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In September this year, it shall be sixty years since I first set foot at the Harvard University campus in Cambridge, Massachusetts. Last July, I made a sentimental journey to my alma mater where I obtained my Ph.D. in economics in 1963. I would like to pay tribute to the great minds of the Economics faculty then who initiated me into the science, sometimes referred to as the “gloomy science”, that I have been practicing for more than 50 years. I learned what happened to them after I left Harvard mostly from Wikipedia. I noticed in the photo gallery that lined the corridors of the Littauer Center that all of them have already gone to the next world. In fact, just last June 11, 2019, one of my school mates then, the famous Martin Feldstein, just passed away. Dr. Feldstein was a third-year undergraduate student in economics when I started my studies at Harvard. Since my undergraduate major was accounting, I lacked some of the foundational subjects in macroeconomics. I had to take some undergraduate subjects in which Dr. Feldstein was my classmate. His brilliance already stood out, especially in his grasp of the quantitative tools needed to make economics a genuine empirical science. After graduating from Harvard College in 1961, he proceeded to take his doctoral studies in economics at Nuffield College in Oxford University. He returned to join the Harvard economics faculty in 1967 and taught there till his demise in 2019. He served as President and Chief Executive Officer of the National Bureau of Economic Research (NBER) from 1978 through 2008 (with the exception of 1982 to 1984). From 1982 to 1984, he served as chairman of the Council of Economic Advisers and as chief economic advisor to President Ronald Reagan. He was well known as a classic conservative, consistently promoting small government, balanced budgets and low taxation. Among his most well-known views was his opposition to the establishment of the euro. Although he acknowledged that a common currency in Europe had the potential to unleash prosperity across the continent and forge lasting peace, he feared that the political economy was not yet workable. This view has been confirmed by recent developments in the European Union.
Feldstein played a very important role in the careers of hundreds of young economists through the NBER, an organization that he led for 30 years. He, however, was the product of a very unique generation of world class economists at the Harvard economics faculty which I fortunately shared with him in the late fifties and early sixties of the last century. In a brief historical account of the Economics department of Harvard that appeared in the Littauer Letter (Fall 2018), it was noted that at the beginning of the 1960s, Harvard was still struggling to put up a top economics program and I quote, “While Harvard’s program was strong, the field was dominated by MIT, Chicago, Berkeley, Yale and Minnesota.” The authors quoted one of the current faculty members, Dale Jorgensen, as admitting that “we were strong in economic history at that time, but not in econometrics or theory.” After seeing what has happened to the “worship of the market economy and the accompanying tools of quantitative analysis” of the last ten years. I wouldn’t exchange for anything the faculty who mentored us during my years at Harvard from 1959 to 1963. There was an optimum mix of those who gave great importance to quantitative measurements like Nobel laureate Simon Kuznets, the father of national income accounting, and those who tempered the econometric approach with the findings of other social sciences like sociology, psychology and, as in the case of Kuznets himself, history. It was Kuznets who had the greatest influence on Dr. Jesus Estanislao with whom I founded the Center for Research and Communication after both of us had returned to Manila by 1967. The mastery of Jess of the fundamentals of national income accounting helped him to pioneer in economic forecasting during the late 1960s and early 1970s when CRC was the primary source of forecasts for the Philippine private business sector.
Let me cite some of the professors who taught me the healthy practice of always shedding the light of other related sciences such as philosophy, sociology, psychology and anthropology on the search for solutions to economic problems. I remember Professor James Duesenberry (who died in 2009) who became famous for his relative income hypothesis to explain consumer behavior within the Keynesian system. According to the Duesenberry theorem, human beings consume, not according to what they earn in absolute terms, but according to how they compare their incomes to other consumers. When he proposed this theory for the first time, some of his contemporary economists did not consider the hypothesis seriously because it involved mixing sociology with economics. Subsequent research proved that this theory of Duesenberry was better in predicting consumer behavior than Milton Friedman’s permanent income hypothesis (that consumers assume an average income that they will earn over their lifetime and consume accordingly).
Another great mind who influenced very much my understanding and teaching of microeconomics was Edward Chamberlin who passed away in 1967, the year that Dr. Jess Estanislao and I founded the Center for Research and Communication that eventually became the University of Asia and the Pacific. Together with Joan Robinson, the British economist who wrote “The Economics of Imperfect Competition,” Professor Chamberlin was one of the first to question the beneficial effects of a free market economy. He exposed most markets for goods and services as being a mix of competition and monopoly because of product differentiation. At least in my mind, he planted the seeds of skepticism about a belief in the “absolute autonomy of markets” that has been the cause of so much economic inequity and waste in modern capitalism. Again, like Professor Duesenberry, Chamberlin did not hesitate to incorporate psychological insights into his analysis of market competition. Consumers give a premium to differentiated products and are willing to pay higher prices for differentiated brands of more or less the same generic product. In my opinion, this has led to extreme cases of consumerism that has diverted scarce resources that could have been used by the State for public goods that benefit the poor such as higher quality public education or public health. (To be continued).