.

(A video of a moving memorial service for Samuelson, who died in December at 94, can be seen on here the MIT department website.)

James Poterba, of MIT and the National Bureau of Economic Research, presided at the Diamond Conference; Olivier Blanchard, of the International Monetary Fund and MIT, spoke at lunch; students and collaborators gave papers: Saez on optimal income taxation from theory to practice; James Mirrlees on the optimal allocation of risk; Robert Shimer on liquidity as a search process; Robert Hall, of Stanford, on taxes and other frictions as a sources of business cycles; Eytan Sheshinski, of Hebrew University, on socially desirable limits on choice; and John Geanakoplos, of Yale, on leverage cycles.   

Even so, EP might have had more to report this week about Duflo and the Poverty Action Lab she started at MIT with Abhijit Banerjee, if Diamond’s wife, the former Priscilla (Kate) Myrick, hadn’t commissioned a work by composer John Harbison to mark her husband’s retirement. (Like Diamond, Harbison is an institute professor at MIT). Thus last week at the end of a concert of works for two pianos – Stravinsky, Rachmaninoff, Lutoslawski, Poulenc – pianists Robert Levin and Ya-Fei Chuang performed “Diamond Watch: Double Play,” a series of intricate improvisations on “Take Me Out to the Ball Game.”  Several nights before, Diamond had thrown out the first pitch at Fenway Park. All very MIT, at least of a certain generation.

Normal life here resumes next week.

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