David Warsh: Those missed Nobel Prizes
Front side of a Nobel Prize.
Photo by Jonathunder
SOMERVILLE, Mass.,
When Dale Jorgenson died last summer, of long Covid, at 89, sighs were heard throughout the worldwide community of measurement economists. Had the Swedish authorities at long last been preparing to recognize the founder of modern growth accounting? Did the Reaper rob the Harvard University econometrician of his Nobel Prize?
Probably not. It seemed that, barring exigency, the Nobel panel had decided long ago to pass him by. It was left to Martin Baily, a senior fellow at the Brookings Institution, to tell The Wall Street Journal’s James Hagerty that Jorgenson “should have been awarded a Nobel Prize….” The same has been said of many other often-nominated candidates, including, for example, American novelists Philip Roth, of Connecticut, and John Updike, of Massachusetts.
On a memorial service yesterday, in Harvard’s Memorial Church, it almost didn’t matter. The talk was of families, friendships, skits (including one in which Jorgenson was portrayed as Star Trek’s Mr. Spock): the old days, when the Harvard Economics Department’s youngers members and their students were housed in a converted hotel across the street from IBM’s mainframe computers. Colleagues Barbara Fraumeni, Mun Sing Ho and Benjamin Friedman spoke; so did Jorgenson’s former student Lawrence Summers. Another former student, Ben Bernanke, whose undergraduate thesis Jorgenson supervised, missed the service, on his way to Stockholm to share a Nobel Prize; the two had remained in life-long touch.
Still, the question remained, why not Jorgenson?
Certainly it was not for lack of dominating achievements in his chosen field, of growth and productivity measurement. Born in 1933, Jorgenson grew up in Montana, attended Reed College, in Portland, Ore., and, in 1959, received his PhD from Harvard, where future Nobel laureate Wassily Leontief had supervised his thesis. He took a job at the University of California at Berkeley, where he taught the graduate theory course.
In 1963 Jorgenson published “Capital Theory and Investment Behavior.” When a committee selected the 20 most important papers that the American Economic Review had published in its centenary celebration, Jorgenson’s article was among them – the only contribution to have appeared in print immediately, without the customary wait for referee reports. The 13-page paper was revolutionary in two ways, according to Robert Hall, of Stanford University:
It combined finance with the theory of the firm to generate a coherent theory of the firm’s purchase of capital inputs, an area of considerable confusion prior to Jorgenson’s work. And it also laid out a paradigm for empirical research that called for serious economic theory to provide the backbone of the measurement approach. Jorgenson showed how to integrate data and theory.
As Berkeley boiled over with student protests in the 1960s, its best economists began to leave for Harvard: first Richard Caves and Henry Rosovsky, then David Landes, and, in 1969, Jorgenson. They were part of Harvard’s response to having been eclipsed in economics beginning 25 years earlier, by the Massachusetts Institute of Technology. Kenneth Arrow, Zvi Griliches, Martin Feldstein, and John Meyer were recruited as well, from Stanford, Chicago, Oxford and Yale respectively.
In 1971, Jorgenson won the bi-annual John Bates Clark Medal, awarded for contributions to economics before the recipients turned 40, as had Griliches, in 1965, and Arrow, in 1957. Feldstein would be similarly recognized in 1977.
Jorgenson’s contributions continued at a steady pace for more than 50 years at Harvard. The most significant of these was a successful campaign to produce industry-by-industry input-output tables with which to elucidate national income accounts prepared in the 1930s. Aggregate growth accounting depended fundamentally on the concept of value-added, according to John Fernald, author of a comprehensive account of Jorgenson’s career.
But Evsey Domar had written as early as 1961 that value-added accounting was only “shoes lacking leather and made without power.” To identify the changes occurring in productivity a complete set of input-output tables would be required, disaggregated by industry, linking Leonief/Jorgenson accounting with the old national income accounts designed by Nobel laureate Simon Kuznets. .
Working with Ernst Berndt, Frank Gollop and Barbara Fraumeni, among others, Jorgenson gradually created a granular new account of the sources of growth, differentiating between inputs of capital (K), labor (L), energy (E), and materials (M). The purchase of services (S) were subsequently broken-out. Hence the KLEMS system of productivity and growth accounting, now used by governments around the world. Jorgenson served as president of the American Economic Association in 2000.
I knew Jorgenson as news people know their subjects, and I have known many of his students, too. I never followed growth accounting closely, though I read Diane Coyle’s beguiling little book GDP: A Brief but Affectionate History (Princeton, 2014), and I was sufficiently absorbed by Fernald’s Intellectual Biography of Jorgenson to suspect that a second golden age of nation income and productivity accounting, or perhaps one of platinum, already has begun. (For an especially artful introduction to the KLEMS system, see Emma Rothschild’s essay, “Where is Capital?” in Capitalism: A Journal of History and Economics).
Nor do I know much about early 19th Century naval history. There was, however, something in Jorgenson’s leadership style (and a leader he unmistakably was) that reminded me of the lore surrounding Admiral Horatio Lord Nelson – his precise and formal manner, clipped speech, wry humor, zest in explaining to friends the innovations he prepared, and the admiration and loyalty he elicited from his students and colleagues.
Hearing their stories over the years, I was reminded one day of the signal that Nelson sent his squadrons as the battle of Trafalgar was about to begin – “England expects that every man will so his duty.” Never mind that “the little touch of Dale in the night” sometimes meant wakefulness on nights before examinations. More often his most successful students spoke of encouragement and surprising warmth. Further evidence of the inner man: a 50-year marriage to a professionally successful wife, two children (he worked at home three days a week) and three grandchildren.
If Jorgenson’s sense was that the Swedes, too, would do their duty, apparently they did not conceive their duty quite the same way. Perhaps the pride he took in his work was too obvious to them. He was elected a foreign member of the Royal Swedish Academy of Sciences in 1989, sometimes seen as a consolation prize. Perhaps too much umbrage had been given MIT; there were those 13 volumes of Jorgenson’s collected papers, published with the author’s subvention, five more than those of Paul Samuelson; Griliches had been embarrassed to publish one. (The one-time collaborators (“The Explanation of Productivity Change,” in 1967) were often nominated together for their complementary work.)
Griliches died in 1999; Jorgenson soldiered on, adding to his portfolio the economics of energy, the environment, emerging nations’ development, and even pandemics, via the KLEMS system. He became embedded in the major tax debates of the day. But the attention that theoretical economists paid to increasing returns to scale beginning in the ‘80’s was of little interest to an apostle of neo-classically based empirical analysis.
Jorgenson was sometimes called a “Reedie,” after the selective college he attended, celebrated for a distinctive sort of intellectuality, rivaled by Cal Tech, Swarthmore College and St. Johns College. Some 1,500 undergraduates today, 175 faculty members, providing constant feedback but no grades in real time, a measure thought to encourage hard work and long horizons. Only after they had graduated and applied to graduate schools were their transcripts revealed. Legend had it that Jorgenson was among the handful who over the years had received straight A grades in all his courses, and perhaps a few beyond. Certainly he received encouragement from Carl M. Stevens, a 1951 Harvard PhD in economics then teaching at Reed.
Touring a plaza of his hometown library that had been named for him, the author Phillip Roth was asked if the cold-shoulder from the Swedish Academy bothered him. “Newark is my Stockholm,” Roth replied. Reed College was Jorgenson’s Newark; bi-annual KLEMS project meetings are his Stockholm.
David Warsh, veteran columnist and an economic historian, is proprietor of Somerville-based economicprincipals.com, where this column originated.
David Warsh: The Nobel Prize in Economics and the 'Methods Revolution'
Scurvy-prevention pioneer James Lind
The cure for scurvy became known to Portuguese explorer Vasco Da Gama when, in 1498, he stopped in Mombassa, along the east coast of Africa, on his way to India – the first such maritime voyage by a European in history. The African king fed the ship’s sailors oranges and lemons, and the disease, which often can be fatal to sailors on ships that remain at sea longer than 10 weeks, cleared up. The remedy became a naval secret, then a rumor, and, eventually, folk wisdom. Only in 1747, when British Navy surgeon James Lind performed his famous experiment, did it become reliable knowledge.
Lind divided 12 men suffering from similar symptoms aboard his ship into six pairs. He treated one man in each pair with one of six competing nostrums, and gave the other man nothing. Those who received citrus juice recovered while the others did not. It took another 40 years (and the onset of a desperate war with France) for the British Admiralty to require a ration of lemon juice be provided regularly to sailors throughout the fleet. Not until the 1930s did biochemist Albert Szent-Györgyi pin down that it is ascorbic acid, AKA vitamin C, that does the trick.
Since then, the practice of inferring causation by comparing a “treatment group” receiving a certain intervention with a “control group” receiving nothing of the sort has been considerably refined. Agronomists began using the technique in the early 20th Century to improve plant yields through hybridization. Statisticians soon tackled the problem of experiment design. The first randomized controlled trials in medicine were reported in 1948 – the effectiveness of streptomycin in treating tuberculosis.
Beginning in the 1980s, economists began adopting the technique of randomized control trials to use across a broad swathe of microeconomics, distinguishing between “natural experiments,” in which nature or history formulates the treatment and control groups, and “field experiments,” in which investigators arrange interventions themselves and then follow their effects on participants making decisions in everyday life.
Early experiments with negative income taxes by others were assessed by Jerry Hausman and David Wise in 1985,; the RAND Health Insurance Experiment, analyzed by Joseph Newhouse, in 1993; a series a welfare- reform experiments conducted by economic consulting firms for the Ford Foundation in the the ’80s and ’90s, surveyed by Charles Manski and Irwin Garfinkel in 1992; and experiments in early-childhood education, especially the Perry Preschool Project, begun in 1963, and introduced to economists by Lawrence Schweinhart, Helen Barnes, and Weikart, in 1993. An especially striking exemplar of the new approach came from Angrist in 1990 who used the draft lottery to study the effect of Vietnam-era conscription on lifetime earning.
Behind the scenes, of course, enabling the revolution, was the advent of essentially unlimited computing power and the software to put it to use, searching out all kinds of new data and analyzing it. Major developments along the way were described by Hausman and Wise (Social Experimentation, 1985); James Heckman and Jeffrey Smith, “Assessing the Case for Social Experiments,” 1995; Glenn Harrison and John List (“Field Experiments,” 2004); Angrist and Jörn-Steffen Pischke (“The Credibility Revolution in Empirical Economics,” 2010); David Card, Steffano DellaVigna, and Ulrike Malmendier (“The Role of Theory in Field Experiments,” 2011); Manski (Public Policy in an Uncertain World: Analysis and Decisions, 2013); and Susan Athey and Guido Imbens (“The Econometrics of Randomized Experiments,” 2017). All this can be gleaned from the first few pages of the Royal Swedish Academy of Sciences’ Scientific Background to this year’s Nobel Prize.
Confronted with this Tolstoyan sprawl, the Nobel Memorial Prize in Economic Sciences committee earlier this month finessed the problem of allocating credit by singling out the sub-discipline of development economics as a field in which experiments is said to have shown particular promise. Recognized were Abhijit Banerjee, 58, and Esther Duflo, 46, both of the Massachusetts Institute of Technology; and Michael Kremer, 55, of Harvard University, for having pioneered the use of randomized controlled trials (RCTs) to assess the merits of various anti-poverty interventions.
In Duflo, the committee got what it wanted: a female laureate in economics, only the second to be chosen, and a young one at that. (Elinor Ostrom, then 78, who was honored with Oliver Williamson in 2009, died two years after receiving the award.) Duflo’s mother was a pediatrician who traveled frequently to Rwanda, Haiti and El Salvador to treat impoverished children or victims of war, according to Herstory. Duflo herself formed a life-long obsession with India at the age of six, when reading a comic book about Mother Teresa, the Albanian nun who operated a hospice in Calcutta (now Kolkata). As a student at the Ecole Normale Superieure, Duflo switched to economics from history while working for a year in Russia, observing the work of American economic advice-givers first hand. Duflo was Kremer’s and Banarjee’s student at MIT; the university hired her upon graduation, and tenured her after Princeton sought to lure her away.
Banerjee grew up in Kolkata, the son of a distinguished professor of economics. An interview with The Telegraph gives a vivid picture of the rich intellectual life of Bengal. He earned his PhD from Harvard in 1988 with a trio of essays in information economics, and taught at Princeton, then Harvard, before moving to MIT. There he founded, in 2003, with Duflo, Kremer and others, the Abdul Latif Jameel Poverty Action Lab, known colloquially as J-PAL, its researchers self-identifying as randomistas. In 2010, he and Duflo published Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (Public Affairs), a primer on RCTs. By then he had divorced his first wife. In 2015, he and Duflo married.
Of the three, Kremer was the pioneer. After graduating from Harvard College, in 1985, he taught high school in Kenya for a year. Returning to Harvard to study economics with Robert Barro, in a period of great ferment, he made two durable contributions to what was then the “new” economics of growth: “Population Growth and Technological Change: 1.000,000 BC to 1990” and “The O-Ring Theory of Economic Development,” both in 1993. With “Research on Schooling: What We Know an What We Don’t,” in August 1995, Kremer asked a series of questions; six months later, in “Integrating Behavioral Choice into Epidemiological Models of the AIDS Epidemic,” he developed a model of a different problem whose implications might be tested with a new approach: randomized control trials. Since then, he has kept up a drumbeat of influential papers – health treatments, patent buyouts, elephant conservation, vaccine-purchase commitments, the repeal of odious debt – including several with his wife, the British economist Rachel Glennerster.
“The research conducted by this year’s Laureates has considerably improved our ability to fight global poverty,” asserted the Nobel press release. “In just two decades, their new experiment-based approach has transformed development economics, which is now a flourishing field of research.” One reason it is flourishing is the availability of a deep river of global funding: The World Bank, the United Nations, and several major philanthropies regularly invest enormous sums in development research compared to other areas of inquiry. Those projects offering carefully designed experiments, promising reliable answers to perplexing questions, enjoy a significant advantage in the competition for research funds.
For a well-informed description of some of the work and its limitations, see Kevin Bryan’s post at A Fine Theorem, “What Randomization Can and Cannot Do.” For some sharp criticism, read “The Poverty of Poor Economics,” on Africa Is a Country’s site. (“Serious ethical and moral questions have been raised particularly about the types of experiments that the randomistas… have been allowed to perform.”) Remember, too, that problems of agricultural policy that are fundamental to poverty reduction are far beyond the reach of RCTs to deliver answers. How to escape the middle income trap? How to build a research system to reach the technological frontier?
And to be reminded that commerce routinely alleviates more poverty around the world than aid (though hardly all), read veteran Financial Times correspondent David Pilling’s recent dispatch on Africa’s increasingly dynamic interaction with the rest of the world, China in particular. “When most people think of China in Africa,” he writes, “they think of mining and construction. But things are moving on. It is no longer the highways where the main action is taking place. It is the superhighways,” he says, of e-commerce in particular.
In short, to speak of a “credibility revolution” seems to me mainly a marketing slogan; it overstates the contribution that the small steps that RCTs are delivering, compared to those of theory prior to investigation. “Methods revolution” is a more neutral term. But that said, the Nobel panel neatly solved its problems for another year. The prize for RCTs in development economics is the first step in what will surely be a series of prizes to be given for new methods-driven results. There will be many more.
David Warsh, an economic historian and a veteran columnist, is proprietor of Somerville-based economicprincipals.com, where this essay first appeared.