ARNOLD HARBERGER: An advocate and a missionary of economic ideas in the world by Ihering Guedes Alcoforado

HARBERGER: An advocate and a missionary of economic ideas in the world

“I would like to be thought of as an advocate and a missionary of economic ideas in the world. I believe, more than most economists, in the great strength and pervasiveness of economic forces, and in the power of economic policy to do all sorts of things. No one can deny that when it’s bad enough, economic policy can certainly ruin an economy. And if bad economic policy can ruin the economy, good economic policy can certainly correct it. Therefore I feel that we have a very important role to play. The role of economists in the world, in some sense the duty of the economics profession, is for us to represent economic knowledge in the councils of government and in debates about policies in all kinds of forums. Policy decisions about economic matters should be built on what we have learned, and it is our job to see that the voice of sound economics is heard by those who make decisions. This is what I have been fighting for, for almost all of my professional life.

HARBERGER: A genuine professional economist who practiced what he preached“ […] I would like to be remembered for is that I was a genuine professional economist who practiced what he preached. I have worked hard on lots of problems, in lots of places, covering lots of areas of economics. I would like people to think of me as somebody who, with a very simple kit of robust tools based on economic fundamentals, was able to go out and face many different problems in many different places and come up with some pretty good answers.”[HARBERGER, 1999]

HARBEGER E O MERCADO: “[…] there is almost no economic event where supply and demand does not enter. So if you really know how to handle supply and demand, put it into different contexts at different times, you’re way ahead of the game. People coming from graduate school are going to fall flat on their face if they try to apply ultra-sophisticated models in tough real-world situations like the ex-Soviet empire. Those situations will be much better understood, diagnosed and acted upon by more fundamentals-oriented people who say, “Well here we’ve got proto-markets that are just now being created; how do we see the forces of supply and demand working here?” [HARBERGER, 1999]

CHICAGO: A way of thinking — I think that when people talk of the Chicago School who haven’t been there and who only read about it in the press, they tend to think of Chicago as being characterized for a long period of time by an ideological slant on economics. Nothing could be farther from the truth. It was never like that. Milton Friedman had his office next to mine for something like 20 years and I can vouch that Free to Choose was never used in classrooms. Nor were the messages of Free to Choose put forth in the classroom. A Monetary History of the United States and Milton’s text on price theory and its applications was used. I think three basic tenets characterized the Chicago School during the years that I was active there.

First, everybody believed theory was important. Theory was important because otherwise you can’t cope with very complex issues in an organized way. The second tenet was that theory is important only insofar as it helps us really understand and interpret the way the world works. Theory for its own sake (or what I sometimes call stratospheric theory) had very little place in “Chicago” thinking at that time.

And the third tenet of the Chicago School is a firm, unshaking conviction that market forces really work. It isn’t that markets are perfect. It isn’t that they lead to the beautifully refined equilibria of contemporary theory. They’re genuine forces: The one law that nobody can repeal is the law of supply and demand, and those who try to fight that law are headed for big trouble. This view was shared by all the people who were active in Chicago. The faculty all believed it and they kept showing students one real-world example after another, looking at it and saying, “Behind what we observe are these fundamental forces. You observe, you reason, you gain understanding, and finally you predict on the basis of these forces.” This way of thinking became an integral and essential part of the way most Chicago students ended up viewing the world and exercising their profession.[HARBERGER,1999]

CHICAGO: A cradle for the training of people in policy economics — “I think the entire atmosphere at Chicago for a long period there, in the 1960s and 1970s in particular, made it a cradle for the training of people in policy economics, always emphasizing fundamentals and always trying to give them a true sense of how economics links to the real world. These attributes are woefully lacking, I think, in much of the training that goes on today. Far too much time is now spent, in most graduate schools, on highly formalized techniques that are very remote from the real world and that do much less to prepare future policy economists than was done in that era at Chicago and a number of other places. [HARBERGER,1999]

HAYEK EM CHICAGO: The Committee on Social Thought

“ He was on the Committee on Social Thought, upstairs on the fifth floor. There was amazingly little interaction between and Hayek and the rest. I think it would have been more interesting if there had been more interaction. There was a great difference in focus between Hayek (the Austrians) and Chicago as a whole. I really respect and revere those guys. I am not one of them, but I think I once said that if somebody wants to approach economics as a religion, the Austrian approach is about as good as you can get. They approach it from the angle of philosophy: They derived the principles of free market economics from what they saw as “the nature of man” and other fundamental principles. Their approach pays little attention to empirical measurements and testing. If the price of something goes up and the quantity goes up, they infer that the demand must have shifted. That’s true. But then they ask, how can you infer anything from anything if you can explain any given paradoxical event by such an easy ploy? That’s their story. Whereas the economics department people in Chicago, while being just as devoted to good theory as the Austrians, really ultimately paid a great deal of attention to the empirical world and the use of economics in the empirical testing of theoretical propositions.[HARBERGER, 1999]

HARBERGER AND CHICAGO SCHOOL: The period of “Policy Economics — “I” think it does. As the faculty rolls over it takes on different forms. In the period to which I refer “policy economics” was the top thing in Chicago. We had T. W. Schultz, Milton Friedman, George Stigler, D. Gale Johnson, Harry Johnson, Bob Mundell, Jacob Frenkel, George Tolley, Larry Sjaastad, and myself, among many others less directly interested in policy issues. Policy economics was the hallmark of Chicago in that period. It was why many students went there, and what many students took advantage of after they left.

Today, policy economics is very little represented at Chicago and there are really two main centers. One is the macroeconomic center that surrounds Bob Lucas, along with Lars Hansen, Nancy Stokey and others. Then on the other side you have a group of people that I package together under the umbrella of “human resources”: Gary Becker, Jim Heckman, Sherwin Rosen, Bob Topel and Kevin Murphy (who won the latest John Bates Clark Award, given every two years to the economist under 40 who has made the most significant contributions to economics).”[HARBERGER, 1999]

ARNOLD HARBERGER ON CHICAGO SCHOOL “ We have these two big fields of a modern, quite stylized, but very professionally valued macro, with Bob Lucas and Lars Hansen, Nancy Stokey, [John] Cochrane, and so on. Then we have another side, which is more micro oriented. I call it human resources, with Gary Becker, [James] Heckman, Kevin Murphy, Steve Levitt, [Robert] Topel, and others in the department, but we don’t have the
same concentration of policy-oriented people. Back in those old days, we had [Milton] Friedman in policy-oriented money-macro. We had [T.W.] Schultz and D. Gale Johnson in agricultural economics, policy oriented; myself and [Larry] Sjastaad in public finance, policy oriented; George Stigler, at least semi–policy oriented; Harry Johnson, Bob Mundell, and Jacob Frenkel in international trade. In policy economics, it’s hard to see when there
ever was a department that was so thick with people who were so deeply interested in policy and in applying robust economics to policies. Now that part is no longer an accurate description of Chicago, which does not stop it from being one of the top three or four economics departments in the world” [HARBERGER, 2012:24]

“ The strongest force stems from our economics no longer emphasizing the fundamentals in the way that it did when I was a graduate student and an
undergraduate (in Chicago), and probably when you were a graduate student and an undergraduate.
People are not taught to think like economists in the same way that they used to be, and they are not taught to use their eyes and ears and sense of smell to perceive and diagnose economic situations.
I see this all around the world: Many young economists can run through mathematical proofs of something, but they can’t detect its counterpart in the real world and know even less about what to do about it. That is a big lack. You can read my Ely lecture[HARBERGER, 1993], which was one of several sermons that I have preached on this subject. I haven’t changed my opinion at all about that. I think that good, robust economics built on diagnostics and the application of fundamentals is the way that economics has produced its greatest contributions in the past. I think this is also the way it will continue to produce if only we can keep on that track.” [HARBERGER, 2012:24/25

HARBERGER: Crise e Mudanças na Politica Econômica. “[…] the fact that most major economic policy changes come in moments either of actual crisis or perceived crisis, that societies that are comfortable rarely want to change their comfort level even though sensible reforms promise to improve things. They may be willing to make “little” sacrifices but not big ones in the hope of promised improvements. This helps explain why major changes have nearly always come at moments when people were reacting to a crisis situation — where in some sense they had “had it up to here” and were willing to risk taking daring new trails. Now, let that be the backdrop.

When I use the word “risk” here I really mean it. It is typical of crises that people really don’t know what to do. The authorities are often just as perplexed as everybody else. They too often have turned to the wrong people for advice, people who prescribed medicine that was altogether wrong and that drove the country’s economy to the wall Examples are Indonesia in the time of Sukarno, Chile in the time of Allende, Nicaragua under the Sandinistas, Argentina under Isabelita Perón, Peru under Alan GarcÍa. And then there are those wonderful occasions where people who really know what to do, and who embody good economics, are given their head, so to speak. Having such people in the right place at the right time can really propel an important revolution. I think the Indonesian miracle of 1968 and onward, the Brazilian miracle of 1965 and onward, Chile’s performance since 1973 and Argentina’s since 1990 all have that characteristic.[HARBERGER, 1999]

HARBERGER: the translation of economic ideas into policy. — “ I think in terms of the translation of economic ideas into policy. The maturation of economic ideas in the cauldron of academic life is a continuing process; goes on forever. But I think that for making major policy changes in a country, the element of crisis is critical. It creates opportunity and that opportunity may fall into the lap of somebody who just doesn’t know what to do or does it badly. But with luck the reins of policy will be given to people who really know what to do and how to do it.

BIBLIOGRAFIA

HARBERGER, Arnold., A Conversation with Arnold Harberger and Richard Just IN Annu. Rev. Resour. Econ. 2012: 4: 1–26

HARBERGER, Arnold & LEVY, David, An interview with Arnold Harbergerthe dean of the “Chicago Boys.” in The Region, March 1999 issue https://www.minneapolisfed.org/publications/the-region/interview-with-arnold-harberger

HARBERGER, Arnold C., The Search for Relevance in Economics IN The American Economic Review,1993, v. 83, n.2 , 1–16