Tag: Solow

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Exam Questions M.I.T.

M.I.T. General Examination in Advanced Economic Theory. Sept 1962 and May 1963

 

 

Edwin Burmeister received an M.A. from Cornell in September 1962 before going on to M.I.T. to complete his Ph.D. in economics in 1965. His papers at the Duke Economists’ Papers Archive include a folder of advanced economic theory general examinations at M.I.T. (May and September 1962; May 1963). The copy of the May 1962 exam has been transcribed and posted earlier. This post adds the remaining two exams to the collection of artifacts. Pro-tip:  Burmeister’s papers includes his solutions to the September 21, 1962 exam, most likely prepared during his preparation for the May 1963 exam.

I should mention that on none of the three exams is “M.I.T.” actually written. However, since Samuelson and Solow’s names are typed on the copy of the Sept 1962 exam and since Burmeister was a M.I.T. graduate student  for certainly the May 1963 examination (and, like many before and after him, cast an eye on previous exam questions), it is pretty obvious where the exam questions must have come from.

________________________

General Examination
Advanced Economic Theory

Professors P. A. Samuelson and R. M. Solow
Friday, September 21, 1962

Do as many problems as you have time.

  1. Derive the demand function, Xi = Di(I, p1, …, pn) ≥ 0 for a consumer with income I and having positive prices and having respectively preferences satisfying the following utility functions:
      1. U = k1 log X1 + … + kn log Xn
      2. U = mX0 +logX1 [Be careful!]
      3. U = a1X1 + a2X2 + … + anXn [where] ai≥0

Extra credit

      1. U = Min (X1/b1, X2/b2, …, Xn/bn)
  1. A firm owning some fixed and non-transferable “capital” has a production function

Q = f(labor, land) = 20L.5T.25

It sells in a competitive market at $Pq. It rents labor in a competitive factor market at $W and rents land at $R.
What are its demand relations for factors, and its supply relation for output? What are its “profits” or “quasi-rents to owned capital.”
It will suffice for you to write down all the relations that define these desired functions and describe how they could be solved. (In other words, you don’t have to do the explicit solving.)

  1. In a Hicksian general equilibrium model all income effects turn out to be negligible. Comment decisively on its

(a) Property of dynamic stability (or possible instability)
(b) Property of imperfect stability (or possible instability)
(c) Property of perfect stability (or possible instability)

  1. Let H(X,y) be a function of non-negative vectors X(of dimension m) and y (of dimension n). Define X*, y* as a saddle point of H if

H(X*,y) ≥ H(X*,y*) ≥H(X,y*)

For all non-negative (X,y).
Prove that X* and y* are optimal vectors for a pair of dual linear programs if and only if they provide a saddle point for the function

H(X,y) = C’X+b’y – y’AX.

Show that a simple Leontief model is capable of producing any positive vector final demands (given enough labor) if and only if (I-A)-1 is non-negative.

  1. Consider the von-Neumann model with 3 activities and 4 commodities and with input matrix

\text{A}=\left[ \begin{matrix} 0 & 1 & 0 \\ 1 & 0 & 0 \\ 0 & 0 & 1 \\ 0 & 1 & 0 \\ \end{matrix} \right] and output matrix \text{B}=\left[ \begin{matrix} 1 & 0 & 0 \\ 0 & 0 & 1 \\ 0 & 2 & 0 \\ 0 & 0 & 1 \\ \end{matrix} \right]

Find the optimal activity and price vectors in the von-Neumann sense, and the associated expansion rate.

________________________

 

General Examination in Advanced Economic Theory: May 1963

Answer any 4 questions.

  1. Suppose all of the N people in a market have identical indifference maps, that are homothetic (i.e., with unitary income elasticities everywhere). Let each jth man have his endowment

\left( \bar{Q}_{1}^{j},\bar{Q}_{2}^{j},\ldots ,\bar{Q}_{r}^{j} \right)

      1. Show that the final equilibrium of exchange is quite independent of the distribution among men of the fixed totals

    \begin{array}{l}\bar{Q}_{1}^{1}+\bar{Q}_{1}^{2}+\ldots +\bar{Q}_{1}^{N}={{A}_{1}}\\...................................\\\bar{Q}_{r}^{1}+\bar{Q}_{r}^{2}+\ldots +\bar{Q}_{r}^{N}={{A}_{r}}\end{array}

    1. Show that the equilibrium prices can be found by treating any man as the single Robinson-Crusoe living under autarky.
    2. What can you, therefore, state about the i) Imperfect, ii) Perfect, and iii) Dynamic stability of the equilibrium?
  2. A Kaldor-Goodwin model defines[sic]
    \text{a}\frac{\text{dK}}{\text{dt}}=\beta \text{Y}-\text{K, }\left( \text{a,b,}\beta \right)>0
    \text{b}\frac{\text{dY}}{\text{dt}}=\frac{\text{dK}}{\text{dt}}-\text{S}\left( \text{Y} \right)
    (i) Explain the meaning of each equation. (ii) Give an equation for its stationary equilibrium solution. (iii) What does its local stability and oscillation depend on? (iv) What shape for the only arbitrary function will give rise to unique-amplitude oscillation?
  3. In Mitopia
    \text{C}+\frac{\text{dK}}{\text{dt}}=\sqrt{\text{KL}}\text{ and L = }{{\text{L}}_{0}}{{\text{e}}^{\text{gt}}}.
    How must K(t) grow if C/L, per capita consumption, is to remain at a maximum constant level? What will then be the interest rate, and the relative share of labor?
  4. A machine with a length of life T costs $f(T). The machine is known with certainty to yield a net income stream of $a per year steadily throughout its lifetime. Find the equation determining the optimal length of life of a machine under each of the following assumptions.
    1. The instantaneous rate of interest in a perfect capital market is r; the length of life is chosen to maximize the present value of net cash flow (including initial cost).
    2. The interest rate r is used to discount net income, and durability is chosen to maximize the capital value of a new machine per dollar of initial cost.
    3. The internal rate of return (i.e. the discount rate that equates capital value and initial cost) is maximized.

Suppose that in cases (a) and (b) the interest rate is such that the capital value of the machine equals its initial cost. Show that all three solutions then coincide. Which is the “right” way to look at the problem?

  1. In a Leontief system with n commodities and one primary factor, labor, let Pi be the money price of commodity i, P0 the money wage, aoi the direct labor input per unit output of commodity i, Xi the output of commodity i, and Ci the final demand for commodity i. Show that the increase in Pj/P0 resulting from a unit increase in a0i equals the increase in Xi needed for a unit increase in Cj.
  2. Consider an individual whose life is divided into two periods, Present and Future. He is endowed with some physical good in each period.
    1. Show how to construct a supply curve relating the amount of saving he will do in the Present as a function of the rate of interest.
    2. Show that in a society of identical individuals with no time preference, the equilibrium rate of interest is zero if corresponding to each individual with endowment X in the Present and Y in the Future, there is another individual with endowment Y in the Present and X in the Future.

 

Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. Edwin Burmeister papers. Box 23, (unlabeled) Folder.

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M.I.T. Suggested Reading Syllabus

M.I.T. Capital theory. Course outline, suggested readings. Solow, 1975

 

Capital theory à la Solow. Posted earlier: material from Robert Solow’s 1965 capital theory course; material from Paul Samuelson’s 1975 core economic theory course.

________________________

14.459 THEORY OF CAPITAL
Spring 1975
Robert M. Solow

OUTLINE

  1. One-commodity models
    1. No labor, stationary equilibrium, differentiable technology. A complete model
    2. Add labor, steady growth equilibrium
    3. More complicated demand conditions, e.g., class structure
    4. Linear model: one good, one activity and labor
    5. Many activities; continuum of activities
  2. Many capital goods
    1. Simple Leontief Model (i.e., constant returns to scale, no joint production, one primary factor, no possibility of substitution in production)
    2. Generalized Leontief Model (substitute activities)
    3. Non-substitution theorem
    4. Extension to model with production lag
    5. Dynamic non-substitution theorem, factor-price frontier
    6. Examples of a complete equilibrium model in this set-up
  3. Reswitching and “perversity”
  4. What “the Controversy” is all about, if anything

 

SUGGESTED READING

C.C. von Weizsäcker: Steady State Capital Theory, pp. 4-22

E. Burmeister & R. Dobell: Mathematical Models of Economic Growth, Ch. 8

P. A. Samuelson: “The Rate of Interest under Ideal Conditions” QJE, Feb 1939, 286-97; also in Collected Papers, Vol. I, 189-200

P. Garengnani: “Heterogeneous Capital, the Production Function and the Theory of Distribution,” Review of Economic Studies, July 1970

L. Spaventa: “Rate of Profit, Rate of Growth and Capital Intensity in a Simple Production Model,” Oxford Economic Papers, July 1970

B. Rowthorn: “Neo-Classicism, Neo-Ricardianism and Marxism,” New Left Review, No. 86, July/August 1974, 63-87

J. Stiglitz: “The Cambridge-Cambridge Controversy in the Theory of Capital, A View from New Haven,” JPE, July/August 1974, 893-903

K. Sato: “The Neoclassical Postulate and the Technology Frontier in Capital Theory,” QJE, August, 353-384.

 

Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. Papers of Robert M. Solow, Box 68, Folder without a label.

Image Source: Robert Solow pictures at the MIT Museum website.

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Funny Business Gender M.I.T.

M.I.T. Rewrite of 1940s blues hit “Why don’t you do right, like some other men do”. Solow.

 

Instead of  all of us running off to our respective rants regarding cultural appropriation and intersectionality after reading the following parody lyrics to the 1940s blues hit “Why Don’t You Do Right?” found in Robert Solow’s papers at the Duke University Economists’ Papers Archive, I strongly urge listening to and/or watching the following performances of the original song. I promise, once in your brain, this melody will lodge itself deep into your memory much as it had for Robert Solow’s generation of (overwhelmingly) male economists. 

1941 (78 rpm record) Lil Green on Bluebird label.

1941 (78 rpm record) Nora Lee King on Decca

1942 (Film) Peggy Lee with the Benny Goodman Orchestra. This version cuts two stanzas but for that we get more Benny Goodman!

1950 (Video)  Peggy Lee with The Dave Barbour Quartet

It is as difficult for me to imagine the following written by anyone else at M.I.T. besides Robert Solow, as it is difficult to imagine that his wife, the economic historian, Barbara Lewis Solow (Bobby) played no role in the following parody. Perhaps she inspired, co-wrote, or  censored edited the lyrics. It is not certain that this was ever actually performed (any eye-witnesses out there?). 

Now that you have learned the tune, you may embark upon deconstruction of the following artifact.

Note: the references to two textbooks by Stanley Fischer and Rudiger Dornbusch would suggest an earliest date of 1983 for this parody. By that time the reference to IBM calling might have been the last of a decade long series of skit-party pokes at Frank Fisher who served as the chief economic witness on behalf of IBM in a thirteen year antitrust case that was finally dropped in 1982.

_____________________

A song to the tune of “Why don’t you do right, like some other men do…Get outta here and get me some money too”

to be sung by somebody’s wife.

Original lyrics Solow
You had plenty money, 1922
But you let other women make a fool of you
Why don’t you do right, like some other men do?
Get out of here and get me some money too		 You could’ve written a terrific text
But you just write that damned dy/dx
Why don’t you do right, like some other men do?
Get out of here and get me some money too
You’re sittin’ down, wonderin’ what it’s all about
If you ain’t got no money, they gonna put you out
Why don’t you do right, like some other men do?
Get out of here and get me some money too		 You know when I picked you it was not for looks
Now Stan and Rudi have those two big books
Why don’t you do right, like some other men do?
Get out of here and get me some money too
If you had prepared twenty years ago
You wouldn’t ‘ve been driftin’ from door-to-door
Why don’t you do right, like some other men do?
Get out of here and get me some money too		 Your career started all right but it got stalled
Where the hell were you when IBM called
Why don’t you do right, like some other men do?
Get out of here and get me some money too
I fell for your jive and I took you in
Now all you got to offer me’s a drink of gin
Why don’t you do right, like some other men do?
Get out of here and get me some money too		 If you want a mama you can hug and squeeze
There ain’t no future teaching Ph.D.s
Why don’t you do right, like some other men do?
Get out of here and get me some money too

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Robert M. Solow Papers, Box 83.

Image Source: Lil Green on Bluebird label file at www.archive.org

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Exam Questions M.I.T. Suggested Reading Syllabus

M.I.T. Core Economic Growth and Dynamics. Readings and Final Exam. Solow, 1968

 

The reading list and examination questions for the “Economic Growth and Short-run Fluctuations” course taught by Robert Solow in the core graduate macro sequence has been posted earlier for 1966. There were many changes in the readings chosen between 1966 and 1968.

Solow’s 1973 course material for a later revised version (Growth and Capital Theory), that was moved to be the final course in the core macro sequence has also been posted.

Here a glimpse at what students thought about this course (as well as the other courses and instructors in the core theory courses, both micro and macro).

________________________

R.M. Solow
Spring 1968

READING LIST
14.452

As a background text you should have a copy of R.G.D. Allen, Macro-Economic Theory (Macmillan, 1967). For review, read Chapters 1, 3, 7, 8.

ECONOMIC GROWTH

  1. Factual Basis

Kendrick & Sato, “Factor Prices, Productivity and Growth”, American Economic Review, December 1963.
Bureau of the Census, Long-Term Economic Growth, 1860-1965  (This is an excellent compendium of time series. You should spend a few hours with it, and might like to buy a copy from Supt. of Documents, Government Printing Office, Washington, D.C. 20402, $2.75)
Thurow & Taylor, “The Interaction between the Actual and Potential Rates of Growth,” Review of Economics and Statistics, November, 1966.

  1. One-Sector Real Theory

Allen, Chaps. 11, 14.
Hahn & Matthews, “The Theory of Economic Growth: A Survey”, Economic Journal, December 1964, Parts I, II except pp. 812-21.
Modigliani, “Comment” in Behavior of Income Shares (NBER), pp. 39-50.
(Optional: Johnson, “The Neo-Classical One-Sector Growth Model…,” Economica, August, 1966, pp. 265-79 only).

  1. Technical Progress

Allen, Chaps. 13, 15.
Solow et al., “Neoclassical Growth with Fixed Factor Proportions,” Review of Economic Studies, April 1966, pp. 27-89 only).

  1. One-Sector Monetary Theory

Tobin, “Money and Economic Growth”, Econometrica, October 1965.
Sidrauski, “Inflation and Economic Growth,” J.P.E., December, 1967.
Johnson, pp. 279-87 in article cited above.
See also Tobin-Johnson exchange in Economica, February, 1967.

  1. The Golden Rule and Optimal Growth

Marty, “The Neoclassical Theorem”, A.E.R., December 1964.
Diamond, “National Debt in a Neoclassical Growth Model”, A.E.R., December 1965, esp. pp. 1126-1135.
Koopmans, “Objectives, Constraints, and Outcomes in Optimal Growth Models,” Econometrica, January, 1967.

  1. Two (or more) Sector Real Theory

Hahn & Matthews, pp. 812-21.
Allen, Ch. 12.
(Optional: Shell & Stiglitz, “Allocation of Investment in a Dynamic Economy,” Quarterly Journal of Economics, November, 1967).

  1. Income Flows in Long-Run

Thurow, “A Policy Planning Model of the American Economy,” dittoed.

SHORT-RUN FLUCTUATIONS

  1. Cyclical Mechanisms

Samuelson, “Interaction between Multiplier Analysis and the Principle of Acceleration”, Review of Economics and Statistics, 1939, reprinted in A.E.A., Readings in Business Cycle Theory.
Metzler, “The Nature and Stability of Inventory Cycles”, Review of Economics and Statistics, 1941.
Kaldor, “A Model of the Trade Cycle”, Economic Journal, 1940, reprinted in Hansen and Clemence, Readings in Business Cycles and National Income and in Kaldor, Essays on Economic Stability and Growth.

  1. Income Analysis Models

Klein, “The Econometrics of the General Theroy,” Ch. IX in The Keynesian Revolution, SECOND edition.
Okun, “Measuring the Impact of the 1964 Tax Reduction,” xerox.
Surte, “Forecasting and Analysis with an Econometric Model,” A.E.R., March, 1962.
De Leeuw & Gramlich, “The Federal-Reserve-MIT Econometric Model,” Federal Reserve Bulletin, January, 1968.

  1. Inflation

Johnson, “A Survey of Theories of Inflation,” in Essays in Monetary Economics.
Solow, “Recent Controversies in the Theory of Inflation,” dittoed.
Solow & Stiglitz, “Output, Employment and Wages in the Short Run,” dittoed.

________________________

FINAL EXAMINATION
14.452
May 23, 1968

Please answer each question in a separate examination booklet. Indicate on the front page of each booklet whether you are seeking only a grade in 14.452 or a grade in the general examination in economic theory. Those who seek only a grade in 14.452 should answer two questions in Part I and two questions in Part II. Those who are taking the general examination and economic theory should answer two questions in Part II and two in Part III.

Part I

  1. Construct a difference-equation model embodying the following assumptions:
    1. Consumption is a linear function of disposable income lagged one time-unit;
    2. Tax revenue is proportional to national product;
    3. Investment is the sum of a component proportional to the current change in consumption and the component proportional to national product lagged one time-unit;
    4. Imports are proportional to national product lagged one time-unit; exports constant;
    5. Government purchases are constant.

Write down formally the conditions for and an oscillatory response of the model to disturbance. When are the oscillations damped? How do variations in the tax rate affect these conditions? Suppose part of government purchases were made negatively proportional to the last observed change in national product?

  1. Why is technical progress an important part of the usual model of economic growth? Could increasing returns to scale play the same role? What is the special role of purely labor-augmenting (i.e. Harrod-neutral) technical progress?
  2. Imagine a planned economy choosing among steady states in the one-sector model, without technical progress. The planner values both consumption per head and capital per head (as a measure of national strength, say) and his preferences can be expressed by a system of conventionally-shaped indifference curves in consumption per head and capital per head.

Use this indifference map and the requirements for a steady state to show how the optimal steady-state is chosen. Prove that the optimal capital per head will exceed the “Golden-Rule” (maximal consumption per head) level. Show what happens to the optimal position if the rate of population growth increases. Discuss briefly the case of a one-time upward shift in the production function.

 

Part II

  1. In the generalized multiplier-accelerator model, the equation \frac{dK}{dt}=I\left( Y,K \right) means that “investment decisions are always carried out”, so that when I\left( Y,K \right)\ne S\left( Y \right) “unintended consumption or saving” occurs. Replace the above equation with \frac{dK}{dt}=S\left( Y \right), and interpret and analyze the resulting model. Compare its behavior with this with the case analyzed in class.
  2. Suppose I =I(Y,K) and S= S(Y) are the schedules of desired investment and saving. In what sense is (I-S) a measure of excess demand in the aggregate commodity market?
    How is it that no specific supply variables (labor force, for example) appear in this measure? Under what circumstances is it natural to suppose that \frac{dY}{dt} responds to (I-S)? (Y = real output, P = commodity price level). Under what circumstances is it natural to suppose that \frac{dP}{dt} responds to (I-S)?
  3. Consider it a one-sector non-monetary model of growth under the following assumptions:
    1. The production function in intensive form is q= Akb;
    2. The wages equal to the marginal product of labor;
    3. Investment demand is such that the after-tax return on capital is always at a target level r*;
    4. There is a tax on profits at rate t in the government spends all its revenue on consumption;
    5. The savings rates from wages and after-tax profits are both equal to a constant s.

Find the tax rate that will permit a steady-state at full employment. When will it be between zero and one? How does it change if this changes? Interpret.

  1. Considered a one-sector growth model, with two factors of production (capital and labor), constant returns to scale, and no technical progress. Suppose that the propensity to save out of profits and capital gains is equal to one, and the propensity to save out of wages and transfer payments (taxes = negative transfers) is zero.

Money, which is non-interest-bearing government debt, is the only alternative asset to capital. The desired money-capital ratio is of the form \frac{m}{k}=L\left( {f}'\left( k \right)+{{\left( {{\dot{p}}}/{p}\; \right)}^{e}} \right) where m is the real per capita stock of money,k is the capital-labor ratio, and {{\left( {{\dot{p}}}/{p}\; \right)}^{e}} is the expected rate of inflation which is equal to the actual rate \left( {{\dot{p}}}/{p}\; \right) in the steady-state.

  1. Government purchases are zero and the budget deficit, which is equal to the excess of transfers over taxes, is financed by issuing money.
    1. Describe the steady-state characteristics of the model.
    2. Find the rate of inflation that maximizes steady-state consumption per head.
    3. Suppose that {{\left( {{\dot{p}}}/{p}\; \right)}_{0}} is the rate of inflation in (b) that maximizes steady state consumption per head. Would a higher rate of inflation lead to a higher or lower long-run capital-labor ratio?

 

Part III

  1. Write a comprehensive essay on the subject of “The Problem of Weights in National Income and Index-Number Construction”.
    Explain the criteria which are used, should be used (for what purpose?) and why.
  2. Discuss the economic effects of an increase in the stock of money. Include an evaluation of the positions of several (not less than two) prominent economists familiar to you. How would you test the correctness of their positions?
  3. Discuss the effects of inflation on the level of real investment.

 

Source: Duke University, David M. Rubenstein Library. Economists’ Papers Archives. Papers of Robert M. Solow, Box 67, Folder “Exams”.

Image Source:  Robert Solow (right) from MIT Museum website.

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Chicago Economics Programs Economist Market

Chicago. Draft memo of a program to rebuild the department of economics by T.W. Schultz, 1956

 

The following draft memo by T. W. Schultz outlines the serious faculty replacement needs of the University of Chicago department of economics in the mid-1950s. Particularly noteworthy, aside from the impressive list of lost faculty, is the appended table listing the sponsored research/3rd party funders of the economics department at that time. One also sees that the department had been authorized to make offers to Kenneth Arrow, Robert Solow and Arthur F. Burns. So much for the best-laid plans of mice and men. A better historian of economics than I might spin a counterfactual tale of a post-Cowles Chicago with Arrow and Solow on the faculty.

Regarding the ICA Chile Enterprise: Economic Research Center, Schultz wrote “The Chilean enterprise will give us a fine ‘laboratory’ in which to test ourselves in the area of economic development– a major new field in economics.” This reminds me of the old Cold-War Eastern European joke about whether Marx and Engels were scientists (“No, real scientists would have tried their experiments on rats first”). What a “fine ‘laboratory'” for testing oneself!

_________________________

A Program of Rebuilding the Department of Economics
(first draft, private and confidential – T. W. Schultz, May 22, 1956)

Your Department of Economics has been passing through a crisis. Whether it would survive as a first rate department has been seriously in doubt, with one adversity following another as was the case up until last year. It is now clear, however, that we have achieved a turning point in that we can rebuild and attain the objective which is worth striving for – an outstanding faculty in economics.

The crisis came upon us as a consequence of a combination of things: (1) the department, along with others in the University, had been denied access to undergraduate students of the University who might want to become economists; (2) Viner left for Princeton, Lange for Poland, Yntema for Ford and Douglas for the Senate; (3) the Industrial Relations Center drained off some of our talent and when it jammed, Harbison left for Princeton; (4) Mr. Cowles’ arbitrary decision to shift “his” Commission to Yale was a major blow; (5) Nef been transferring his talents to the Committee on Social Thought, and (6) add to all these the retirement of Knight.

Meanwhile, there were several external developments which did not reduce our difficulties: (1) a number of strong (new) economic centers were being established – at Stanford, Johns Hopkins, Yale, Vanderbilt, M.I.T. and with public funds at Michigan and Minnesota; (2) our salaries were falling behind seriously relative to some of the other places, and (3) recruiting of established, highly competent economists became all but impossible given the crisis that was upon us and the (then) low repute of the University neighborhood.

The ever present danger of the past few years has been that we would be in the judgment of competent colleagues elsewhere, in the beliefs of oncoming graduate students and in the eyes of the major foundations – not recover our high standing but instead sing to a second or even a third-rate department and in the process lose the (internal) capacity to recruit and rebuild.

We now have achieved a turning point distinctly in our favor.

The major efforts which have contributed most have been as follows:

  1. We have taken full advantage of our unique organization in combining real research with graduate instruction. Our research and instruction workshops are the result. The Rockefeller Foundation gave us three grants along the way – agricultural economics, money and public finance – to test this approach and advanced graduate work. The Ford Foundation has now financed our workshops with $200,000 (eight 5-year grant) (our proposal of January 1956 to The Ford Foundation states the theory and argues the case for this approach on the basis of the experiences we have already accumulated).
  2. We set out aggressively to recruit outstanding younger economists. The workshops were a big aid to us in doing this; so was the financial support of the University. We had the ability to “spot them”. We now have the best group of talented young economists, age 30 and less, to be found anywhere. This achievement is rapidly becoming known to others in keen “competition” is already upon us as a consequence.
  3. We need urgently to run up a lightning rod, a (rotating) professorship with a salary second to none, to attract talent and make it clear we were in business and would pay for the best. The Ford Foundation took favorably to the idea. (Thought so well of it that they will do the same for 3 other privately supported Universities – Columbia, Harvard and Yale!)
    The $500,000 endowment grant from them for a rotating research professorship is our reward.
  4. The foundations have given us a strong vote of confidence: grants and funds received by the Department of Economics during 1955-56 now total $1,220,000. (A statement listing these is attached).
  5. The marked turn for the better in the number and the quality of students applying for scholarships and fellowships is, also, an affirmative indication.
  6. The Economics Research Center is filling a large gap in providing computing, publishing and related research facilities which was formally a function of the Cowles Commission.
  7. The Chilean enterprise will give us a fine “laboratory” in which to test ourselves in the area of economic development – a major new field in economics.

There remains, however, much to be done. We must, above all, not lose the upward momentum which is now working in our favor.

Faculty and University Financial Support

To have and to hold a first rate faculty in economics now requires between $225,000 and $250,000 of University funds a year.

To have a major faculty means offering instruction and doing research in 8 to 10 fields. Up until two years ago we came close to satisfying the standard in our graduate instruction. We then had 11 (and just prior to that, 12) professors on indefinite tenure.

Then, Koopmans and Marschak were off to Yale, Harbison to Princeton and Knight did reach 70. And, then there were 7. On top of these “woes” came the serious illness of Metzler which greatly curtailed his role; and, Nef having virtually left economics. Thus, only 5 were really active in economics with Wallis carrying many other professional burdens. Meanwhile we added only one – Harberger was given tenured this year.

Accordingly at the indefinite tenure level we are down to about one-half of what is required to have a major faculty. Fortunately, several younger men have entered and have been doing work of very high quality.

It should be said that the Deans and the Chancellor have stood by, prepared to help us rebuild.

Major appointments were authorized – Arrow, Stigler, Solow and others. We still are hoping that Arthur F. Burns will come.

The resignations and the retirement, however, did necessarily reduce sharply the amount of financial support from the University.

In rebuilding, at least five additional tenure positions will be required:

  1. Labor economics (from within)
  2. Trade cycle (we hope it will be Arthur F. Burns, already authorized).
  3. Money
  4. Econometrics and mathematical economics.
  5. Business organization
  6. Consumption economics (when Miss Reid retires; next 3 years we shall have the extra strength of Dr. D. Brady with finances from The Rockefeller Foundation)
  7. International trade (pending Metzler’s recovery)
  8. Economic development.

The faculty and the University financial support recommended is as follows:

Tenured positions (for individuals fully committed to economics).

    1. Now in the harness

6: Friedman, Johnson, Harberger, Hamilton (Metzler), Wallis (Nef), Schultz

    1. To be added

5: Burns pending, (labor), (money), and two other fields, most likely econometrics and business organization

 

Budget:

11 [tenured positions]

  

$165,000
Metzler and Nef $15,000
$180,000
III. Supplementary non-tenure faculty $45,000
Altogether $225,000

 

Outside Financial Support for the Department of Economics

Grants

 Amount of grant Available 1956-57

A. Received during 1955-56.
1.     Sears Roebuck Fellowships

$4,000

$4,000
2.     National Science Foundation (2 years)

$13,000

$6,500
3.     Conservation Foundation (2 years)

$33,000

$16,500
4.     Rockefeller Foundation: consumption economics (3 years)

$45,000

$15,000
5.     American Enterprise (2 years)

$17,250

$8,625
6.     Ford Foundation: research and instructional workshops (5 years)

$200,000

$30,000
7.     Earhart Fellowships.

$6,000

$6,000
8.     S.S.R.C. Student Grants

$5,000

$5,000
9.     Ford Foundation: 3 pre-doctoral grants

$10,200

$10,200
10.  Ford Foundation: faculty research grant (Hamilton)

$12,500

$8,000
11.  ICA Chile Enterprise: Economic Research Center Fellowships, research support (3 yrs)

$375,000

$125,000
12.  Ford Foundation: endowment for rotating research professor

$500,000

$25,000
13.  Rockefeller Foundation: Latin America (Ballesteros)

$5,000

$5,000

Sub-totals

$1,225,950

$264,825

B. Received prior to 1955-56 where funds are available for 1956-57.
1.     Rockefeller Foundation: workshop in money (3 years with one year to go)

$50,000

$20,000
2.     Rockefeller Foundation: workshop in public finance (3 years with one year to go)

$50,000

$20,000
3.     Resources for the Future (3 years with one year to go)

$67,000

$27,000
4.     Russian Agriculture (2 years with one to go)

$47,000

$22,000

B sub-totals

 $214,000 $89,000

A and B totals

$1,439,950

$353,825

 

Source:  University of Chicago Archives. Department of Economics Records. Box 42, Folder 8.

Image Source: 1944 photo of T.W. Schultz from University of Chicago Photographic Archive, apf1-07479, Special Collections Research Center, University of Chicago Library. Cf. Wikimedia Commons, same portrait (dated 1944) from Library of Congress.

Categories
Funny Business M.I.T.

M.I.T. Robert Solow’s last skit “Dr. Rudi Tells You How”, late 1980s

 

 

The following skit by Robert Solow has been transcribed from his original handwritten text in the Economists Papers Archive at Duke University and shared with Economics in the Rear-View Mirror by Roger Backhouse.

It is identified in its upper-right hand corner on the first page as “Solow’s Last Skit”. The manuscript bears no date, but there are two clues that point to its having been written sometime in the late 1980’s.

  • The short-lived currency unit of Argentina, the Austral [b. June 15, 1985; d. December 31, 1991], is mentioned at the end of the skit.
  • The late 1980s also marked the heyday of the petite radio and television therapist, Dr. Ruth Westheimer, who spoke with a charming German accent about issues surrounding sexual health. One supposes nothing could have been more or less natural than imagining Rudiger Dornbusch, born in Krefeld, Germany, to be the Dr. Rudi dispensing professional advice to fellow economists.

Robert Solow has received much ribbing for the following remark from his 1966 “Comments.” Guidelines: Informal Controls and the Market Place, eds. George P. Shultz and Robert Z. Aliber. Chicago: University of Chicago, pp. 62-66.

“…everything reminds Milton [Friedman] of the money supply. Well, everything reminds me of sex, but I try to keep it out of my papers”.

Now read the text below and you will see that Robert Solow was definitely no prude when it came to joking about economists (still clearly “A Man’s World”):

  • “Ed Presspott”: time inconsistency as analogue to hypoactive sexual desire disorder (HSDD);
  • “Dr. Rudi”: not consistently overshooting (I apologize if you cannot unread this);
  • “Bob Barrell”: completely predictable routine, needing to spice up his act;
  • “Tom Corporal”: obsessed with finding the right technique;
  • “Larry Winters” as a compulsively promiscuous co-author.

From a comment left (15 Feb 2022) at Tyler Cowen’s Assorted Links (includes this post).

“I attended that skit party! Stan Fischer played Bob Barrel, and Jeff Wooldridge played Tom Corporal.”

_______________________

Solow’s Last Skit

Doctor Rudi Tells You How

(A) We present, in person, the world-famous author of the best-selling book “How to Repudiate Your Debts and Blame the Lender.” Dr. Rudi has been telling people how to run their—NO, NOT WHAT YOU EXPECTED—how to run their professional lives ever since he discovered that they would pay to listen. For a happy, uninhibited professional life, for fun-filled trips to Rio, for the pleasure of striking terror into the hearts of international bankers and making them pay, just listen to Dr. Rudi. Remember that Dr. Rudi swings like a pendulum do. Now for our first seeker after help with his professional life. Please state your name.

(P) [Edward C. Prescott] I’m Ed Presspott.

(R) And what is your problem, Mr. Presspott. Don’t be shy. Dr. Rudi has heard everything. Nothing shocks him.

(P) I feel so ashamed. I can barely bring myself to look in the mirror.

(R) Ah, you look in the mirror. The mirror is in the ceiling, no doubt?

(P) No, my regular shaving mirror, in the medicine cabinet.

(R) In the medicine cabinet? That’s a brand new one. Even Dr. Rudi has never heard of that before. There is no end to perversion. How does he get that mirror off his ceiling and into the medicine cabinet? Must ask [Stanley Fischer] Dr. Stan. Well, then, Mr. Presspott, why are you ashamed to look into the mirror—chuckle, chuckle,–that you keep in the medicine cabinet?

(P) I’m dynamically inconsistent. I didn’t think I could bring myself to say it. You’re wonderful, Dr. Rudi. Yes, let’s face it, I’m dynamically inconsistent.

(R) All the time?

(P) Yes. No. Yes. No. A lot, anyway. It just comes over me.

(R) You better tell me about it. Everything. Hold nothing back.

(P) Take last week. Monday, Tuesday, Wednesday were just routine. Of course my tastes and technology changed a couple of times, the way they always do. I adjusted, the way I always do. Kept the old markets cleared, the old prices flexible. Told everyone I was going to the movies on Thursday. Seemed like the best thing to do. Really did. Often go to the movies on Thursday. I really do. I really do. I really do. No, I don’t. I’ve got to tell someone, Dr. Rudi. I don’t go to the movies on Thursday. I don’t really go to the movies. Hardly ever. Somehow on Thursday I don’t feel like going to the movies. On Monday it seemed like the best thing to do. So I told everyone I would. But most Thursdays, I don’t know, it just comes over me that going to the movies might not be the best thing to do after all. Sometimes I make myself go, but most of the time I don’t. I know it’s wrong, but I don’t go. I’ve never told this to anyone before, Dr. Rudi, not even to [Finn Kydland] Kid Finland.

(R) So when you don’t go to the movies on Thursday, what do you do? I have to know if I’m going to help you.

(P) I just sit there in a sweat, even though it’s Minneapolis at 200° below zero. I just sit there in a sweat and worry about what the other people are thinking.

(R) Maybe they don’t know.

(P) Of course they know. It’s common knowledge. I can practically hear them whispering that old Presspot has lost his dynamic consistency. And they laugh, they laugh. I even tried telling them on Monday that I wouldn’t go to the movies on Thursday. But you know how it is, on Monday morning, with all that market clearing ahead of me, I really feel like going to the movies on Thursday. How do I know what I’ll feel like on Thursday? Help me, Dr. Rudi, help me.

(R) You just have to stop feeling guilty, Pressport. Lost of people are dynamically inconsistent. Even Dr. Rudi. Do you think I overshoot every time? Of course not. Sometimes I just can’t be bothered to overshoot. Dynamic consistency is the hobgoblin of little minds as dear Ralph Waldo Mundell used to say. No guilt, Presspott. No guilt. If it feels good, it feels good. Render unto Thursday what is Thursdays, as Jesus Mundell used to say. No guilt.

(P) Thank you, Dr. Rudi, thank you. I feel better already.

(R) And one more thing, Presspott.

(P) Yes, Dr. Rudi?

(R) Get that mirror out of the medicine cabinet and back on the ceiling where it belongs. Next client, please.

(A) You, sir, you look troubled. What is your name?

(B) [Robert Barro] Barrel, Bob Barrel, and I am sorely troubled.

(A) Tell it to Dr. Rudi, Barrel. You’re as good as cured.

(R) Let it hang out, Barrel. Well, maybe it would be better if you just told me about your problem.

(B) It’s simple. Dr. Rudi. Everything I do is anticipated. I am so predictable that everything I do is anticipated by everyone. Well, you know what happens.

(R) What happens?

(B) Nothing. That’s the problem of course. Nothing real happens. I’m death[?] on the price level, of course, but there’s no fun in that. Anyone can screw up the price level. I want to do something real.

(R) Sneak up on them. Barrel. Surprise them.

(B) I’ve tried. I wait until the last minute and then I try something completely out of character. Sometimes I smile, or make a joke. But nothing real happens. Nominal, nominal, nominal. So then I ask people on the street: how come nothing real happened? Didn’t I do something surprising? And they all say the same thing: We figured you would try to do something unanticipated, so we were waiting. You’re lucky you even have a nominal effect, Barrel. You’re predictable, Barrel, predictable. Before I can even say I resent that, they say you resent that. It’s obscene.

(R) No, it’s not obscene, Barrel. Nothing is obscene. Everything is OK. It’s OK to be predictable. It’s OK to be boring. It’s OK to be sober. Sometimes even the great Mundell is…boring. Maybe your grandchildren will be unpredictable.

(B, R together)  B: I’ve already taken them fully into account.
R: You’ve already taken them fully into account.

(B) See what I mean. Am I doomed to leave no real effects behind me?

(R) Yes (Thank God). You must learn not to care. Think nominal. Nominal is beautiful. Real is ugly. Real is Keynesian.

(B, R together)  There are no Keynesians.

(R) Stick with the price level, my boy, and the price level will stick with you. And one more thing—

(B) Yes, Dr. Rudi?

(R) No more boring predictable papers, please. Next sufferer.

(A) Here is a lost-looking soul. What is your name, sir, and are you seeking advice from Dr. Rudi?

(C) [Thomas Sargent] Corporal is my name, Tom Corporal. Science is my game. But yes, I have a bit of a problem. I’m sure there’s a theorem somewhere that will take care of it. If worst comes to worst we can always change the problem.

(R) Tell Dr. Rudi about it.

(C) Well, I might as well. I told you that science is my game. Control theory. Stochastic processes. See a sum of squares, minimize it.

(R) Small is beautiful as good old Kurt[?] Mundell used to say.

(C) Never heard of him, but if he was a minimizer he was OK.

(R) So what is the problem?

(C) Learn a new technique every month.

(R) Every month! What do you need me for?

(C) It’s my life. I perfect my technique. I am obsessed with doing it right, exactly right. I bring all my technique to bear on it, and I find I can’t do it at all.

(R) Well, this sounds more like my kind of problem.  Not at all, eh?

(C) Oh I turn out the papers and the books all right. But nobody believes any of it. Neither do I. I try to work up some conviction.

(R) Conviction is better than guilt, as old Judge Mundell used to say. You gotta have conviction.

(C) Sometimes I can’t even work up a simple declarative sentence. But at least I’m doing it right.

(R) I thought you weren’t doing it at all.

(C) Maybe it’s the same thing. Anyway, I have another math book at home and I bet the key to the universe is in it somewhere. If I could only find a well-posed question I’m sure I could find a well-posed answer.

(R) My boy, listen to Dr. Rudi. One or two techniques is all you need. The great Mundell got by with no technique at all. Solow with even less.

(C) You mean it’s done with mirrors?

(R) On the ceiling, yes.

(C) Angle of incidence equals angle of reflection, eh.

(R) Any angle you like, Tom baby. Forget the technique and start to believe. That will get their attention. And then…

(C) And what then, Dr. Rudi?

(R) Tell them to repudiate their debts and blame the lenders.

(C) I believe, Dr. Rudi, I believe.

(R) But stay out of Brazil and Argentina, that’s my territory.

(C) It’s the Austro-Hungarian Empire for me. Wait till I tell [Neil Wallace] Neil.

(R) Next sinner, please.

(A) Here is a distinguished looking gentleman. Dr. Rudi rarely sees patients who seem so self-possessed yet so youthful. Sir, it is hard to believe that you have any problem at all, let alone the sort of thing that Dr. Rudi could help you with. What is your name, Sir?

(W) [Larry Summers] Larry Winters, but don’t ask me to spell it. Spelling is not my thing.

(A) Ah you don’t have to spell it. Everyone knows Larry Winters. But surely you don’t have any problems. When could you squeeze them in?

(W) Well, I’d rather talk to Dr. Rudi.

(R) Come in, tell me in complete confidence what brings you here. No one will know but our world-wide audience.

(W) Dr. Rudi, to tell you the truth I can’t stop writing. Every day I write like one possessed. Since January 1 I have written 89 articles and that doesn’t count National Bureau Working Papers. I don’t even have time to think.

(R) Ah, so you have discovered the Fundamental Secret?

(W) You mean that you don’t have to think in order to write?

(R) So wise, so young!

(W) I learned it from my teachers.

(R) Those who can, do. Those who can’t, teach.

(W) Those who can’t teach, teach economics.

(R) You know that too?

(W) I learned it from my teachers.

(R) So you can’t stop writing. Compulsive promiscuity. As the late Dr. Sigmund Mundell said, the sins of the children are visited upon the fathers. Perhaps it was not Mundell. Perhaps it is not even true. Have you tried to understand this compulsion? The famous Bishop Mundell used to say that when he felt the impulse to write he would lie down until it went away.

(W) When I lie down I just keep writing.

(R) We must locate the source of this compulsion. Think.

(W) No time.

(R) What do your friends say about this? Sometimes they have insights denied to oneself.

(W) Some of them think I’m trying to catch up with [Martin Feldstein] Feldstein. Some of them think I’m trying to stay ahead of [N. Gregory Mankiw] Mankiw.

(R) You see—those are both difficult but sound objectives. I myself try mostly to emulate the great Gustave Mundell who always wrote one chapter before and another chapter after.

(W) Before and after what?

(R) What a pleasant surprise for you when you find out.

(W) Must go. I have three NBER Working Papers to finish today.

(R) But if we talked some more, I might find a way to cure you of this obsession.

(W) Cure? I don’t want to be cured. I like writing.

(R) But then why did you come to see Dr. Rudi?

(W) I thought we might get a joint paper out of it.

(A) And so we come to the end of another session with Dr. Rudi. If you have a question you would like to put to Dr. Rudi, write it down and send it to this station together with 5 billion Austral [Argentinian currency unit between June 15, 1985 and December 31, 1991], or better yet a box top, any box top. Thank you for your support.

 

Source:  Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. Papers of Robert M. Solow. Box 83.

Image Sources:  Robert Solow from the Library of Economics and Liberty; Rudiger Dornbusch from FAZ, April 12, 2014; Dr. Ruth Westheimer from the Encyclopedia of Jewish Women.

Categories
Funny Business M.I.T.

M.I.T. Faculty skit. Robert Solow as the 2000 year old economist.

Would Mel Brooks' famous 2,000-Year-Old Man have understood modern language? Researchers say there's a possibility.

 

 

A skit in economics typically involves a humor transplant of some sort. The following script from the faculty contribution to an annual M.I.T. economics skit party (ca.  1979-80 which is when Luis Tiant pitched for the Yankees) took its inspiration from  two greats in American comedy, Carl Reiner & Mel Brooks, who sometimes performed as interviewer and 2,000 year-old man, respectively.

While it is fairly clear that Robert Solow performed and probably wrote the entire skit, the identity of the interviewer still needs to be established. Hint: there is a comment box at the bottom of this post. 

The script comes from a file of such Solovian skits that Roger Backhouse has copied during his archival research and has shared with Economics in the Rear-View Mirror.

_________________

 

Q: You have probably all heard the interviews with the recently discovered 2000-year-old man. We are fortunate to have with us tonight another great find, the 2000-year-old economist, Robert M. Solow. By the way, Dr. Solow, just what does the M stand for?

A: Methuselah, dummy.

Q: Dr. Solow has seen so many skit parties in his life, that he was not very happy about appearing at this one. Do you remember the first skit party you ever went to?

A: No. Skit parties are like hangovers – best thing to do is forget ’em and swear never to do it again. I do have a hazy recollection of an early skit party, I think it was what the one where I first heard the joke about bordered determinants…

Q: What is the joke about border determinants?

A: I don’t know, but they sure laugh[ed] their fool heads off.

Q: Any other recollections about that skit party?

A: Well, you could hear them building pyramids in the background, I remember, and there was this Sphinx-like object, looked a lot like Dick Eckaus… You don’t suppose that, even then???? Nah, forget it.

Q: Turning to more serious issues, what is the biggest change in economics since the old days?

A: Mechanization, by cracky. First the electric typewriter, then the computer, then the Xerox machine [handwritten insert: but not fast enough for (3 or 4 illegible words)]. Nowadays people write papers at the rate they used to wipe their… glasses. I believe Feldstein has solved the problem of hooking the typewriter directly to the Xerox machine, and the whole paper is reproduced without being touched by human hands. There is even a rumor that he has a secret way of getting the paper written without human intervention…

Q: Come come, Dr. Solow, you don’t believe that.

A: Well, have you looked at any of Feldstein’s recent papers? Now in the good old days, stand-up roll-top desks, quill pens, the main-frame abacus, a man thought twice before he wrote a paper. At least he thought once. If only old Tom were here.

Q: Tom who?

A: Tom Gresham. You know: bad working papers drive out good. Not to mention Dave Hume, the inventor of the quantity theory of working papers. As Milton used to say: any way you slice it, it’s still baloney.

Q: Is that Milton Friedman?

A: No, Milton Horowitz, the inventor of the pastrami sandwich. I believe he appears in a footnote in Joskow’s classic mustard-stained work on the subject.

Q: Let’s come to your recent impressions. What do you see as the most important recent development in economics?

A: That’s easy – the increase in the mandatory retirement age to 70. Of course it’s got a long way to go before it does me any good, but I underestimate the DRI Mandatory Retirement Age Monitor estimates the retirement age to be rising at 1.73 years per year, so time is on my side.

Q: Apart from its effects on you personally, why do you think this is an important development?

A: It saves a lot of time at department meetings never to have to make a tenure appointment again. And you know what department meetings are like – even worse than skit parties.

Q: How do you think the change will affect students?

A: They’ll love it. Courses will be the same year after year. Reading lists will never change. Textbooks will go on and on and on. Can you imagine the 200th edition of Dornbusch and Fischer? I hope it’s printed on better paper than the low-grade papyrus of the first edition… I do wonder about Eckaus and that Sphinx…… Exams will be the same year after year. Students hate change. Look at what happened when you fellows tried to change 14.121 this year.

Q: Turning to economic theory, what has been the most important development you have witnessed in the last 2000 years?

A: The two-dimensional diagram.

Q: Be serious.

A: I am serious. Can you imagine Bhagwati, the Picasso of the Production Possibility Locus, trying to fit all those curves in a one-dimensional diagram, which was all we had in the old days? There wasn’t hardly room for anything besides the axis.

Q: Come, come. Bhagwati would find a solution for that little difficulty. Who needs an axis?

A: Maybe so, but can you imagine four-color one-dimensional diagrams? How could we have expensive textbooks without four-color diagrams? How could we have expensive professors without expensive textbooks? How could……

Q: OK, OK. What is the second most important development in economic theory in your lifetime?

A: The subscript.

Q: Don’t you know the difference between trivia and serious economic theory?

A: Sure. Trivia are worth remembering, but serious economics is OK to forget.

Q: Maybe we better stick to trivia…

A: I was just kidding. I really know the answer. There is no difference between trivia and serious economic theory.

Q: Tell us about the most interesting experience you ever heard of an economist having?

A: Easy. Happened to an agricultural economist I knew, feller named Samuelson, farm boy from Gary, Indiana. He was digging on the farm one day, checking out the law of diminishing returns, and he found a potato growing with a nickel in it. Marvelous thing. Folks came from miles away to see a potato with a nickel in it. Old Samuelson frittered away the rest of his life looking for another potato with the nickel in it. Never could find one. He did find a couple with three cents in them, but somehow it wasn’t the same. Never accomplished another thing, old Samuelson. Wonder whatever became of him? He’d be 2009, I reckon. By the way, whatever became of that other farmer, Weitzman?

Q: You mean Chaim Weitzman, the founding father of Israel? His last words were: you don’t have to convince me, Professor [Frank] Fisher, I’m Jewish too.

A: No, I mean Marty Weitzman, old quick and dirty, the lion of Levittown.

Q: Why do you ask?

A: Reminds me of the fellow I used to know, a Secretary of the Treasury named Hamilton……

Q: Reminds you of who? Oh, I get it, they both got killed in the dual.

A: Watch out, Buster – the agreement was that I tell the jokes and you prove the theorems.

Q: All right. Let’s get away from personalities. What do you think of recent macro theories?

A: Not much.

Q: What about rational expectations?

A: If there were any truth in that, it would have been thought up long ago.

Q: Not necessarily. The old-timers could have thought that someone would think of it, without thinking of it themselves.

A: That’s true, but the old-timers were too sensible to think that anyone would think a thought like that.

Q: How about the quantity theory?

A: Ingenious.

Q: Really?

A: Imagine saying that velocity is so stable that only money matters, and so unstable that no use can be made of the theory, and imagine getting away with both statements.

Q: But what is macroeconomics left with then?

A: Well, the old Ioto-Sigma Lamba-Mu [Greek for “IS-LM”] curves were good enough for Aristotle, it’s good enough for me.

Q: Would you care to comment on the theory of built-in stabilizers?

A: If you’re not going to be serious, we might as well go watch a ballgame. I understand Louis Tiant, the 2000-year-old pitcher is going for the Yankees.

Q: Use your 2000-year-old imagination. I’ll give you an example of built-in stabilization – Social Security.

A: How so?

Q: The less likely it is that anyone will ever be able to collect benefits, the likelier it becomes that they make even more money consulting on Social Security. Take [Peter] Diamond, for example.

A: You take Diamond.

Q: No thanks. Imagine a man leaving a perfectly good career in public finance to go into law and economics and make a hash out of both fields.

A: Stick to the straight-man lines, please.

[Handwritten insert begins here]

Q: What do you think of the proliferation of journals?

A: I think it is terrific. Of course it has been going on for a long time – ever since BJEA, the Babylonian Journal of Economic Analysis was challenged by the SEJ, the Sumerian Economic Journal.
What I particularly like is the increased specialization. Like JHR, the Journal of Human Regressions and JME, the Journal of Mathematical Existence.

Q: The Journal of Mathematical Existence – isn’t that the one that started with the famous 2-line proof: I count, therefore I am?

A: Yes and was followed by a 47 page proof that without continuity existence was still generic.
I also like this trend toward paired journals.

Q: Paired journals?

A: Yes, like the two Harvard journals – one publishes theory without measurement and the other measurement without theory.
And then there’s the 2 JPE’s – the Journal of Public Economics and the Journal of Private Enterprise.

[handwritten insert ends]

Q: What do you see as the greatest danger facing the economics profession?

A: The threatened extension of truth-in-lending legislation to truth-in-teaching. We could have the biggest rash of malpractice suits since Nicky Kaldor retired.

Q: I think you’re onto something there. How foresighted of this department to have hired an expert on malpractice like Marilyn Simon [joined faculty 1977-78 academic year], the world-famous author of Unnecessary Surgery – The View from the Inside.

A: Simon only writes about malpractice – [Jeffrey E.] Harris actually does it, I understand.

Q: You seem to have discovered a lot since you turned up around here. Anything else new on the malpractice front?

A: There’s a rumor that the University of Chicago has had to recall all the degrees issued during the last five model years.

Q: You mean…

A: Right. Defective transmission mechanisms.

Q: Gad. Are there any good defenses against malpractice suits in your long and varied experience?

A: You can hire a mathematician for the faculty.

Q: What good does that do?

A: How the hell would I know? All I can say is that every department seems to be hiring mathematicians these days. It’s got to be for something.

Q: I’m looking for some more tried and true defense.

A: There’s always the Long-and-Variable Lags defense. See the Supreme Court decision in Tobin versus Friedman, in which Friedman successfully argued that first it’s true, second he never said it, and third wait till next year.

Q-: How about the Roy Lopez Defense?

A: You mean P–K4, P-K4; N-KB3, N-QB3; B-QN5, P-QR3?

Q: No, I mean Roy Lopez, the middle line-backer for the Princeton Economics Department – anyone sues for malpractice, he breaks their legs.

A: Sounds good. There’s also the classic defense due to Stanley Fischer, that truth should be indexed. Today’s malpractice is tomorrow’s conventional wisdom.

Q: Speaking of conventional wisdom, have you spoken with Professor Galbraith since your return?

A: No, but I have been reading his latest book: Why Are People Poor?

Q: I’ll bite; why are people poor?

A: Not enough income, according to Galbraith.

Q: Does he have a remedy?

A: Move to Switzerland.

Q: I see.

A: I can’t wait until the news reaches Calcutta.

Q: One last question, to return to the subject with which we started. Do you see any trends in student skits?

A: Longer.

Q: Longer and funnier?

A: Longer.

Q: Any final comment?

A: Let me ask you a question. What do you consider the most remarkable thing in this interview?

Q: That’s easy. We never mentioned IBM.

 

Source:  Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archives. Papers of Robert M. Solow. Box 83.

Image Source:  Carl Reiner and Mel Brooks performing the 2000 year old man from NPR KNAU, Arizona public radio article “Could You Talk To a Caveman?” (May 9, 2013) .

Categories
Exam Questions M.I.T. Suggested Reading Syllabus

M.I.T. Reading list and final exam for core graduate growth and capital theory. Solow, 1973

 

Core macroeconomic theory was taught in a sequence of four half-semester courses at M.I.T. In this post we have material from the final course of the sequence (typically taken in the fall term of the second year of residency) that was dedicated to growth and capital theory and taught by Robert Solow in 1973.

The course syllabus and final examination for the third course in the sequence on Macroeconometric Models taught by Franco Modigliani were transcribed for the previous post.

Economics in the Rear-view Mirror thanks Juan C. A. Acosta who copied the course syllabus and final examination that are found in the Franco Modigliani Papers (Box T7) at the Duke University Economists’ Papers Project and has graciously shared them for transcription here. 

___________

14.454
MACRO THEORY IV
Fall 1973 2nd half

  1. Growth Theory

background, if necessary: Solow, GROWTH THEORY, Ch. 1,2
Burmeister and Dobell: MATHEMATICAL THEORIES OF ECONOMIC GROWTH, Ch. 1-4
and/or
Wan: ECONOMIC GROWTH, Ch. 1, 2, 4 (sec. 3)
Kahn: “Exercise in the Analysis of Growth,” OXFORD ECONOMIC PAPERS, New Series, Vol. 11, 1959, pp. 143-156 (reprinted in GROWTH ECONOMICS, ed. A. K. Sen, Penguin)
Wan: Ch. 4, sec. 4

  1. Optimal Growth

background, if necessary: Solow, GROWTH THEORY, Ch. 5
Burmeister and Dobell: Ch. 11
and/or
Wan: Ch. 9, 10
Koopmans: “Objectives, Constraints and Outcomes in Optimal Growth Models” ECONOMETRICA, Vol. 35, 1967, pp. 1-15 (reprinted in Koopmans, SCIENTIFIC PAPERS, pp. 548-560)

  1. Capital Theory

Malinvaud: LECTURES ON MICROECONOMIC THEORY, Ch. 10
Hirschleifer: INVESTMENT, INTEREST AND CAPITAL, Ch. 2, 3, 4, 6
Dougherty: “On the Rate of Return and the Rate of Profit” ECONOMIC JOURNAL, December 1972, pp. 1324-1349
Burmeister and Dobell: Ch. 8, 9
Weizsäcker: STEADY-STATE CAPITAL THEORY, pp. 1-22, 32-47, and passim

Source:  Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Papers of Robert M. Solow, Box 68. Also in Franco Modigliani Papers, Box T7.

 

14.454 FINAL EXAM
19 Dec 1973
R. M. Solow

ANSWER TWO QUESTIONS, total time 1 ½ hours

  1. Suppose an economy with effectively unlimited supply of labor in the sense that any amount of labor is available (from an agricultural pools, say) at an institutionally determined real wage \bar{w}. In other respects the economy is like the standard one-sector model.
    1. Analyze the growth of such an economy if saving and investment are proportional to output. What might correspond to the “full employment, full utilization” assumption?
    2. What if saving and investment are proportional to profits?
    3. How does a once-for-all change in \bar{w} affect the growth path, and the share of wages in total output?
  2. Sketch an analysis of an optimal-capital-accumulation problem in which the criterion function values the capital stock (per worker) as well as consumption, for prestige or power reasons, say, so that instantaneous utility is written u(c,k). In particular, is it true, as we would expect, that such a society should save more than it would if it valued consumption only?
  3. Criticize the “neoclassical” theory of growth and capital; but do not be vague – where you have a complaint you should be prepared to suggest a better way.

 

Source:  Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Franco Modigliani Papers, Box T7.

Image Source:  Robert Solow pictures at the MIT Museum Website.

 

Categories
Funny Business M.I.T.

M.I.T. Economics faculty M*A*S*H theme skit. Robert Solow, 1977

 

Dating an undated skit script or assigning skit characters to actual faculty members requires textual analysis skills not taught in economics graduate school. But puzzle solving is, so let’s see what we can do with the following skit written by Robert Solow.

Current events and transitory cohorts of graduate students are our main clues to work with.

  • The TV-series M*A*S*H began its run of many years in September 1972.
  • Andrew Abel, Jeff Frankel and Dick Startz, mentioned in the script, all entered the M.I.T. graduate economics program in September 1974, so the earliest they could have been mentioned would have been in the January 1975 show.
  • David Lilien belonged to the previous year’s cohort so he would have been around in 1975-1977.
  • I was in that cohort with Messrs. Abel, Frankel, and Startz, and I am honestly surprised that I do not remember this faculty skit at all. However I do remember well that the faculty, as well as our cohort, wrote and performed independent Wizard of Oz skits in 1976. So it appears that either 1975 or 1977 were likely years for the following skit.
  • Rudiger Dornbusch taught at the University of Chicago Graduate School of Business 1974-75 before coming to M.I.T. in 1975.

Solow’s authorship is firmly established in the prologue to the 1986 faculty skit, where it is written:

“…we were tempted to re-run some of the great Solow skits of the past. There was the 1974 Watergate Skit, in which Paul Colson Joskow testifies to Senator Sam Peltzman that he would run over his grandmother to get a t-statistic above two. There was the 1978 Star Wars skit [a coming attraction here at Economics in the Rear-View Mirror], in which Milton Vader and his minions capture the wookie Jerrybaca and hold him captive in the Chicago Money Workshop. And in the incredible 1973 [sic] MASH skit [below], Hawkeye Hall and Trapper Jerry Hausman find Radar Diamond and Hot Lips Friedlaender cavorting in the Chairman’s office…”

We can see how memory plays tricks even on professors, since there is really no way except in a perfect foresight world that in 1973 Robert Solow would have alluded to members of the cohort of 1974-75. 

The Synopsis below was printed on an unattached page and while it clearly leads into the M*A*S*H skit, I somewhat doubt that it was actually recited in performance. The idea of a faculty skit of graduate students trying to write a skit seems undeveloped. Still this synopsis’ characterization of our cohort’s skits as “a series of separate episodes in which they make fun of the idiosyncrasies of the faculty” fits the data well. Thus if forced to choose a single date for the following skit, I would probably go with 1977. 

_____________

Synopsis

It is Friday afternoon and the tenth year class still hasn’t thought of a good idea for a skit. A group including Able Andrew [Andrew Abel], Jacob Frankel [Jeffrey Frankel], “Skinny” Lilien [David Lilien], Dick Stops [Dick Startz]…, are meeting in desperation. Finally they decide that the best they can do is to have a series of separate episodes in which they make fun of the idiosyncrasies of the faculty.

  1. Marty Weitzman (Jeff Harris can do this perfectly. He will write his part).
  2. Jerry Hausman. Lecture to be given very fast. Stop after each point and grin.
  3. Frank Fisher. Obvious.
  4. Bob Hall. This character lectures with one toe on top of the other and his arms folded. Then he hops around the room in that position.
  5. Rudi Dornbusch. This depends on being able to do the accent.

And so on. At the end, someone says this isn’t a very good idea after all and a second skit, based on “mash” is tried.

_____________

Announcer: We are about to tell you a heartwarming story that almost nobody knows. It is the story of a devoted, selfless, kind, hardworking people who are yet charming, humorous, sexy, brilliant and lighthearted even while they tend the youthful victims of a heartless bloody War, the famous WOE or War on Error, perhaps more accurately called the War on Other People’s Error or WOOPE. The warm, sympathetic, lovable heroes of this story are the Doctors of the Massachusetts Economics Students Hospital or M.E.S.H.

As the scene opens, we observe the crusty but kindly commanding officer of MESH, Col. Brown [E. Cary Brown], looking at latest casualty lists.

BROWN: (broad smile, laughing, etc.) Able Andrew [Andrew Abel], flunked; Dick Stops [Dick Startz], flunked; Ray Hartman [Raymond S. Hartman], Ray Hartman, flunked, flunked. This is awful, hohoho. Here’s one who lost his Fellowship. Here’s one who lost both his Fellowships. War is hell.

(PAD [Peter Diamond?] comes in and puts sheet of paper on desk)

BROWN: (shouts) Radar.

PAD: Yessir.

BROWN: Where is that new duty roster for next month?

PAD: Just gave it to you, sir.

BROWN: Hmmm, I see Major Samuelson is doing the history of surgical thought. How far does he go?

PAD: Up to Marx’s transplantation problem.

BROWN: I suppose someone’s assigned to each ward: yes, someone for G-1, and for G-2, G-3, M-2, M-3—say how come nobody’s assigned to M-1?

PAD: Demand for M-1 has dropped off a lot lately.

BROWN: Oh, yes, another outbreak of Goldfeld’s Syndrome. How well I remember the first case I ever saw, back at old Fort Sam Brookings in the old days. Why, boy, they had real cash balances in the Regular Army.

(Enter Hawkeye Hall [Robert Hall] and Trapper Jerry [Jerry Hausman].)

PAD: Hi Hawk, Hi Trapper. What’s up?

HH: Up, down, what difference does it make. It’s all a random walk anyway. I’ve got kids out there dying of underconsumption and all I can tell them is that their consumption is way below trend, but there’s no reason to expect it ever to get back to trend. Properly discounted, they’re already dead.

BROWN: Couldn’t you just amputate a bit of the life cycle—maybe they’re just suffering from Modigliani’s Disease—you know the symptoms, compulsive talking, recurrent forecasting errors, complete absence of bequests—why I remember back at old Fort Sam Brookings…

HH: Modigliani’s Disease? There’s no such thing. That stuff all went out with, with, with econometrics. Nowadays it’s all up down up down. Well, maybe a totally unexpected amputation might work. But only once. No, it’s hard telling those innocent soldiers that everything they were taught up until yesterday, even by me, is all wrong.

TJ: I think the smart ones realize that tomorrow it will appear that what we’re telling them today is wrong too. That’s rational expectations for you. Once you get on it’s hard to get off. I hear that over at the Illinois Economics Graduates Hospital or IEGH the surgeons have stopped doing econometric operations altogether. They’d rather let everybody die at the natural rate. One of our enlisted men, Olivier Lawrence [Olivier Blanchard?], is supposed to have suggested that at least time was an exogenous variable, so maybe you could do a few econometric operations. But Major Lucas [Robert Lucas], the executive surgeon at IECH, told him that only the deviations of time from trend can possibly matter and that’s…

PAD: Up down up down….

TJ: Thanks, Radar. According to Lucas’s method of surgery, all coefficients are either zero or one—dealer’s choice.

(Enter HotLips [Anne Friedlander] and Major Frank [Frank Fisher])

HL: Colonel, I’d like to have this crumb courtmartialed. He almost killed one of our students by disconnecting the MPS transfusion from the main computer. He said that if anyone ever put the peripheral equipment and the main-frame in the same market, he’d never be able to go near Yorktown Heights again. Hark! Do I hear a chopper?

PAD: No, Major HotLips it’s just one of the students with Modigliani’s disease.

HL: Radar, just stay in the supply room and out of the women’s shower.

HH and TJ: Up down up down.

HL: Colonel you’ve got to do something about these clods. And as for Frank here, when I think…what did I ever see in him?

F: Well, I’m a little hard not to see. But I’ll get even with you all. I got out of econometric surgery while there were still exogenous variables. Anti-anti-trust is where the money is now. You’ll regret your temper, HotLips. When these creeps are starving and broke, unemployed econometric surgeons, doing illegal surprise amputations for peanuts, I will be dancing in Yorktown Heights, testifying in the fifty-third year of the IBM case, on one side or the other. Colonel, if you can’t have some discipline in this MESH, I’m going to file a complaint with Judge Edelstein.

BROWN: I think I’ll apply for reassignment to old Fort Sam Brookings.

(Enter Corporal Klingenbusch, dressed in his usual.)

TJ: Gorgeous outfit you’ve got there Klingenbusch [Rudiger Dornbusch?].

K: Victory at last. I’ll be in old Fort Sam Brookings before you. It worked. At last I get to leave this nut house. I’ve been discharged. I’m going home to Japan.

HH: How did you work it Klingenbusch?

K: Easy. I didn’t satisfy the transvestality condition.

ANNOUNCER: And so we leave the dedicated Doctors of MESH. Perhaps you are wondering why none of the beloved students, for whom MESH lives and breathes, actually appeared in this story. The reason is simple and typical, not to say rationally expected. There was no space.

[Handwritten note at the end of the typed text:]

J. Harris (appears): My name is Jeff Harris. I am a chest-cutter by profession. This is the most ridiculous hospital I have ever seen. It makes the University of Pennsylvania look like heaven. I wouldn’t trust these people to do veterinary surgery although, in fact, I think some of them may be veterinarians, at best.

 

Source: Duke University. David M. Rubenstein Rare Book and Manuscript Library, Economists’ Papers Archive. Papers of Robert M. Solow, Box 83.

Image Source: Robert Solow in his office, MIT Museum Website.

Categories
Funny Business M.I.T.

M.I.T. “The Greatest Faculty Skit Ever Written”, ca. 1974

 

The following faculty skit comes from the M.I.T. department of economics when memories of the Senate Watergate Hearings (summer of 1973) were still very fresh in everyone’s memories.  This skit was likely presented at the 1973-74 annual skit party.  Frederick Mishkin received his B.S. in 1973 from M.I.T. and his first year as a graduate student at M.I.T. was in 1973-74. Other graduate students named were either second year or thesis-writers.

I presume “E. Hausman Hunt” was a blend of the names of the MIT econometrician Jerry Hausman and the Watergate conspirator E. Howard Hunt.

“Bob Dean” was likely a blend of the names of Robert Hall (who taught the course 14.123) and Nixon’s special counsel John Dean (wife’s name Maureen).

“Paul Colson” might have been a blend of the names of Paul Joskow and Charles Colson, Nixon’s man for “dirty tricks” and who claimed he would have walked over his own grandmother to get Nixon reelected.

“F.” would appear with the remark about not understanding “goyim” to have been Frank Fisher.

Roger Backhouse graciously made his copy of this skit available for transcription. I have corrected many typos in the original text. If I ever identify the author, I shall update this post. 

__________________

The Greatest Faculty Skit Ever Written
(in 1 hour, 15 minutes)

F. This here meeting will now come to order. Let the minutes show that this is the 732nd meeting of the Special Subcommittee of the Econometrics [sic] Society investigating the notorious Westgate affair.

M1: Mr. Chairman, a point of personal privilege—

F. Yes, Mr. Solow.

M2: I’ve been out of town testifying for IBM in Tulsa for the last 7 months. Could you fill me in on what’s been happening?

F. On the night of June 20, 1972 several graduate students were apprehended breaking into Gary Becker’s office. It appeared that these students were after Prof. Becker’s manuscript on a theory of marriage. Several pieces of evidence point [to] the fact that these students were after Prof. Becker’s manuscript on a theory of marriage. Several pieces of evidence point [to] the fact that a well known Eastern economist (with initials PAS) may have funded this break-in for as yet unknown reasons. This committee has been called to investigate this matter.

M1Thank you Mr. Chairman.

F. Will the first witness step forward to testify?
Please state your name.

EHH   E. Hausman Hunt.

F. What have you been doing for [the] last 3 months?

EHH.  I’ve spent the last 3 months in Charles St. Jail polishing up my lecturing technique. If I could only speak a little faster during my lecture, just think how much more material I could cover.

F. Is it true that you were in charge of organizing the burglary of Becker’s office?

EHH. Yes; I used several graduate students from MIT: my first choices were Rick Kasten and Roger Gordon but we had to reject them since we were afraid they were too talkative. However I finally settled on Rick Mishkin and Glenn Loury; Mishkin because he was so calm and organized; and Louryto comply with equal opportunities satisfy HEW.

F. Is it true that you write econometrics papers under a pseudonym?

EHH. Yes, I’ve just produced my 43rdpaper on the identification problem using the pseudonym “Franklin M. Fisher”

F. Well, I may be an old country bullfrog, but…
Next witness, please

(BH steps forward; Maureen sits in his lap; F. gives the eyebrows to the audience)

F. State your name, rank.

BD. I’m Bob Dean, special assistant professor.

F. And whom do you assist?

BD. Prof. Paul Anthony Samuelson, BA, PhD, L.H.D, L.L.D, Litt.D. (hon), LSD.

F. Can you describe briefly your part in the Westgate affair?

BD. Prof Samuelson was working on a theory of marriage at the same time as Prof. Becker. He had just succeeded in developing the formal first order conditions for the optimal marriage (using the LeChatelier principle) when he discovered Prof Becker’s work. He asked me to arrange for him to get a look at Prof. Becker’s manuscript.

F. Isn’t it true that you got married on or about this same period?

BD. Yes, that was also part of Prof Samuelson’s theory of marriage. He had also arranged for an empirical part of this work; after deriving the first order conditions, he hired a computer programmer to search for the optimal marriage in the department. Maureen and I were chosen. Pressured by Samuelson we agreed to get married.

F. How did you afford your honeymoon on an assistant prof’s salary?

BD. I borrowed some money from a departmental slush fund.

F. What is the source of this slush fund?

BD. It was accumulated for the sale of lecture notes from 14.123; why else do you think we sell those notes?

F. (eyebrows) I see. When did you again meet with Prof Samuelson?

BD. March 21, 1973;

F. What happened at that meeting?

BD. We received instructions from Prof. Samuelson on how to behave on our honeymoon. We asked Prof. Samuelson if it would be OK if our marginal utilities were not equalized; he said that “it would be wrong.”

F. Why was Prof Samuelson taking such an interest in your honeymoon?

BD. He wanted to be sure that his theory involved only “empirically refutable propositions”. He was also worried that we might behave too formally.

F. I don’t think I’ll ever understand you goyim.

F. Next witness. Please state your name.

PC. Paul Colson.

F. For what purpose were you hired by Prof Samuelson?

PC. I was supposed to ghost write the empirical part of the paper.

F. It says here (looking at notes) that you are one of the most dedicated of the applied econometricians?

PC. Yes, I’d run over my own grandmother to get a t-statistic greater than 2.

F. What were Prof. Samuelson’s instructions?

PC. As you know, Prof Samuelson was worried that Bob and Maureen Dean might be too formal on their honeymoon; I was sent along to collect data on their performance.

F. What happened? (eyebrows)

PC. As I peered into their motel room, I saw Bob come out of the bathroom dressed in pajamas and say to Maureen: I offer my honor. Maureen came out in her nightgown and replied I honor your offer.

F. (eyebrows) What happened next?

PC. From then on it was just honor and offer all night.

F. What went wrong?

PC. We forgot to check the second-order conditions and it was only a saddle point.

 

Source:  Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Papers of Robert M. Solow. Box 83.

Image Source: Photo from U.S. Senate Watergate hearings. From left to right: minority counsel Fred Thompson, ranking member Howard Baker, and chair Sam Ervin of the Senate Watergate Committee.