December 12, 2017

Ronald H. Coase, ‘Accidental’ Economist Who Won a Nobel Prize, Dies at 102

Ronald H. Coase, whose insights about why companies work and when government regulation is unnecessary earned him a Nobel Memorial Prize in Economic Science in 1991, died on Monday in Chicago. He was 102.

His death was announced by the University of Chicago.

By his own description, Professor Coase (rhymes with doze) was an “accidental” economist who spent most of his career teaching at the University of Chicago Law School and not its economics department. Yet he is best known for two papers that are counted among the most influential in the modern history of the science.

In one, “The Nature of the Firm,” which was largely developed while he was still an undergraduate and published in 1937, Professor Coase revolutionized economists’ understanding of why people create companies and what determines their size and scope.

He introduced the concept of transaction costs — the costs each party incurs in the course of buying or selling things — and showed that companies made economic sense when they were able to reduce or eliminate those costs by performing some functions in-house rather than dealing in the marketplace.

The ideas laid out in the paper explain why, in the first half of the 20th century, companies tended to become more vertically integrated (for example, Ford Motor building its own steel mills and buying its own rubber plantations rather than relying on suppliers), and why, more recently, companies have tended to do the opposite, aggressively outsourcing even basic functions like paying their employees.

In the second of his groundbreaking papers, “The Problem of Social Cost,” published in 1960, Professor Coase challenged the idea that the only way to restrain people and companies from behaving in ways that harmed others was through government intervention. He argued that if there were no transaction costs, the affected parties could negotiate and settle conflicts privately to their mutual benefit, and that fostering such settlements might make more economic sense than pre-empting them with regulations.

The paper made the idea of property rights fundamental to understanding the role of regulation in the economy. It grew out of a study by Professor Coase on how the Federal Communications Commission licensed broadcasters.

The practice of issuing the licenses more or less permanently for small fees to whoever applied first and met legal requirements made little economic sense, he argued; better to treat them as property, auction them off and allow them to be freely transferred. Decades later, his ideas were used to raise billions of dollars for the Treasury when radio frequencies were assigned for cellular phone services.

Ronald Harry Coase was born on Dec. 29, 1910, in Willesden, England, the only child of two postal workers. Though he spent more than 50 years living and working in the United States, he retained his English accent and habits all his life.

His father was an amateur athlete of some renown, but Ronald’s interests were more academic, not least because of weakness in his legs that obliged him to wear iron braces for a time.

In his autobiographical essay written for the Nobel committee after being awarded the prize, he recalled being taken by his father at age 11 to a phrenologist to hear what could be discovered from the shape of his head. The phrenologist detected “considerable mental vigor,” Professor Coase wrote, and recommended that he work in banking or accounting and raise poultry as a hobby.

Because of his leg braces, Professor Coase wrote, he attended a special primary school and enrolled in secondary school a year late, missing the chance to pursue a concentration in history or Latin. Science was his third choice, but he found he had little patience for the mathematics involved, so he studied the only other subject available: commerce.

At the University of London, he was on his way to becoming an industrial lawyer when a seminar with Sir Arnold Plant, a well-known economist of the time, changed his focus again, this time for good. After graduating from the London School of Economics, he taught there and at other British universities, and married Marion Ruth Hartung in 1937. The couple immigrated to the United States in 1951, when he joined the faculty of the University of Buffalo. He left for the University of Virginia in 1958.

While teaching at Virginia, Professor Coase submitted his essay about the F.C.C. to The Journal of Law and Economics, a new periodical at the University of Chicago. The astonished faculty there wondered, according to one of their number, George J. Stigler, “how so fine an economist could make such an obvious mistake.” They invited Professor Coase to dine at the home of Aaron Director, the founder of the journal, and explain his views to a group that included Milton Friedman and several other Nobel laureates-to-be.

“In the course of two hours of argument, the vote went from 20 against and one for Coase, to 21 for Coase,” Professor Stigler later wrote. “What an exhilarating event! I lamented afterward that we had not had the clairvoyance to tape it.” Professor Coase was asked to expand on the ideas in that essay for the journal. The result was “The Problem of Social Cost.”

Professor Coase was soon invited to become editor of the journal, and to join the Chicago faculty, where he stayed the rest of his life, disdaining the equation-heavy approach of what he called “blackboard economics” in favor of insights grounded in real markets and human behavior.

By identifying transaction costs and explaining their effects, the Royal Swedish Academy of Sciences wrote in announcing his prize in 1991, “Coase may be said to have identified a new set of ‘elementary particles’ in the economic system.”

Professor Coase’s wife, Marion, died in 2012. No immediate family members survive.

This article has been revised to reflect the following correction:

Correction: September 3, 2013

An earlier version of this obituary misidentified the essay that earned Professor Coase an invitation to meet with the economics faculty of the University of Chicago. It was his essay about the Federal Communications Commission, not “The Problem of Social Cost.” (As a result of that meeting, Professor Coase was asked to write the essay that was subsequently published as “The Problem of Social Cost.”)

This article has been revised to reflect the following correction:

Correction: September 5, 2013

Because of an editing error, an obituary on Wednesday about the economist Ronald H. Coase misidentified the university where he taught from 1951 to 1958. It was the University of Buffalo, not the State University of New York at Buffalo. (It did not become part of the State University system until the early 1960s.)

Article source: http://www.nytimes.com/2013/09/04/business/economy/ronald-h-coase-nobel-winning-economist-dies-at-102.html?partner=rss&emc=rss

Economic View: How Economics Has Benefited From Immigration

ALL the recent talk in Washington about reforming immigration policy brings to mind Pat Paulsen, the comedian who, every four years, conducted faux campaigns for president.

“All the problems we face in the United States today,” Mr. Paulsen would say, “can be traced to an unenlightened immigration policy on the part of the American Indian.”

That quip contains a deep truth. Almost all Americans today are beneficiaries of a policy that welcomed our ancestors when they arrived at the border.

As an economist, I am often surprised at the hostility that some segments of the population express toward immigration. Most members of my profession are far more receptive to it, and for three main reasons.

First, many economists, especially conservative ones, have a libertarian streak. Ever since Adam Smith taught us about the wonders of free markets and the magic of the invisible hand, we have been loath to prohibit mutually advantageous trades between consenting adults. If an American farmer wants to hire a worker to pick fruits and vegetables, the fact that the worker happens to have been born in Mexico does not seem a compelling reason to stop the transaction.

Second, many economists, especially liberal ones, have an egalitarian streak. They follow the philosopher John Rawls’s theory of justice in believing that policy should be particularly attuned to its impact on the least fortunate. When thinking about immigration, there is little doubt that the least fortunate, and the ones with the most at stake in the outcome, are the poor workers who yearn to come to the United States to make a better life for themselves and their families.

Third, economists of all stripes recognize that our own profession has benefited greatly from an influx of talent from abroad. In just the last few weeks, the economics department at Harvard, where I am chairman, has brought in six candidates to be considered for two assistant professor positions. Of the six, three are Americans, one is German, one is Argentine, and one is a New Zealander. The jobs will be offered to those deemed to have most promise as teachers and scholars, regardless of nationality.

The competition from foreign-born economists makes it harder for American economists to get the best positions. But it would be hypocritical for American economists to argue against such competition, as we have long preached that nations are better off over all when they pursue a policy of free and open trade. This principle applies not only to manufactured goods like textiles and aircraft but also to labor services, including lectures on economics.

The system of higher education in the United States is the world’s best in large part because it has long taken a global approach to hiring. The best students from abroad often come to the United States to earn their Ph.D.’s, and the best of these often stay here and join the faculties of American institutions. In my own department at Harvard, we have professors who were born in Canada, England, France, Italy, Spain, Austria, Poland, India and South Africa.

THIS competition from abroad may reduce the salaries of American-born economists like me, but it has improved the university, much to our students’ benefit. For one thing, such competition keeps down the university’s labor costs. Many parents are shocked at how high college tuition is, but it could be worse.

The willingness of universities to tap foreign talent also means that our students can learn from the worlds’ best minds. America’s superb system of higher education has been an engine of growth for the entire economy, thanks in part to the immigration of scholars from abroad.

I understand that not all workers in the United States will embrace foreign-born competitors with the same equanimity as a Harvard professor. That is especially true of those with fewer skills and opportunities.

Over the last several decades, for the most part, the wages of workers without any higher education have stagnated, while the wages of those with advanced degrees have risen. The main forces driving these trends are technological change, which tends to increase the demand for skilled workers relative to unskilled workers, and, to a lesser extent, international trade. But the immigration of unskilled workers from abroad may be a contributing factor, and one that is all too obvious when these immigrants vie for the same jobs as unskilled workers born in the United States.

The best solution to wage stagnation is to promote educational attainment among Americans. That’s easier said than done, but the task is imperative nonetheless. We won’t substantially help unskilled workers who are already here by denying the American dream to others who wish to pursue it.

In the end, even as an economist committed to rational policy analysis, I have to acknowledge that the immigration debate also has a visceral, emotional element. In my case, that is shaped by family history.

I am the grandson of four immigrants from Ukraine, who arrived in the United States about a century ago. None of them had more than a fourth-grade education, and none could speak English when they set foot on their new homeland. Yet they found work, made a living and raised families. They lived modest lives, but their children did better than they did, and their grandchildren did better still.

Lucky for me, the American Indian did not pursue the enlightened immigration policy suggested by Mr. Paulsen.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.

Article source: http://www.nytimes.com/2013/02/10/business/how-economics-has-benefited-from-immigration.html?partner=rss&emc=rss

Israeli Economist Enters Race to Lead I.M.F.

A globally renowned economist who is credited with stabilizing the Israeli shekel during his six years as head of the country’s central bank, Mr. Fischer also spent seven years as first deputy managing director of the I.M.F., and knows the organization well.

“It was because of this experience that I decided to stand,” Mr. Fischer said in a statement Saturday.

But despite Mr. Fischer’s qualifications, even he seemed to acknowledge that he has only a slim chance of being chosen over the front-runner, Christine Lagarde, the French finance minister. Agustín G. Carstens, the governor of Mexico’s central bank, is also campaigning for the job.

“An extraordinary and unplanned opportunity has come up, possibly one that will not come again,” Mr. Fischer said in his statement. He decided to pursue the I.M.F. job, he said, “despite the process being complicated and despite the possible barriers.”

Mr. Fischer had a distinguished academic career before entering public service, writing numerous economics textbooks and serving as head of the economics department at the Massachusetts Institute of Technology. He was also chief economist at the World Bank from 1988 to 1990. He has private sector experience as a vice chairman of Citigroup from 2002 to 2005, when he became governor of the Bank of Israel.

“On the basis of his qualifications he is as serious as either of the other two candidates,” said Carl B. Weinberg, chief economist of High Frequency Economics in Valhalla, N.Y. “The work he has done in stabilizing the Israeli economy and stabilizing prices is viewed as a textbook application of monetary policy.”

Still, the obstacles to Mr. Fischer’s candidacy are formidable. As he acknowledged in his statement, at 67 he already exceeds the age limit of 65 for candidates for managing director, meaning a change in I.M.F. rules would be necessary for him to be elected by the 187 countries that participate in the selection.

With joint United States and Israeli citizenship, Mr. Fischer’s passports work against him. By informal arrangement, the United States has supplied the head of the World Bank, while the head of the I.M.F. has come from Europe. In addition, Arab countries might object to an Israeli in the I.M.F. post.

“Stan Fischer would make an excellent I.M.F. managing director. But, at this late stage, he does not have enough support to succeed,” the economist Nouriel Roubini told Reuters. Mr. Fischer was voted most suited to run the I.M.F. in a Reuters poll of economists.

Its executive board has set a June 30 deadline for selecting a successor to Dominique Strauss-Kahn, who resigned as I.M.F. managing director last month after being accused of sexually assaulting a hotel maid in New York.

Ms. Lagarde is highly regarded for her negotiating skills, and has the strong support of Germany, where she enjoys a warm working relationship with Wolfgang Schäuble, the finance minister. The fact that she is a woman might also help restore the reputation of the I.M.F. after the arrest of Mr. Strauss-Kahn, who denies the charges against him.

Though she is the front-runner, Ms. Lagarde faces abuse of power charges for her intervention in a court case involving a French tycoon. A French court moved on Friday to postpone a decision on the investigation, removing an immediate hurdle to Ms. Lagarde’s candidacy but leaving her open to possible future legal proceedings.

Ms. Lagarde has been on a worldwide tour of countries including Brazil, India and China in what appears to be a successful campaign to win support from developing nations, some of which had said it was time for someone from a poorer country to manage the I.M.F.

“Everybody is free to file a candidacy,” Ms. Lagarde told reporters in Cairo on Sunday, after meeting with the Egyptian finance minister, Samir Mohamed Radwan, about her own bid, Bloomberg News reported. She noted that Mr. Fischer is experienced, Bloomberg said.

Russia has also nominated Grigori A. Martchenko, Kazakhstan’s central bank president.

The deadline for nominations was Friday. Mr. Fischer did not say when he had submitted his name.

The I.M.F. assists countries in overcoming financial crises, but typically makes loans contingent on harsh austerity measures.

Strong political skills are crucial for the I.M.F. managing director, which would seem to be another factor in Ms. Lagarde’s favor. However, Mr. Weinberg of High Frequency Economics noted that Mr. Fischer was able to cope with Israel’s fractious politics while pushing for fiscal discipline and cutting inflation.

In Israel, Yuval Steinitz, the finance minister, on Sunday said that the country would back Mr. Fischer’s candidacy, but also gave him little chance of being chosen.

“First there is the age obstacle,” Mr. Steinitz told Israel’s Army Radio during an interview Sunday. “And the choice is very much political. Were it purely professional it would be hard-pressed to find a better person than Fischer.”

In a 1987 paper with parallels to the current debt crisis in some European nations, Mr. Fischer argued in favor of debt relief for countries in Africa and Latin America. The overly indebted countries had “performed miracles” to try to service their debts, he wrote in The American Economic Review.

“But the price in terms of growth has been heavy,” he said. “The time for debt relief has arrived.”

Judy Dempsey and Caroline Brothers contributed reporting.

Article source: http://www.nytimes.com/2011/06/13/business/global/13fischer.html?partner=rss&emc=rss