Friday, February 15, 2013

Stanley Fischer

At Wonkblog, an interesting profile of Stanley Fischer by Dylan Matthews, which mixes in a little recent history of economic thought, recounted with the help of one of Fischer's advisees at MIT:
“He was not fundamentally a rat-exian,” Bernanke said, invoking the derogatory slang that Keynesians used to describe Lucas and his theory of “rational expectations.” “He was basically a Keynesian in his instincts, so he got along just fine with Samuelson and [fellow MIT professor Robert] Solow.”

The fruit of Fischer’s effort to integrate the two approaches is known today as “New Keynesian” economics. It is the dominant approach in most leading economics departments, with Mankiw, Bernanke, IMF chief economist Olivier Blanchard and many others contributing to the movement.

But Fischer was arguably first out of the gate. He helped originate the argument that “sticky prices”— that is, practical impediments to changing prices for goods, such as the expense of printing a new restauarant menu — mean that even rational, self-interested businesses and consumers can make choices that add up to an economy much like the one Keynesians describe.

Fischer, Bernanke said, wrote “one of the very first papers that had both sticky prices and rational expectations in it.” By doing this, Fischer had in effect united the two sides of economics. “I still think Keynesian economics is extremely important, and if anybody didn’t think so, this crisis should have made them rethink,” Fischer said in an interview.
The profile includes some speculation that Fischer might succeed his student as Federal Reserve chair (Bernanke's term ends in Jan. 2014).  If he were nominated, it would be interesting to see whether the fact that he is from outside the US - he was born in Zambia (when it was Northern Rhodesia) and came to the US for grad school at Chicago - and served as head of another country's (Israel's) central bank would cause trouble during the Senate confirmation process.  It seems likely that some in the Senate would make trouble for whoever President Obama might nominate (which may be an argument for trying to keep Bernanke on), but I would guess opponents would be more likely to latch on to the fact that Fischer also held a high-ranking job at Citigroup for several years.

Update (2/17): David Warsh's Economic Principals also discussed Fischer as a potential Fed candidate a couple of weeks ago.


Aidan said...

I think some of those Senators would be surprised to learn that Israel is another country, so maybe he'd be fine.

Bill C said...

Ha! Indeed, that should help him.

(And seriously, the fact that he was successful at running Israel's central bank should be a plus).

Old time economics student said...

Rat-exian: please help with this term; definition - derived from rational expectations? How is this now derogatory? The context in Dylan Matthew's article about Fisher is unclear, at least for me.

Bill C said...

It's well before my time, but in the 1970's, 'rational expectations,' championed by Lucas (and, more broadly, the idea of grounding macro theory in individual optimization) was seen as a challenge to Keynesian macroeconomics. There was quite a bit of bitter feuding in macro at the time.

By the way, I really like Mankiw's 2006 Journal of Econ. Perspectives article, "Economist as Scientist and Engineer" as a backgrounder on this and other issues in the history of macro.