Who Will Replace Marty?

Suppose that Martin S. Feldstein does get a job in Washington. Clearly he would like to succeed Alan Greenspan as chairman of the Federal Reserve Board. Who then would take over the presidency of the National Bureau of Economic Research from the mild professor that nearly everyone calls Marty?

A little bit of history is in order. The NBER was founded in New York City in 1920 by Wesley Clair Mitchell and Edwin Gay and funded by, among others, the Carnegie Corporation. Mitchell was an empirically-minded Columbia University professor; Gay had been the founding dean of the Harvard Business School (and, briefly, editor of the New York Post).

Their idea was to build a non-partisan research institution loosely modeled on the Rockefeller Institute of Medical Research. And for the next forty years, they got pretty good results, with “the Bureau” operating as if it were a university with a single department.

Simon Kuznets did his early work on national income accounting for the Bureau, Milton Friedman began his investigations of the demand for money there, and Mitchell himself turned out the monumental studies of the business cycle that turned the NBER into the semi-official arbiter of recession and expansion.

(Similar impulses led to the founding of the Brookings Institution in Washington at about the same time. In both cases the idea was to provide a source of relatively disinterested advice as an alternative to the cacophony of special interests and immoderate cranks. A good sourcebook on these, and many other institutions, is, Michael Bernstein’s fascinating chronicle of professional economists’ efforts to gain influence in twentieth century America, A Perilous Progress.)

By the mid-1960s, the Bureau was running out of steam. A plethora of good university departments had grown up around the country in the years since World War II. Economists working elsewhere were outstripping the Bureau’s own researchers. The kind of a-theoretical, institutional work for which they were known was losing favor in the profession.

Its long-time president, Arthur Burns, was preparing to leave to work for Richard Nixon, first as domestic counselor before being named chairman of the Fed. Long before the Rockefeller Institute had bootstrapped itself into a full-blown university. For the Bureau, fund raising was becoming harder.

In 1967, one of the leaders of the empirical wing of the post-war “New Economics” agreed to spend a decade attempting to turn the Bureau around. Economic historian John Meyer even agreed to leave Harvard, as long as he was allowed to commute to Manhattan from New Haven in order to teach at Yale.

When Meyer decided to return to Cambridge in 1973 — in part because the university had promoted an up-and coming young econometrician named Martin Feldstein — he persuaded the NBER’s blue-ribbon board to permit him to bring its headquarters with him, since the profession itself had shifted its flag to Cambridge.

Feldstein took over from Meyer in 1977 and breathed new life into the organization. Where previously the Bureau had emphasized intramural research by its own staff, Feldstein concentrated almost entirely on funding work done off the premises, accepting grants for economists and business school professors whose livelihood derived from their university teaching appointments.

Feldstein himself was at the cutting edge of empirical work in health care economics and public finance, an expert in computer analysis and the gathering of large new sets of data. The program directors he appointed were equally in the van.

Suddenly appointment as an NBER research associate was among the most sought after privileges in technical economics. (There are more than 600 of them today.) A steady stream of research reports were issued as cardboard-bound working papers known as “yellow-jackets” and widely circulated, especially in policy circles

Since then, Feldstein has had three careers. One in Washington, as an adviser to presidents — formally to Ronald Reagan as chairman of his Council of Economic Advisers, informally to both Presidents Bush. Another in Cambridge’s Putnam Square, as president of the Bureau and its highly-skilled fund-raiser-in-chief. And a third at Harvard, barely a mile away.

There, Feldstein has not only taught a generation of public finance economists, (perhaps most notably Lawrence Summers, the former Treasury Secretary who is today the university’s president), but a generation of undergraduates in Harvard College’s introductory economics course as well. Feldstein himself was passed over for Harvard’s presidency twelve years ago, as being too conservative for a faculty that likes to think of itself as steadfastly progressive.

Most recently, he is president-elect of the American Economic Association.

In a collection of columns in 1994, I compared Feldstein’s influence in the profession to that of Paul Samuelson. I was wrong about that. Econometrician and author Ernst Berndt has pointed out that Feldstein’s influence on his generation — he was born in 1939 — resembles no one so much as MIT’s Robert Solow’s on the generation previous.

Solow was born in 1924. In the 1950s, ’60s and ’70s, he more or less invented small models that were designed to capture particular aspects of the economy — most famously, its growth over time. He put his own stamp on economics, emphasizing the impact of technical change, and attracted many remarkable students to carry on a tradition that has illuminated more and more dark corners.

Similarly, Feldstein has come to stand for the advent of “easy econometrics” — the adoption of computer techniques in the 1970s, ’80s and ’90s to develop increasingly persuasive answers to problems that previously required large teams to make scant progress.

Starting even before a landmark study of capital gains taxation in 1978, Feldstein demonstrated that insurance systems and taxes can have large and sometimes unexpected economic effects. On the other hand, his work on the Social Security system — he is among the most ardent advocates of privatizations — has yet to command anything like a consensus.

Both men combined their dispassionate research with a commitment to politics so unmistakable that it was not always possible to keep them apart, Solow as a liberal, Feldstein a conservative. In the grand scheme of things, this paradoxical combination is a gift, not a shortcoming. It is no small matter to become intellectual godfather to an age.

(It is worth noting that Solow wasn’t simultaneously running a research center charged with being an impartial arbiter. But then experimenting with the limits of conflicts of interest may have been what the ’80s and ’90s were all about.)

So who might follow Feldstein? What’s wanted is someone open to diverse opinions, someone accustomed to bending over backwards to achieve fairness in scholarly debate, possessed of the imagination to recognize new opportunities for research but able to keep the focus to keep work on point along an ever-shifting front which inevitably displays both salients and reverse-salients.

One logical place to look is among the current project directors at the Bureau. It is unlikely that the next president would come from outside what Feldstein likes to call the NBER “family”; unlikely, too, that he or she would be found living far from Boston (though a successor could always relocate, a la John Meyer). The leading candidate therefore is probably MIT’s James Poterba, who currently heads the Bureau project in public economics.

Poterba, 44, is the long-time editor of the Journal of Public Economics. He is a distinguished scholar in his own right (a specialist in the economics of tax-deferred retirement savings plans such as the 401 [k]), smart by any standard (a former fellow of the Center for the Advanced Study in Behavioral Sciences in Palo Alto, California) and a man of generally broad shoulders. But Poterba’s greatest asset is his probity. In the sometimes superheated atmosphere of Bureau research, no one has accused him even fleetingly of favoring his own agenda over any other.

An alternative could be David Cutler, 37, a professor of economics at Harvard. Cutler is an expert on the value of medical spending, the architect of an enormous pioneering study of the outcomes of medical care. He also is a former fellow of the Center for the Advanced Study in Behavioral Sciences. But it was as senior staff economist at the Council of Economic Advisers in the Clinton Administration that Cutler earned a reputation as an academic diplomat of the first rank, gently deflecting the Clinton health reform without ever raising the temperature of the rooms he was in. He served as health care adviser to Bill Bradley’s presidential campaign in 2000.

There is some reason to believe that the NBER presidency in the future won’t be quite as important a job as Feldstein has made it during the past 25 years. For one thing, there is not likely to occur the same ecstatic marriage between a set of skills and the appearance of a powerful new tool. The computer could only be invented once, and Marty was born at the same time.

Then, too, the Bureau working papers may lose some of their cachet as new electronic journals begin to play a more important role in economics. The lag times for acceptance at leading journals — never mind publication — are extraordinary these days. Not surprisingly, custom has decreed that articles are considered to be effectively published once they are accepted by the Bureau — after a considerably shorter wait. Electronic journals may take away some of that power to say what is and is not real economics.

Finally, it is important to remember that the Bureau is only one intellectual center among many in present-day technical economics. MIT econometrician Jerry Hausman calls it the National Bureau of Ephemeral Research. As useful as the NBER is for purposes of keeping the discussion of current policy on the up-and-up, the deepest and most serious research is done elsewhere.

Running the NBER is a big job nonetheless. There are more special pleaders and cranks today than ever. When Marty goes, the high-powered board that runs the Bureau on behalf of government, industry, labor and the universities will face a difficult decision. What does it want “the nation’s leading non-profit research organization” to be next?

* * *

Federal Reserve chairman Alan Greenspan again defended his stewardship of monetary policy during the late 1990s in an extremely interesting speech last week to the New York Economic Club. But he didn’t sound as certain as when he confidently asserted at Jackson Hole last August that the Fed had done everything just right.

“It is still too soon to judge the final outcome of the strategy that we adopted,” said Greenspan.

He’s absolutely right about that.