At the Summer Institute

The first week of the Summer Institute of the National Bureau of Economic Research unfolded last week in Cambridge, Mass.,  mostly uneventfully, 80 papers given over six days, the first of some 365 papers to be presented over three weeks to approximately 1400 attendees from around the world during the NBER’s annual conclave.

Thus the monetary economics program considered price rigidities and evolving perceptions of various central banks.  The Forecast and Empirical Methods program pondered the fine points of measurement and evaluation. Economic historians considered development, and not just American development — “How Occupied France Paid for Its Own Occupation during World War II,” for example.

The International Finance and Macroeconomics program discussed capital flows.  The Risk Group brought together market participants, regulators and economists for a day of discussions. The Asset Pricing program studied various mechanics of financial markets. And the program in Economic Fluctuations and Growth met for two days to debate how the interaction of tastes, technology, labor, capital and institutional arrangements somehow lead to economic growth.

The hit of the week? Perhaps it was the “Equilibrium Model of Global Imbalances and Low Interest Rates,” presented by Ricardo Caballero and Emmanuel Farhi, of the Massachusetts Institute of Technology, and Pierre-Olivier Gouirinchas, of the University of California at Berkeley.  The model gives a solid technical account of an influential but counterintuitive point of view that previously has been propounded mainly in literary terms (“dark matter,” a “savings glut” and such).

Most international economists have taken the striking global imbalances of the last few years — a large US trade deficit, surging demand abroad for US assets and declining long-term interest rates — to be unsustainable, and likely to lead to a “day of reckoning” unless redressed. But the circumstances can equally well be interpreted as a natural outgrowth of rapid globalization, with newly industrializing nations capable of rapid real growth but with no corresponding ability to generate financial assets, and need not end in a dramatic depreciation of the US dollar, according to the authors. Their skill lay partly in the fact that their formalization is simple, tractable and yet sufficiently rich to admit interesting questions.

A great paper, to be sure, said discussant Lars Svensson, of Princeton University.  But as to whether it will turn out to have captured the essence of capital flows among the three broad regions of a divided world (the US, Europe/Japan and the Rest of the World), he said, “the jury is still out.”

Over the last quarter century, the Summer Institute has quietly become of the world’s most influential venues in economics, on a par with such older and more established gatherings as the annual meetings of the American Economic Association or the Econometric Society, and much more timely, at least where applied economics is concerned. For economists concerned to know what is happening in related fields, it clearly has become the place to be.

(Another relatively unheralded but very significant roles of the Summer Institute has been increasingly to bring together economists in government, academics, and economic statisticians.  “My sense is that not only is this type of gathering unique among professions in the US, but even among economic policymakers, academics and national income accountants, it is uniquely American, says MIT’s Ernst Berndt, director of the NBER’s Program on Technological Progress and Productivity Measurement.)

For a few years after it began in 1979, the institute was known as economists’ “summer camp.” Harvard University’s Quincy House was rented to serve as a dormitory: economists from universities around the country came to Cambridge for a week or two or even three; late night bull-sessions were the norm. “It was, ‘Gee I have an idea, let me try it out on you, fifteen people in a room,’” recalls Martin Feldstein, the Harvard professor who initiated the tradition not long after becoming the NBER’s president.

Today, the Summer Institute more or less takes over a hotel in East Cambridge for three weeks, around the corner from Boston’s Museum of Science. The original six NBER research programs have grown to sixteen, with another fifteen less-formal working groups.  Researchers come for a day or two.  The once traditional climactic clambake, once one, has become three.

What’s changed? “Family situations,” says Feldstein.  “We can’t get the whole family to come because the spouse works.”   Meanwhile, the Internet has changed utterly the distribution of the mostly-finished working papers that are the Bureau’s ultimate product (they are on their way to being published by journals.)

It is all part of a remarkable appreciation that has taken place in the influence of the NBER since it moved to Cambridge from New York City in 1967. The private, non-profit organization was established in 1920 to provide non-partisan economic research. For half a century, it functioned much like a university department, with a handful of in-house scholars pursuing their own reconnaissance. Harvard’s pioneering econometrician John Meyer moved its headquarters to Cambridge in 1967, at a time when the frontier of economics was expanding rapidly: new ideas, new math, new tools, especially the computer.

Feldstein replaced Meyer in 1977 and re-engineered the NBER as a clearinghouse for university-based economists, efficiently administering their National Science Foundation grants, attracting corporate support, creating an exchange for ideas quite unlike any other in economics before. His timing was perfect.  The demand for economists exploded, especially in Washington.  The NBER grew and grew. The once-ubiquitous “yellow jackets,” in which cardboard-clad working papers were delivered to readers in the 1980s, have given way today, almost entirely, to downloads, 2.5 million of them last year. (A sophisticated NBER website now even offers a notification service when papers containing keywords are published.)

The secret to the NBER’s success probably is its relatively high degree of decentralization. Decision-makers are the program directors who, with their steering committees, choose who will be granted coveted “research associate” status. Typical is the Economic Fluctuations and Growth Program, the largest of the Bureau’s programs, with 127 research associates (tenured faculty at universities around the world) and 40 “faculty research associates,” who usually are invited to join the program three years after receiving their PhD but before receiving tenure. The group meets three times a year, winter, summer and fall. Conference organizers choose papers from a large number of submission. “We try hard to include every paper that will be perceived as an important advance in macro ten years later,” says Stanford’s Robert Hall, the program director. “Naturally we get a lot of interesting papers that don’t quite reach that mark as well.” You can see the list of programs for yourself, or, if you like, the 30-page master program with all the papers. (

(Doesn’t the presence of such a powerful network in economics suggest the existence of a counter-network, organized along different lines according to different principles and predisposed to opposition?  You bet it does.  Even now, that counter-network is probably headquartered at the University of Chicago, though it long ago established outposts on the West Coast as well. The counter-network prizes empiricism, too, while placing theory slightly ahead of measurement.  But then that’s another story.)

It was a fortunate moment, then, when in 1979 Michael S. Joyce agreed to fund a Summer Institute for a few years.  Joyce had just left the John M. Olin Foundation, where he had more or less invented the philanthropic two-minute drill that would make the Olin Foundation the most powerful financial force behind the rise of neoconservatism. At Milwaukee’s Bradley Foundation, he was seeking to invent still more modes of galvanizing communities around ideas of which he approved.  One such was Milwaukee’s decades’ long experiment with school choice.  Another was the NBER Summer Institute, which for a few years was even called the Bradley Summer Institute.

There are other interesting high-end colloquia in economic research. The Center for Economic Policy Research sponsors an autumn meeting in London. The University of Munich’s Center for Economic Studies/Ifo and Columbia University’s Center on Capitalism and Society host a star-spangled Summer Institute of their own in Venice next weekend.  But there is nothing like what goes on in Cambridge.  Joyce died last spring at 63. The NBER Summer Institute will turn out to be his among his most fruitful ventures.