Full Aug. 24, 2011 Biographical essay Jeff Frankel

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full Aug. 24, 2011
Biographical essay – Jeff Frankel
Written for Eminent Economists
edited by Lall Ramrattan and Michael Szenberg

(Cambridge University Press)

Childhood – The Golden State

I grew up in California in the 1950s and 1960s. I considered myself then entirely a child of that time and place. I have always thought San Francisco the best possible place in which to be able to tell people that I was born.

To me, California in that golden age had nothing to do with hedonism. During an era known for Psychedelic Rock in San Francisco -- the late 1960s -- I was probably one of the few kids in my high school never to try drugs or even touch alcohol. The Jefferson Starship and Grateful Dead, yes. And the lead singer of Creedence Clearwater lived on my block. But I was far too rational to do drugs.

California to me then seemed the culmination of a linear westward march of civilization throughout history. Here is how it went. The first great civilizations arose in Asia, followed by the Egypt of the Pharaohs. Progress had flowed westward ever since: the Greece of classical culture, the Rome of the Senate, the Florence of the Renaissance, the England of the Industrial Revolution, the America of the Thirteen founding States, and then the legendary pushing westward of the frontier.

In my imagination my parents had participated in the final phase of this logical progression. My mother and father grew up in Detroit and Cleveland, respectively, and met at the University of Chicago, at a time when it was dominated by the Great Books curriculum. My mother got a masters in German literature (during World War II), and my father a law degree. My father had joined the Army during the war, but the Nazis surrendered while he was on the ship crossing to Europe. After they got married, my parents did what seems the only sensible thing for that time, which was to pack their belongings into the back of their car, and drive out to the San Francisco Bay Area to start a life.

I puzzled a bit over what the logical next stage would be in this historical progression. The possibility that it would be a leap across the Pacific to East Asia did occur to me, even then. But it seemed more likely that the West Coast was the limit. There were no more frontiers left. When I studied art (as a tertiary interest), I decided that each generation of artists for a 1000 years had defined itself by breaking the rules it had inherited, until now, in the latter half of the 20th century, there were no more rules to break. The End of Art History. After all, the millennium was coming. At age 12, I made a list of things that could be counted on to occur in my life time: the bicentennial (1976), 1984 (which then meant the Orwell book), the return of Haley’s Comet (1986), and the millennium. After that? Nothing. No more known dates.

Such words may sound apocalyptic. But that is not at all what I meant. I viewed my time and place as a pinnacle of human wellbeing. A limit in the sense of an “absorbing barrier,” not in the sense of the end. I knew that few decades of history, and few parts of the world contemporaneously, enjoyed the standard of living that my close nuclear family were enjoying, as my brother and I grew up in a California suburb, with the sedate name of Kensington. There was a probabilistic paradox: what were the odds that I, thinking about this, would be born in such a unique time and place? In retrospect, my thinking was excessively linear and extrapolative. Today, I think far more in terms of cycles. Nevertheless, I had a point at the time. First, I correctly perceived how lucky I was. Second, the statistical paradox is similar to the scientists’ puzzle that is still unresolved: Is the origin of life on this particular planet an improbable miracle? Or is that a silly question, because if it hadn’t happened, there would be nobody to ask it?

I had not the slightest sense that the liberation of German concentration camps a mere seven years before my birth might have had anything to do with me. So far as I was aware at the time, nobody I knew even knew anybody who had been in one of them. My ancestors had all come to this country before World War I, from what was then the Austro-Hungarian Empire. (I have now investigated, in order to write this essay: my paternal great grandfather arrived in 1877). My parents were secular. As an adult, I have always told incredulous East Coast friends that I didn’t even really know that I was Jewish (that is, that both my parents were of Jewish heritage) until I was 12 years old. It finally occurred to me to ask my parents for clarification, on the occasion of visiting the public open house of the new Mormon Temple in Oakland in 1964. The subject had just never come up before. When it did, my ethnic heritage didn’t mean anything more to me than being right handed. I loved the Quaker summer camps I went to in California (and Swarthmore, the Quaker-founded college that I attended later); that was the only religion that I felt even a little admiration for.

Of my childhood friends, one requires mention. Barry Eichengreen was my classmate since pre-school (age 3). We were best friends and played chess together every weekend. He went to Hebrew School, so I did know he was Jewish, the lone exception to the secularity of my environment. His mother, Lucille, was like an aunt to my brother and me. None of us, including Barry, knew that she had spent the war in the concentration camps, until she told the whole story in a book in 1994. And what can one say about the fact that Barry and I eventually ended up in the same field, International Economics, and even on the same Economics Department faculty (U.C. Berkeley, in the late 1980s and the 1990s) other than “there must have been something in that water in Kensington.”

Some may react to my non-Jewishness by thinking that I doth protest too much.

My ex-wife said that. My current wife (who is Episcopalian) calls me an evangelical atheist. This is closer to the mark. But I have no problem voting for theists for President; by contrast, polls have shown that half of Americans, let alone evangelicals, say they would not consider voting for an atheist, even higher than the percentages who say they would not vote for a gay or Muslim. So I don’t accept that the dogmatism is symmetric or comparable. I admit that I probably share certain cultural values and traits that those of Jewish heritage on average tend to have. Perhaps a proclivity toward debating, for example. Toward optimizing. American economists are disproportionately Jewish.

Just to finish off on the subject of religion. Every Saturday, my father would conduct my brother and me in what I now recognize as an excellently-designed substitute for religious education. We read books like Myths and Legends of All Lands. I am not sure whether my father was trying to send the message that the Bible stories stood on the same footing as the Greek myths and the rest of them, but that is the message I got. Personally, I preferred the Greek myths, a taste that my own son has now taken on with enthusiasm. Prometheus seems to me a worthier hero than Moses. At one time I briefly bought the line that monotheism had been a step forward historically in that it brought the end of human sacrifice. But then I discovered that the Greek gods detested human sacrifice (see Tantalus). The lesson of the Abraham and Isaac story, meanwhile, seems to me that any atrocity, including human sacrifice, is justified if you are following orders from a higher authority.

Liberalism and the Vietnam War

I also felt myself intellectually a child of the Enlightenment. Yes, I know, it all sounds too precocious. But I have to confess that my nickname at one of the summer camps, embarrassingly, was “professor.” Perhaps I naively thought that everybody was a child of the Enlightenment. I am confused today by what most Americans mean when they say “liberal” and “conservative.”1 But to me, liberal meant the Enlightenment, the American Revolution, and freedom, and conservative meant oppressive hide-bound institutions such as monarchies, dictatorships, and religious establishments.

The Vietnam War dragged on throughout my teen years. I, like others, thought it was a huge mistake from the beginning. How could the US military, fighting far from home, hope to prevail over a guerilla army that felt it was fighting for its country’s freedom? Yes, the army could clear them out of any given geographic patch of ground. But how did that help transform the country in the way we wanted? Didn’t we remember the lessons of the American Revolution? Didn’t we understand that we were now the Redcoats? Yes, Communism was a bad way to run a country. But the sooner we got out of the way, the sooner the Vietnamese would figure that out for themselves.

Further, Lyndon Johnson had originally misled the country about specifics in order to get us into the war (the Tonkin Gulf Resolution), was repeatedly wildly overoptimistic about what would be required, and was reluctant to raise taxes to pay for the cost and in fact started out by cutting taxes. Even after it was clear that the initial goals were not achievable, Richard Nixon came up with new reasons why we had to stay in. One of the arguments, as so often in military interventions, is that to pull out would mean the United States losing face and credibility. It never seems to occur to those who make this argument that we lose much more face and credibility if we stay in, double the stakes yet again, and then end up eventually pulling out anyway. It seems to me that the United States has repeated all these mistakes more recently in Iraq.

At high school graduation, I gave the Valedictorian speech. My subject was the War, though mainly on the importance of opposing it non-violently so as to avoid alienating the undecided middle of American opinion. Some parents walked out. Evidently they were alienated anyway.

There was a draft in those days of course, Milton Friedman not yet having been successful in his argument in favor of a paid volunteer Army. I explored the possibility of applying to be a Conscientious Objector (C.O.). I discovered, to my disappointment, that one was not allowed to use one’s own powers of reason to decide that the war was immoral. It was necessary for a C.O. to demonstrate that the reason he didn’t believe in the war was that he had been programmed in this way by some religious establishment. I was incredulous. If I could demonstrate that I believed the earth was flat because I had been indoctrinated into believing it, rather than through my own powers of observation and deduction, would I not then logically have to drop this belief? Did the same logic not apply to a belief that the war was wrong? In other words, didn’t free reasoning constitute better grounds logically for a C.O. than religious beliefs? Of course logic has nothing to do with it. But I still had a lot to learn on that score.

In any case, I had a college deferment, and later a high draft number (211): I came along late enough that I never had to face being asked to participate in a war to which I was opposed. (John Kerry and Al Gore went to Vietnam, despite their doubts about the war. George W. Bush, Dick Cheney, et al, checked the opposite corner of the two-by-two box: do believe in the war, but don’t go to fight.)

I had excellent schools growing up in California: first, great public schools, during that shining era when California had the best public education in the world, and before tax-cutting fanaticism became the sole guiding economic ideology of a substantial fraction of the electorate; and then a great private – but free -- high school in San Francisco, with the Hogwarts-sounding name of Lick-Wilmerding.

Libraries were big in our lives. A new library was built in our little town. My father had helped lobby for it and my mother worked as a librarian in it. My first job was shelving books there. Reading is another passion that my son, who is now eight, has also absorbed.
When I first went East to begin college at Swarthmore, I would not have expected to major in economics. The reason is simply that I, like many students at that stage, had virtually no idea what Economics was about. Today, if I had to define the discipline, I would say something about maximizing objective functions subject to constraints. At age 17, I would have said economics was all about money. I would not even have signed up for the Intro course my freshman year if my father – a lawyer who was proud of my quantitative abilities – had not urged it.
Sampling various academic fields, I soon developed a way of viewing them that, in retrospect, only a future economist could dream up. It seemed to me that one could array the disciplines along a continuum, with mathematics at one end, followed by physics, chemistry and biology, and with philosophy at the other end, preceded by the humanities and then the social sciences. At one pole, mathematics held questions that can be answered with enormous precision but are in themselves of no direct import. The opposite pole, philosophy, consisted of questions that are of the largest possible consequence, but that cannot be answered at all. True, over the history of intellectual endeavor, some questions that had in classical times been part of philosophy were answered. But then they became new fields – starting with mathematics and physics, followed by the others in chronological order.

How, then, to choose a field in which to specialize after the completion of one’s liberal arts education? Or, perhaps, how to rationalize the choice I had already made? The objective function that seemed the right one to me was the product of two factors: the importance of the questions in a field, multiplied by the ability to answer them. What use was a field where the questions were of cosmic importance, but the ability to answer them, when all was said and done, was zero? At that end of the spectrum, the product of the two factors is zero. What use was a field where precise answers are possible, but of no direct use in my daily life, as either an individual or a public citizen? The product again is zero. What field maximizes the product? The one in the center of course: Economics. The questions are important, if not as important as the meaning of the universe. The answers to those questions are substantive, even if they cannot be as precise as mathematical theorems.

Within Economics, my greatest interests were in International Economics, Macroeconomics, and Econometrics. I originally learned international economics from the first edition of a textbook by Richard Caves and Ron Jones, little dreaming that one day I would be co-author of editions five though ten.

I didn’t discard other disciplines. Looking back on things I learned in high school and college, I am happiest perhaps recalling some of the unlikely-sounding intellectual connections across fields that we over-specialized modern academics usually do not get to make in our adult professions. Here are a select few that I happen to have made use of at some point or other in my economics career:

  • From Classics: The Greek myth of Odysseus tying himself to the mast is a versatile metaphor for solutions to the problem of “dynamic inconsistency” in monetary economics and elsewhere.

  • From American Intellectual History: The Wizard of Oz was an allegory for the 19th-century gold standard.

  • From French literature: Albert Camus describes how a deadly plague (in Oran, Algeria) peaks one day and begins to ebb -- after what seems like it has lasted forever, and without any clear evidence that the heroic efforts of the medical workers fighting the contagion in fact made the difference. The description fits well for a modern economic crisis.

  • From Biology: While one can “feel the pain” when a gazelle on the savannah or a manufacturing firm meets a brutal end, as a scientist one needs to understand the general equilibrium of the system.

  • From Chemistry: A form of Le Chatelier’s principle was generalized beyond the physical sciences by Paul Samuelson. If you exogenously change one variable in a system (heat or money supply), the reaction of one of the endogenous variables (the pressure or exchange rate) will be greater if a third endogenous variable (the volume or price level) is held fixed than if it too is allowed to respond.

  • From Mathematics: Even though most of us cannot name more than three irrational numbers, an easily understood proof reveals that there are in fact more of them than of the (much more familiar) rational numbers. This can be used to illustrate the limits to inductive reasoning in philosophy, the dangers of sample selection bias in econometrics, the “availability heuristic” bias of psychology, the need for Bayes theorem in probability, and the problem of “black swans” in the housing market or in anti-terrorism policy.

True, as Ph.D. students soon discover, narrow specialization is the only way to complete a dissertation, to get a job teaching in a university economics department, and to get tenure. But I think of those stages as basic training in the Army or 30 hour shifts in medical residencies. After one has achieved the prize (tenure), one can work on whatever one wants to work on.


My mentor at Swarthmore had been Bernie Saffran, unparalleled Chiron of economics neophytes and a sterling human being. When he packed me off to MIT for grad school in 1974, it was like D’Artagnan’s father in the provinces sending him off to join the King’s Musketeers in Paris. He told me of his impression that students in the MIT Economics program sorted themselves out by ability pretty quickly, implying that one did not have to be insecure about where one stood after that. Within a few weeks of the beginning of classes at MIT, we all knew that Paul Krugman was the smartest student in our year. I have never felt insecure about that; Bernie was right.

My fields included Econometrics, where my professors were Bob Hall and Jerry Hausman, and Macroeconomics, where my professors included Franco Modigliani and Robert Solow. The latter two were obvious candidates for Nobel Prizes; they got them ten years later. Paul Samuelson, who was one my Micro Theory teachers, had already gotten his.

I knew from the start that my primary interests were international. Jagdish Bhagwati was my International Trade professor, and is on my list of mentors. But at that time, the macro and finance side of international economics seemed more exciting than the trade side. Exchange rates had begun to float in 1973; four years later we had enough monthly data to run regressions; capital flows, inflation, and unemployment were all unusually high in the mid-1970s; and the rational expectations revolution was re-making macroeconomic theory from the ground up.

During my first year at MIT, I studied international finance with Charlie Kindleberger, a scholar and a gentleman. But in my second year, a new young professor arrived, named Rudiger Dornbusch. I have been pleased to be sometimes known as Rudi’s first student. (Paul Krugman could claim the honor, since he finished his Ph.D. in three years, rather than my four. But I think Paul was in a hurry to establish his independent identity, and was happy to leave the title to me.)

Rudi and Stan Fischer taught open-economy macro together. Ken Rogoff, Maury Obstfeld, and Ben Bernanke were among those in the year behind me. Some of our contemporaries two miles away at Harvard, including Jeff Sachs and Larry Summers, came down to audit the class too. As Ken wrote not long ago, regarding Rudi’s habit of cold-calling students with impossible questions, “I would venture that Dornbusch’s international finance course at MIT is the answer to the trivia question ‘When was the last time these guys were completely humiliated in public?’ ”2

I would give anything to have a videotape of one of those classes, especially one relevant to balance of payments crises in developing countries. Later, during the period of the emerging market crashes in the 1990s, Sachs strongly attacked the management of the crises by the US Treasury (where Summers was calling most of the shots, as Undersecretary) and the International Monetary Fund (where Fischer was calling most of the shots, as Deputy Managing Director). Newspaper readers must have wondered what was the underlying story behind this conflict, in terms either of schools of thought or of personal conflict.3 It is interesting to recall, then, that meetings of the Dornbusch-Fischer course in the mid-1970s included, in one room, the following dramatis personae: two students who were to become two of the most important country policy-makers that, for all their brilliance, presided over the run-ups to the first and last of the 1990s crises, respectively (Pedro Aspe, Finance Minister of Mexico in 1994, and Domingo Cavallo, Economy Minister of Argentina in 1991-96 and 2001); perhaps the most important hands-on fashioners of the response in Washington (Summers at the Treasury and Fischer at the IMF); and three of the most important outside kibitzers (Dornbusch an unwelcome augur of the Mexican peso crisis; Sachs the most sweepingly critical of austerity programs; Krugman less critical). There were no big doctrinal disputes or personal animosities to speak of, either in the 1970s or the 1990s. Just different interpretations of what should be done in difficult situations.

Stan and Rudi, my main mentors, were the most popular duo for advising theses in those years at MIT. Neither one ever needed to spend any of the 24 hours of day on sleep, so far as I am aware. Stan has always seemed able to find time to read any paper that one of his students sent him and return it rapidly with perfect comments. Rudi would call students up at night to invite them to meet a visiting economist for cappuccino in the North End.

One day, in his office, Rudi tried out the idea of exchange rate overshooting on me, and asked what I thought. I was appropriately flattered, but told him that I would have to think it over first. The next day I came back and told him I thought it was a good idea.

MIT at this point was, I think, establishing the template that a thesis could be “Three Essays on X.” My X was exchange rates. My central essay was later described by somebody as the first empirical implementation of Dornbusch overshooting. I guess that is a fair description. Certainly I remember that Rudi gave the paper its title (“On the Mark”), without first consulting me, when he signed me up for a job market seminar at the University of Chicago.

The research of a junior professor

One could also say, in broad perspective, that much of my early research took off from the overshooting theory, and then went off in varied directions. Some papers dealt with one or the other of the two key building blocks of the model: uncovered interest parity in the short run and purchasing power parity in the long run. (Overshooting is a consequence of the combination of slow adjustment of prices in goods markets and instantaneous adjustment of asset markets.) Other papers transplanted the insights from the foreign exchange market either to the determination of the interest rate term structure or to the determination of prices of agricultural and mineral commodities. The latter application was the more successful. Just as even a stopped clock is right twice a day, the prediction that an increase in real interest rates should cause a decrease in real prices of oil, gold, and other commodities struck some as right on target in the early 1980s, and the reverse prediction seemed right on target in 2008 or 2011.

A few of my early papers were theoretical. But I soon discovered that, for the most part, my empirical papers sold much better. In some cases, coming up with a new data set took almost as much work as the writing of the paper. That perhaps describes my papers co-authored with Charles Engel or Gikas Hardouvelis that used weekly money supply announcements relative to market expectations for “event studies;” my work with Ken Froot that used survey data to study expectations in the foreign exchange market; and my research co-authored with Kathryn Dominguez that used previously confidential daily data to study the effectiveness of intervention in the foreign exchange market. As even this early list shows, I have always been blessed with excellent Ph.D. students and other young colleagues with whom I have collaborated.

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